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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission Registrant; State of Incorporation; IRS Employer
File Number Address; and Telephone Number Identification No.
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1-9513 CMS ENERGY CORPORATION 38-2726431
(A Michigan Corporation)
Fairlane Plaza South, Suite 1100
330 Town Center Drive, Dearborn, Michigan 48126
(313) 436-9200
1-5611 CONSUMERS ENERGY COMPANY 38-0442310
(A Michigan Corporation)
One Energy Plaza, Jackson, Michigan 49201
(517) 788-0550
1-2921 PANHANDLE EASTERN PIPE LINE COMPANY 44-0382470
(A Delaware Corporation)
5444 Westheimer Road, P.O. Box 4967, Houston, Texas 77210-4967
(713) 989-7000
Indicate by check mark whether the Registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes |X| No [ ]
Indicate by check mark whether the Registrants are accelerated filers (as
defined in Rule 12b-2 of the Exchange Act).
CMS ENERGY CORPORATION: Yes [X] No [ ]
CONSUMERS ENERGY COMPANY AND PANHANDLE EASTERN PIPE LINE COMPANY: Yes [ ] No [X]
Panhandle Eastern Pipe Line Company meets the conditions set forth in General
Instructions H(1)(a) and (b) of Form 10-Q and is therefore filing this Form 10-Q
with the reduced disclosure format. In accordance with Instruction H, Part I,
Item 2 has been reduced and Part II, Items 2, 3 and 4 have been omitted.
Number of shares outstanding of each of the issuer's classes of common stock at
May 1, 2003:
CMS ENERGY CORPORATION:
CMS Energy Common Stock, $.01 par value 144,096,264
CONSUMERS ENERGY COMPANY, $10 par value, privately held by CMS Energy 84,108,789
PANHANDLE EASTERN PIPE LINE COMPANY, no par value, indirectly privately held by CMS Energy 1,000
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CMS ENERGY CORPORATION
AND
CONSUMERS ENERGY COMPANY
AND
PANHANDLE EASTERN PIPE LINE COMPANY
QUARTERLY REPORTS ON FORM 10-Q TO THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
FOR THE QUARTER ENDED MARCH 31, 2003
This combined Form 10-Q is separately filed by each of CMS Energy Corporation,
Consumers Energy Company and Panhandle Eastern Pipe Line Company. Information
contained herein relating to each individual registrant is filed by such
registrant on its own behalf. Accordingly, except for their respective
subsidiaries, Consumers Energy Company and Panhandle Eastern Pipe Line Company
make no representation as to information relating to any other companies
affiliated with CMS Energy Corporation.
TABLE OF CONTENTS
Page
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Glossary.................................................................................................. 4
PART I: FINANCIAL INFORMATION
CMS Energy Corporation
Management's Discussion and Analysis
Critical Accounting Policies.................................................................... CMS - 1
Results of Operations........................................................................... CMS - 12
Capital Resources and Liquidity................................................................. CMS - 14
Outlook......................................................................................... CMS - 19
Other Matters................................................................................... CMS - 30
Consolidated Financial Statements
Consolidated Statements of Income............................................................... CMS - 32
Consolidated Statements of Cash Flows........................................................... CMS - 34
Consolidated Balance Sheets..................................................................... CMS - 36
Consolidated Statements of Common Stockholders' Equity.......................................... CMS - 38
Condensed Notes to Consolidated Financial Statements:
1. Corporate Structure and Summary of Significant Accounting Policies......................... CMS - 39
2. Asset Sales and Restructuring.............................................................. CMS - 42
3. Discontinued Operations.................................................................... CMS - 44
4. Uncertainties.............................................................................. CMS - 46
5. Short-Term and Long-Term Financings and Capitalization..................................... CMS - 60
6. Earnings Per Share......................................................................... CMS - 66
7. Risk Management Activities and Financial Instruments....................................... CMS - 66
8. Equity Method Investments.................................................................. CMS - 70
9. Reportable Segments........................................................................ CMS - 71
10. Adoption of New Accounting Standards....................................................... CMS - 72
2
TABLE OF CONTENTS
(CONTINUED)
Page
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Consumers Energy Company
Management's Discussion and Analysis
Forward-Looking Statements and Risk Factors..................................................... CE - 1
Critical Accounting Policies.................................................................... CE - 1
Results of Operations........................................................................... CE - 9
Capital Resources and Liquidity................................................................. CE - 10
Outlook......................................................................................... CE - 13
Other Matters................................................................................... CE - 22
Consolidated Financial Statements
Consolidated Statements of Income............................................................... CE - 24
Consolidated Statements of Cash Flows........................................................... CE - 25
Consolidated Balance Sheets..................................................................... CE - 26
Consolidated Statements of Common Stockholder's Equity.......................................... CE - 28
Condensed Notes to Consolidated Financial Statements:
1. Corporate Structure and Summary of Significant Accounting Policies.......................... CE - 31
2. Uncertainties............................................................................... CE - 33
3. Financings and Capitalization............................................................... CE - 45
4. Financial and Derivative Instruments........................................................ CE - 47
5. Implementation of New Accounting Standards.................................................. CE - 50
Panhandle Eastern Pipe Line Company
Management's Discussion and Analysis
Sale of Panhandle............................................................................... PE - 1
Forward-Looking Statements...................................................................... PE - 1
Critical Accounting Policies.................................................................... PE - 2
Results of Operations........................................................................... PE - 4
Outlook........................................................................................ PE - 6
Liquidity....................................................................................... PE - 7
Other Matters................................................................................... PE - 11
Consolidated Financial Statements
Consolidated Statements of Operations........................................................... PE - 13
Consolidated Statements of Cash Flows........................................................... PE - 14
Consolidated Balance Sheets..................................................................... PE - 15
Consolidated Statements of Common Stockholder's Equity and Comprehensive Income................. PE - 17
Condensed Notes to Consolidated Financial Statements:
1. Corporate Structure......................................................................... PE - 18
2. Summary of Significant Accounting Policies and Other Matters................................ PE - 19
3. Regulatory Matters.......................................................................... PE - 22
4. Goodwill Impairment......................................................................... PE - 24
5. Related Party Transactions.................................................................. PE - 24
6. Debt Rating Downgrades ..................................................................... PE - 26
7. Commitments and Contingencies............................................................... PE - 26
Quantitative and Qualitative Disclosures about Market Risk................................................ CO - 1
PART II: OTHER INFORMATION
Item 1. Legal Proceedings............................................................................ CO - 1
Item 5. Other Information............................................................................ CO - 2
Item 6. Exhibits and Reports on Form 8-K............................................................. CO - 3
Signatures........................................................................................... CO - 5
3
GLOSSARY
Certain terms used in the text and financial statements are defined below.
ALJ....................................... Administrative Law Judge
APB....................................... Accounting Principles Board
APB Opinion No. 18........................ APB Opinion No. 18, "The Equity Method of Accounting for Investments
in Common Stock"
APB Opinion No. 20........................ APB Opinion No. 20, "Accounting Changes"
APB Opinion No. 30........................ APB Opinion No. 30, "Reporting Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business"
Accumulated Benefit Obligation............ The liabilities of a pension plan based on service and pay to date.
This differs from the Projected Benefit Obligation that is typically
disclosed in that it does not reflect expected future salary increases
Alliance.................................. Alliance Regional Transmission Organization
ARO....................................... Asset Retirement Obligation
bcf....................................... Billion cubic feet
BG LNG Services........................... BG LNG Services, Inc., a subsidiary of BG Group of the United Kingdom
Big Rock.................................. Big Rock Point nuclear power plant, owned by Consumers
Board of Directors........................ Board of Directors of CMS Energy
Centennial................................ Centennial Pipeline, LLC, in which Panhandle owns a one-third interest
CEO....................................... Chief Executive Officer
CFO....................................... Chief Financial Officer
Clean Air Act............................. Federal Clean Air Act, as amended
CMS Capital............................... CMS Capital Corp., a subsidiary of Enterprises
CMS Electric and Gas...................... CMS Electric and Gas Company, a subsidiary of Enterprises
CMS Energy................................ CMS Energy Corporation, the parent of Consumers and Enterprises
CMS Energy Common Stock................... Common stock of CMS Energy, par value $.01 per share
CMS Gas Transmission...................... CMS Gas Transmission Company, a subsidiary of Enterprises
CMS Generation............................ CMS Generation Co., a subsidiary of Enterprises
CMS Holdings.............................. CMS Midland Holdings Company, a subsidiary of Consumers
CMS Midland............................... CMS Midland Inc., a subsidiary of Consumers
CMS MST................................... CMS Marketing, Services and Trading Company, a subsidiary of
Enterprises
CMS Oil and Gas .......................... CMS Oil and Gas Company, a subsidiary of Enterprises
CMS Viron................................. CMS Viron Energy Services, a wholly owned subsidiary of CMS MST
Consumers................................. Consumers Energy Company, a subsidiary of CMS Energy
Court of Appeals.......................... Michigan Court of Appeals
Customer Choice Act....................... Customer Choice and Electricity Reliability Act, a Michigan statute
enacted in June 2000 that allows all retail customers choice of
alternative electric suppliers as of January 1, 2002, provides for full
recovery of net stranded costs and implementation costs, establishes a
five percent reduction in residential rates, establishes rate freeze and
rate cap, and allows for Securitization
Detroit Edison............................ The Detroit Edison Company, a non-affiliated company
DIG....................................... Dearborn Industrial Generation, L.L.C., a wholly owned subsidiary of
CMS Generation
DOE....................................... U.S. Department of Energy
4
Dow....................................... The Dow Chemical Company, a non-affiliated company
Duke Energy............................... Duke Energy Corporation, a non-affiliated company
EITF...................................... Emerging Issues Task Force
Enterprises............................... CMS Enterprises Company, a subsidiary of CMS Energy
EPA....................................... U. S. Environmental Protection Agency
EPS....................................... Earnings per share
ERISA..................................... Employee Retirement Income Security Act
Ernst & Young............................. Ernst & Young LLP
FASB...................................... Financial Accounting Standards Board
FERC...................................... Federal Energy Regulatory Commission
FMB....................................... First Mortgage Bonds
FMLP...................................... First Midland Limited Partnership, a partnership that holds a lessor
interest in the MCV facility
FTC....................................... Federal Trade Commission
GCR....................................... Gas cost recovery
GTNs...................................... CMS Energy General Term Notes(R), $200 million Series D, $400 million
Series E and $300 million Series F
Guardian ................................. Guardian Pipeline, LLC, in which Panhandle owns a one-third interest
Health Care Plan.......................... The medical, dental, and prescription drug programs offered to
eligible employees of Panhandle, Consumers and CMS Energy
INGAA..................................... Interstate Natural Gas Association of America
IPP....................................... Independent Power Producer
Jorf Lasfar............................... The 1,356 MW coal-fueled power plant in Morocco, jointly owned by CMS
Generation and ABB Energy Venture, Inc.
kWh....................................... Kilowatt-hour
LIBOR..................................... London Inter-Bank Offered Rate
Loy Yang.................................. The 2,000 MW brown coal fueled Loy Yang A power plant and an
associated coal mine in Victoria, Australia, in which CMS Generation
holds a 50 percent ownership interest
LNG....................................... Liquefied natural gas
LNG Holdings.............................. CMS Trunkline LNG Holdings, LLC, jointly owned by CMS Panhandle
Holdings, LLC and Dekatherm Investor Trust
Ludington................................. Ludington pumped storage plant, jointly owned by Consumers and Detroit
Edison
MACT...................................... Maximum Achievable Control Technology
MAPL...................................... Marathon Ashland Petroleum, LLC, partner in Centennial
mcf....................................... Thousand cubic feet
MCV Facility.............................. A natural gas-fueled, combined-cycle cogeneration facility operated by
the MCV Partnership
MCV Partnership........................... Midland Cogeneration Venture Limited Partnership in which Consumers
has a 49 percent interest through CMS Midland
MD&A...................................... Management's Discussion and Analysis
METC...................................... Michigan Electric Transmission Company, formally a subsidiary of
Consumers Energy and now an indirect subsidiary of Trans-Elect
Michigan Gas Storage...................... Michigan Gas Storage Company, a subsidiary of Consumers
MISO...................................... Midwest Independent System Operator
5
SFAS No. 5................................ SFAS No. 5, "Accounting for Contingencies"
SFAS No. 34............................... SFAS No. 34, "Capitalization of Interest Cost"
SFAS No. 52............................... SFAS No. 52, "Foreign Currency Translation"
SFAS No. 71............................... SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation"
SFAS No. 87............................... SFAS No. 87, "Employers' Accounting for Pensions"
SFAS No. 106.............................. SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions"
SFAS No. 115.............................. SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities"
SFAS No. 123.............................. SFAS No. 123, "Accounting for Stock-Based Compensation"
SFAS No. 133.............................. SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities, as amended and interpreted"
SFAS No. 142.............................. SFAS No. 142, "Goodwill and Other Intangible Assets"
SFAS No. 143.............................. SFAS No. 143, "Accounting for Asset Retirement Obligations"
SFAS No. 144.............................. SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets"
SFAS No. 145.............................. SFAS No. 145, "Recission of FASB statements No. 4, 44, and 64, Amendment
of FASB statement No. 13, and Technical Corrections"
SFAS No. 146.............................. SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal
Activities"
SFAS No. 148.............................. SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
and Disclosure"
SIPS...................................... State Implementation Plans
Southern Union............................ Southern Union Company, a non-affliated company
Special Committee......................... A special committee of independent directors, established by CMS
Energy's Board of Directors, to investigate matters surrounding
round-trip trading
Stranded Costs............................ Costs incurred by utilities in order to serve their customers in a
regulated monopoly environment, which may not be recoverable in a
competitive environment because of customers leaving their systems and
ceasing to pay for their costs. These costs could include owned and
purchased generation and regulatory assets
Superfund................................. Comprehensive Environmental Response, Compensation and Liability Act
TEPPCO.................................... TE Products PipeLine Company, Limited Partnership, partner in Centennial
Trunkline ................................ Trunkline Gas Company, LLC, a subsidiary of CMS Panhandle Holdings, LLC
Trunkline LNG ............................ Trunkline LNG Company, LLC, a subsidiary of LNG Holdings, LLC
Trust Preferred Securities................ Securities representing an undivided beneficial interest in the assets
of statutory business trusts, the interests of which have a preference
with respect to certain trust distributions over the interests of
either CMS Energy or Consumers, as applicable, as owner of the common
beneficial interests of the trusts
VEBA Trusts............................... VEBA (voluntary employees' beneficiary association) Trusts are
tax-exempt accounts established to specifically set aside employer
contributed assets to pay for future expenses of the OPEB plan
7
CMS Energy Corporation
CMS ENERGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
CMS Energy is the parent holding company of Consumers and Enterprises. Consumers
is a combination electric and gas utility company serving Michigan's Lower
Peninsula. Enterprises, through subsidiaries, including Panhandle and its
subsidiaries, is engaged in several domestic and international diversified
energy businesses including: natural gas transmission, storage and processing;
independent power production; and energy marketing, services and trading.
The MD&A of this Form 10-Q should be read along with the MD&A and other parts of
CMS Energy's 2002 Form 10-K. This MD&A refers to, and in some sections
specifically incorporates by reference, CMS Energy's Condensed Notes to
Consolidated Financial Statements and should be read in conjunction with such
Consolidated Financial Statements and Notes. This Form 10-Q and other written
and oral statements that CMS Energy may make contain forward-looking statements
as defined by the Private Securities Litigation Reform Act of 1995. CMS Energy's
intentions with the use of the words "anticipates," "believes," "estimates,"
"expects," "intends," and "plans," and variations of such words and similar
expressions, are solely to identify forward-looking statements that involve risk
and uncertainty. These forward-looking statements are subject to various factors
that could cause CMS Energy's actual results to differ materially from the
results anticipated in such statements. CMS Energy has no obligation to update
or revise forward-looking statements regardless of whether new information,
future events or any other factors affect the information contained in such
statements. CMS Energy does, however, discuss certain risk factors,
uncertainties and assumptions in this MD&A and in Item 1 of the 2002 Form 10-K
in the section entitled "Forward-Looking Statements Cautionary Factors and
Uncertainties" and in various public filings it periodically makes with the SEC.
CMS Energy designed this discussion of potential risks and uncertainties, which
is by no means comprehensive, to highlight important factors that may impact CMS
Energy's business and financial outlook. This Form 10-Q also describes material
contingencies in CMS Energy's Condensed Notes to Consolidated Financial
Statements, and CMS Energy encourages its readers to review these Notes.
CRITICAL ACCOUNTING POLICIES
CMS Energy's consolidated financial statements are based on the application of
accounting principles generally accepted in the United States. The application
of these principles often requires management to make certain judgments,
assumptions and estimates that may result in different financial presentations.
CMS Energy believes that certain accounting principles are critical in terms of
understanding its consolidated financial statements. These principles include
the use of estimates in accounting for contingencies and long-lived assets,
accounting for derivatives and financial instruments, mark-to-market accounting,
international operations and foreign currency, regulatory accounting, and
pension and postretirement benefits.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make judgments,
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Certain accounting principles require subjective and
complex judgments used in the preparation of financial statements. Accordingly,
a different financial presentation could result depending on the judgment,
estimates or assumptions that are used. Such estimates and assumptions include,
but are not specifically limited to: depreciation, amortization, interest rates,
discount rates, currency exchange rates, future commodity prices, mark-to-market
valuations, investment returns, impact of new accounting standards,
international economic policy, future costs associated with long-term
contractual obligations, future compliance costs associated with
CMS-1
CMS Energy Corporation
environmental regulations and continuing creditworthiness of counterparties.
Actual results could differ materially from those estimates.
Periodically, in accordance with SFAS No. 144 and APB Opinion No. 18, long-lived
assets and equity method investments of CMS Energy and its subsidiaries are
evaluated to determine whether conditions, other than those of a temporary
nature, indicate that the carrying value of an asset may not be recoverable.
Management bases its evaluation on impairment indicators such as the nature of
the assets, future economic benefits, domestic and foreign state and federal
regulatory and political environments, historical or future profitability
measurements, as well as other external market conditions or factors that may be
present. If such indicators are present or other factors exist that indicate
that the carrying value of the asset may not be recoverable, CMS Energy
determines whether impairment has occurred through the use of an undiscounted
cash flow analysis of assets at the lowest level for which identifiable cash
flows exist. If impairment, other than of a temporary nature, has occurred, CMS
Energy recognizes a loss for the difference between the carrying value and the
estimated fair value of the asset. The fair value of the asset is measured using
discounted cash flow analysis or other valuation techniques. The analysis of
each long-lived asset is unique and requires management to use certain estimates
and assumptions that are deemed prudent and reasonable for a particular set of
circumstances. Of CMS Energy's total assets, valued at $14.3 billion at March
31, 2003, approximately 45 to 50 percent represent the carrying value of
long-lived assets and equity method investments that are subject to this type of
analysis. If future market, political or regulatory conditions warrant, CMS
Energy and its subsidiaries may be subject to write-downs in future periods.
Conversely, if market, political or regulatory conditions improve, accounting
standards prohibit the reversal of previous write-downs.
CMS Energy has recently recorded write-downs of non-strategic or
under-performing long-lived assets as a result of implementing a new strategic
direction. CMS Energy is pursuing the sale of all of these non-strategic and
under-performing assets, including some assets that were not determined to be
impaired. Upon the sale of these assets, the proceeds realized may be materially
different from the remaining carrying value of these assets. Even though these
assets have been identified for sale, management cannot predict when, nor make
any assurances that, these asset sales will occur, or the amount of cash or the
value of consideration to be received.
Similarly, the recording of estimated liabilities for contingent losses within
the financial statements is guided by the principles in SFAS No. 5 that require
a company to record estimated liabilities in the financial statements when it is
probable that a loss will be incurred in the future as a result of a current
event, and when the amount can be reasonably estimated.
ELECTRIC ENVIRONMENTAL ESTIMATES: Consumers is subject to costly and
increasingly stringent environmental regulations. Consumers expects to incur
significant costs for future environmental compliance, especially compliance
with clean air laws.
The EPA has issued regulations regarding nitrogen oxide emissions from certain
generators, including some of Consumers' electric generating facilities. These
regulations require Consumers to make significant capital expenditures estimated
to be $770 million. As of March 31, 2003, Consumers has incurred $420 million in
capital expenditures to comply with these regulations and anticipates that the
remaining capital expenditures will be incurred between 2003 and 2009.
Additionally, Consumers expects to supplement its compliance plan with the
purchase of nitrogen oxide emissions credits in the years 2005 through 2008. The
cost of these credits based on the current market is estimated to average $6
million per year; however, the market for nitrogen oxide emissions credits and
their cost can change significantly. At some point, if new environmental
standards become effective, Consumers may need additional capital expenditures
to comply with the standards. For further information, see Note 4,
Uncertainties, "Consumers' Electric Utility Contingencies - Electric
Environmental Matters."
CMS-2
CMS Energy Corporation
GAS ENVIRONMENTAL ESTIMATES: Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will incur investigation
and remedial action costs at a number of sites. Consumers estimates the costs
for 23 former manufactured gas plant sites will be between $82 million and $113
million, using the Gas Research Institute-Manufactured Gas Plant Probabilistic
Cost Model. These estimates are based on discounted 2001 costs and follow EPA
recommended use of discount rates between three and seven percent. Consumers
expects to recover a significant portion of these costs through MPSC-approved
rates charged to its customers. Any significant change in assumptions, such as
remediation techniques, nature and extent of contamination, and legal and
regulatory requirements, could change the remedial action costs for the sites.
For further information see Note 4, Uncertainties, "Consumers' Gas Utility
Contingencies - Gas Environmental Matters."
MCV UNDERRECOVERIES: The MCV Partnership, which leases and operates the MCV
Facility, contracted to sell electricity to Consumers for a 35-year period
beginning in 1990 and to supply electricity and steam to Dow. Consumers, through
two wholly owned subsidiaries, holds a 49 percent partnership interest in the
MCV Partnership, and a 35 percent lessor interest in the MCV Facility.
Consumers' annual obligation to purchase capacity from the MCV Partnership is
1,240 MW through the term of the PPA ending in 2025. The PPA requires Consumers
to pay, based on the MCV Facility's availability, a levelized average capacity
charge of 3.77 cents per kWh and a fixed energy charge, and also to pay a
variable energy charge based primarily on Consumers' average cost of coal
consumed for all kWh delivered. Consumers has not been allowed full recovery of
the capacity and fixed energy charges in rates. After September 2007, the PPA's
regulatory out terms obligate Consumers to pay the MCV Partnership only those
capacity and energy charges that the MPSC has authorized for recovery from
electric customers.
In 1992, Consumers recognized a loss and established a PPA liability for the
present value of the estimated future underrecoveries of power supply costs
under the PPA based on MPSC cost recovery orders. Primarily as a result of the
MCV Facility's actual availability being greater than management's original
estimates, the PPA liability has been reduced at a faster rate than originally
anticipated. At March 31, 2003 and 2002 the remaining after-tax present value of
the estimated future PPA liability associated with the loss totaled $30 million
and $46 million, respectively. The PPA liability is expected to be depleted in
late 2004.
In March 1999, Consumers and the MCV Partnership reached a settlement agreement
effective January 1, 1999, that addressed, among other things, the ability of
the MCV Partnership to count modifications increasing the capacity of the
existing MCV Facility for purposes of computing the availability of contract
capacity under the PPA for billing purposes. That settlement agreement capped
payments made on the basis of availability that may be billed by the MCV
Partnership at a maximum 98.5 percent availability level.
When Consumers returns, as expected, to unfrozen rates beginning in 2004,
Consumers will recover from customers capacity and fixed energy charges on the
basis of availability, to the extent that availability does not exceed 88.7
percent availability established in previous MPSC orders. For capacity and
energy payments billed by the MCV Partnership after September 15, 2007, and not
recovered from customers, Consumers would expect to claim a regulatory out under
the PPA. The regulatory out provision relieves Consumers of the obligation to
pay more for capacity and energy payments than the MPSC allows Consumers to
collect from its customers. Consumers estimates that 51 percent of the actual
cash underrecoveries for the years 2003 and 2004 will be charged to the PPA
liability, with the remaining portion charged to operating expense as a result
of Consumers' 49 percent ownership in the MCV Partnership. All cash
underrecoveries will be expensed directly to income once the PPA liability is
depleted. If the MCV Facility's generating availability remains at the maximum
98.5 percent level during the next five years, Consumers' after-tax cash
underrecoveries associated with the PPA could be as follows:
CMS-3
CMS Energy Corporation
In Millions
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2003 2004 2005 2006 2007
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Estimated cash underrecoveries at 98.5%, net of tax $37 $36 $36 $36 $25
Amount to be charged to operating expense, net of tax $18 $18 36 $36 $25
Amount to be charged to PPA liability, net of tax $19 $18 $ - $ - $ -
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In February 1998, the MCV Partnership appealed the January 1998 and February
1998 MPSC orders related to electric utility restructuring. At the same time,
MCV Partnership filed suit in the United States District Court in Grand Rapids
seeking a declaration that the MPSC's failure to provide Consumers and MCV
Partnership a certain source of recovery of capacity payments after 2007
deprived MCV Partnership of its rights under the Public Utilities Regulatory
Policies Act of 1978. In July 1999, the District Court granted MCV Partnership's
motion for summary judgment. The Court permanently prohibited enforcement of the
restructuring orders in any manner that denies any utility the ability to
recover amounts paid to qualifying facilities such as the MCV Facility or that
precludes the MCV Partnership from recovering the avoided cost rate. The MPSC
appealed the Court's order to the 6th Circuit Court of Appeals in Cincinnati. In
June 2001, the 6th Circuit overturned the lower court's order and dismissed the
case against the MPSC. The appellate court determined that the case was
premature and concluded that the qualifying facilities needed to wait until 2008
for an actual factual record to develop before bringing claims against the MPSC
in federal court.
For further information see Note 4, Uncertainties, "Other Consumers' Electric
Utility Uncertainties - The Midland Cogeneration Venture."
ACCOUNTING FOR DERIVATIVE AND FINANCIAL INSTRUMENTS AND MARKET RISK INFORMATION
DERIVATIVE INSTRUMENTS: CMS Energy uses the criteria in SFAS No. 133, as amended
and interpreted, to determine if certain contracts must be accounted for as
derivative instruments. The rules for determining whether a contract meets the
criteria for derivative accounting are numerous and complex. As a result,
significant judgment is required to determine whether a contract requires
derivative accounting, and similar contracts can sometimes be accounted for
differently.
The types of contracts CMS Energy currently classifies as derivative instruments
are interest rate swaps, foreign currency exchange contracts, certain electric
call options, fixed priced weather-based gas supply call options, fixed price
gas supply put options, gas futures, and gas and power swaps and forward
purchases and sales. CMS Energy does not account for electric capacity and
certain energy contracts, gas supply contracts, coal and nuclear fuel supply
contracts, or purchase orders for numerous supply items as derivatives.
Certain of Consumers' electric capacity and energy contracts are not derivatives
due to the lack of an active energy market in the state of Michigan, as defined
by SFAS No. 133, and the transportation cost to deliver the power under the
contracts to the closest active energy market at the Cinergy hub in Ohio. If a
market develops in the future, Consumers may be required to account for these
contracts as derivatives. The mark-to-market impact on earnings related to these
contracts, particularly related to the PPA, could be material to the financial
statements.
If a contract is accounted for as a derivative instrument, it is recorded in the
financial statements as an asset or a liability, at the fair value of the
contract. Any difference between the recorded book value and the fair value is
reported either in earnings or other comprehensive income, depending on certain
qualifying criteria. The recorded fair value of the contract is then adjusted
quarterly to reflect any change in the market value of the contract.
CMS-4
CMS Energy Corporation
In order to determine the fair value of contracts that are accounted for as
derivative instruments, CMS Energy uses a combination of quoted market prices
and mathematical models. Option models require various inputs, including forward
prices, volatilities, interest rates and exercise periods. Changes in forward
prices or volatilities could significantly change the calculated fair value of
the option contracts. The models used by CMS Energy have been tested against
market quotes to ensure consistency between model outputs and market quotes. At
March 31, 2003, CMS Energy assumed a market-based interest rate of 4.5 percent
and a volatility rate of 107.5 percent in calculating the fair value of its
electric call options.
In order for derivative instruments to qualify for hedge accounting under SFAS
No. 133, the hedging relationship must be formally documented at inception and
be highly effective in achieving offsetting cash flows or offsetting changes in
fair value attributable to the risk being hedged. If hedging a forecasted
transaction, the forecasted transaction must be probable. If a derivative
instrument, used as a cash flow hedge, is terminated early because it is
probable that a forecasted transaction will not occur, any gain or loss as of
such date is immediately recognized in earnings. If a derivative instrument,
used as a cash flow hedge, is terminated early for other economic reasons, any
gain or loss as of the termination date is deferred and recorded when the
forecasted transaction affects earnings.
FINANCIAL INSTRUMENTS: CMS Energy accounts for its investments in debt and
equity securities in accordance with SFAS No. 115. As such, debt and equity
securities can be classified into one of three categories: held-to-maturity,
trading, or available-for-sale securities. CMS Energy's investments in equity
securities are classified as available-for-sale securities. They are reported at
fair value with any unrealized gains or losses resulting from changes in fair
value reported in equity as part of other comprehensive income and excluded from
earnings unless such changes in fair value are other than temporary. Unrealized
gains or losses resulting from changes in the fair value of Consumers' nuclear
decommissioning investments are reported as regulatory liabilities. The fair
value of these investments is determined from quoted market prices.
MARKET RISK INFORMATION: CMS Energy is exposed to market risks including, but
not limited to, changes in interest rates, commodity prices, currency exchange
rates, and equity security prices. CMS Energy's market risk, and activities
designed to minimize this risk, are subject to the direction of an executive
oversight committee consisting of designated members of senior management and a
risk committee, consisting of certain business unit managers. The risk
committee's role is to review the corporate commodity position and ensure that
net corporate exposures are within the economic risk tolerance levels
established by CMS Energy's Board of Directors. Established policies and
procedures are used to manage the risks associated with market fluctuations.
In accordance with SEC disclosure requirements, CMS Energy performs sensitivity
analyses to assess the potential loss in fair value, cash flows and earnings
based upon hypothetical 10 percent increases and decreases in market rates or
prices. Management does not believe that sensitivity analyses alone provide an
accurate or reliable method for monitoring and controlling risks. Therefore, CMS
Energy and its subsidiaries rely on the experience and judgment of senior
management and traders to revise strategies and adjust positions as they deem
necessary. Losses in excess of the amounts determined in the sensitivity
analyses could occur if market rates or prices exceed the 10 percent shift used
for the analyses.
INTEREST RATE RISK: CMS Energy is exposed to interest rate risk resulting from
the issuance of fixed-rate and variable-rate debt, including interest rate risk
associated with trust preferred securities, and from interest rate swap
agreements. CMS Energy uses a combination of these instruments to manage and
mitigate interest rate risk exposure when deemed appropriate, based upon market
conditions. These strategies attempt to provide and maintain a balance between
risk and the lowest cost of capital. At March 31, 2003, the carrying amounts of
long-term debt and trust preferred securities were $5.2 billion and $883
million, respectively, with
CMS-5
CMS Energy Corporation
corresponding fair values of $5.1 billion and $640 million, respectively. Based
on a sensitivity analysis at March 31, 2003, CMS Energy estimates that if market
interest rates average 10 percent higher or lower, earnings before income taxes
for the subsequent 12 months would decrease or increase by approximately $9
million. In addition, based on a 10 percent adverse shift in market interest
rates, CMS Energy would have an exposure of approximately $331 million to the
fair value of its long-term debt and trust preferred securities if it had to
refinance all of its long-term fixed-rate debt and trust preferred securities.
CMS Energy does not intend to refinance all of its long-term fixed-rate debt and
trust preferred securities and therefore, CMS Energy believes that any adverse
change in interest rates would not have a material effect on its consolidated
financial position as of March 31, 2003.
At March 31, 2003, the fair value of CMS Energy's floating to fixed interest
rate swaps with a notional amount of $294 million was negative $4 million, which
represents the amount CMS Energy would pay to settle. The swaps mature at
various times through 2006 and are designated as cash flow hedges for accounting
purposes.
COMMODITY PRICE RISK: CMS Energy is exposed to market fluctuations in the price
of natural gas, oil, electricity, coal, natural gas liquids and other
commodities. CMS Energy employs established policies and procedures to manage
these risks using various commodity derivatives, including futures contracts,
options and swaps (which require a net cash payment for the difference between a
fixed and variable price), for non-trading purposes. The prices of these energy
commodities can fluctuate because of, among other things, changes in the supply
of and demand for those commodities. To minimize adverse price changes, CMS
Energy also hedges certain inventory and purchases and sales contracts. Based on
a sensitivity analysis, CMS Energy estimates that if energy commodity prices
change by an average 10 percent, operating income for the subsequent nine
months would change by $2.2 million. These hypothetical 10 percent shifts in
quoted commodity prices would not have had a material impact on CMS Energy's
consolidated financial position or cash flows at March 31, 2003. The analysis
does not quantify short-term exposure to hypothetically adverse price
fluctuations in inventories or for commodity positions related to trading
activities.
Consumers enters into electric call options, fixed price gas supply contracts
containing embedded put options, fixed priced weather-based gas supply call
options and fixed priced gas supply put options. The electric call options are
used to protect against risk due to fluctuations in the market price of
electricity and to ensure a reliable source of capacity to meet customers'
electric needs. The gas supply contracts containing embedded put options, the
weather-based gas supply call options, and the gas supply put options are used
to purchase reasonably priced gas supply.
As of March 31, 2003 and 2002, the fair value based on quoted future market
prices of electricity-related call option and swap contracts was $10 million and
$19 million, respectively. At March 31, 2003 and 2002, assuming a hypothetical
10 percent adverse change in market prices, the potential reduction in fair
value associated with these contracts would be $2 million and $4 million
respectively. As of March 31, 2003 and 2002, Consumers had an asset of $28
million and $48 million, respectively, related to premiums incurred for electric
call option contracts. Consumers' maximum exposure associated with the call
option contracts is limited to the premiums incurred. As of March 31, 2003,
Consumers did not have any gas supply-related call or put option contracts. As
of March 31, 2002, the fair value based on quoted future market prices of gas
supply contracts containing embedded options was $4 million. At March 31, 2002,
a hypothetical 10 percent adverse change in market prices was immaterial.
CURRENCY EXCHANGE RISK: CMS Energy is exposed to currency exchange risk arising
from investments in foreign operations as well as various international projects
in which CMS Energy has an equity interest and which have debt denominated in
U.S. dollars. CMS Energy typically uses forward exchange contracts and other
risk mitigating instruments to hedge currency exchange rates. The impact of the
hedges on the investments in foreign operations is reflected in other
comprehensive income as a component of foreign currency translation adjustment.
For the three months ended March 31, 2003, there was no mark-to-market
CMS-6
CMS Energy Corporation
adjustment included in the total net foreign currency translation adjustment of
$13 million. At March 31, 2003, there were no foreign exchange hedges.
Therefore, a sensitivity analysis at March 31, 2003 would be immaterial.
EQUITY SECURITY PRICE RISK: CMS Energy and certain of its subsidiaries have
equity investments in companies in which they hold less than a 20 percent
interest. At March 31, 2003, a hypothetical 10 percent adverse shift in equity
securities prices would not have a material effect on CMS Energy's consolidated
financial position, results of operations or cash flows.
For a discussion of accounting policies related to derivative transactions, see
Note 7, Risk Management Activities and Financial Instruments, incorporated by
reference herein.
MARK-TO-MARKET ACCOUNTING
Through December 31, 2002, CMS MST's wholesale power and gas trading activities
were accounted for under the mark-to-market method of accounting. Effective,
January 1, 2003, EITF Issue No. 98-10 was rescinded by EITF Issue No. 02-03 and
as a result, only energy contracts that meet the definition of a derivative in
SFAS No. 133 can be carried at fair value. The impact of this change for CMS MST
was recognized as a cumulative effect of a change in accounting principle of
$(23) million, net of tax. See Note 10, Adoption of New Accounting Standards.
Under mark-to-market accounting, energy-trading contracts are reflected at fair
market value, net of reserves, with unrealized gains and losses recorded as an
asset or liability in the consolidated balance sheets. These assets and
liabilities are affected by the timing of settlements related to these
contracts, current-period changes from newly originated transactions and the
impact of price movements.
Changes in fair value are recognized as revenues in the consolidated statements
of income in the period in which the changes occur. Market prices used to value
outstanding financial instruments reflect management's consideration of, among
other things, closing exchange and over-the-counter quotations. In certain
contracts, long-term commitments may extend beyond the period in which market
quotations for such contracts are available and volumetric obligations may not
be defined. Mathematical models are developed to determine various inputs into
the fair value calculation including price, anticipated volumetric obligations
and other inputs that may be required to adequately address the determination of
fair value of the contracts. Realized cash returns on these commitments may
vary, either positively or negatively, from the results estimated through
application of the mathematical model. CMS Energy believes that its mathematical
models utilize state-of-the-art technology, pertinent industry data and prudent
discounting in order to forecast certain elongated pricing curves. Market prices
are adjusted to reflect the impact of liquidating the company's position in an
orderly manner over a reasonable period of time under present market conditions.
In connection with the market valuation of its energy commodity contracts, CMS
Energy maintains reserves for credit risks based on the financial condition of
counterparties. The creditworthiness of these counterparties will impact overall
exposure to credit risk; however, CMS Energy maintains credit policies that
management believes minimize overall credit risk with regard to its
counterparties. Determination of its counterparties' credit quality is based
upon a number of factors, including credit ratings, financial condition, and
collateral requirements. When trading terms permit, CMS Energy employs standard
agreements that allow for netting of positive and negative exposures associated
with a single counterparty. Based on these policies, its current exposures and
its credit reserves, CMS Energy does not anticipate a material adverse effect on
its financial position or results of operations as a result of counterparty
nonperformance.
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CMS Energy Corporation
The following tables provide a summary of the fair value of CMS Energy's energy
commodity contracts as of March 31, 2003.
In Millions
- -----------------------------------------------------------------------------------------------
Fair value of contracts outstanding as of December 31, 2002 $ 81
Fair value of new contracts when entered into during the period -
Implementation of EITF Issue No. 02-03 (a) (36)
Fair value of derivative contracts sold and received from asset sales (b) (30)
Changes in fair value attributable to changes in valuation techniques and assumptions -
Contracts realized or otherwise settled during the period (12)
Other changes in fair value (c) 4
- ----------------------------------------------------------------------------------------------
Fair value of contracts outstanding as of March 31, 2003 $ 7
==============================================================================================
(a) Reflects the removal of contracts that do not qualify as
derivatives under SFAS No. 133 as of January 1, 2003.
(b) Reflects $(60) million of price risk management assets sold and
$30 million of price risk management assets received related to
the sales of the gas and power books.
(c) Reflects changes in price and net increase/(decrease) in position
size of forward positions as well as changes to mark-to-market
and credit reserves.
Fair Value of Contracts at March 31, 2003 In Millions
- ------------------------------------------------------------------------------------------------------
Total Maturity(in years)
Source of Fair Value Fair Value Less than 1 1 to 3 4 to 5 Greater than 5
- ------------------------------------------------------------------------------------------------------
Prices actively quoted $ (2) $ (2) $ - $ - $ -
Prices based on models and
other valuation methods 9 4 4 1 -
- ------------------------------------------------------------------------------------------------------
Total $ 7 $ 2 $ 4 $ 1 $ -
======================================================================================================
INTERNATIONAL OPERATIONS AND FOREIGN CURRENCY
CMS Energy, through its subsidiaries and affiliates, has acquired investments in
energy-related projects throughout the world. As a result of a change in
business strategy, over the last two years, CMS Energy has been divesting its
non-strategic or under-performing foreign investments.
BALANCE SHEET: CMS Energy's subsidiaries and affiliates whose functional
currency is other than the U.S. dollar translate their assets and liabilities
into U.S. dollars at the exchange rates in effect at the end of the fiscal
period. The revenue and expense accounts of such subsidiaries and affiliates are
translated into U.S. dollars at the average exchange rate during the period. The
gains or losses that result from this process, and gains and losses on
intercompany foreign currency transactions that are long-term in nature that CMS
Energy does not intend to settle in the foreseeable future, are reflected as a
component of stockholders' equity in the consolidated balance sheets as "Foreign
Currency Translation" in accordance with the accounting guidance provided in
SFAS No. 52. As of March 31, 2003, the cumulative Foreign Currency Translation
decreased stockholders' equity by $445 million. Included in this amount is an
unrealized loss of $119 million, net of tax, related to CMS Energy's investment
in Loy Yang. The loss will be realized upon sale, full liquidation, or other
disposition of CMS Energy's investment in Loy Yang. CMS Energy is continuing to
review its business alternatives for its investment in Loy Yang, including
future financing and operating alternatives, the nature and extent of CMS
Energy's future involvement and the potential for an ultimate sale of its
interest in the future. CMS Energy has not established a deadline for any of
these alternatives.
CMS-8
CMS Energy Corporation
Argentina: In January 2002, the Republic of Argentina enacted the Public
Emergency and Foreign Exchange System Reform Act. This law repealed the fixed
exchange rate of one U.S. dollar to one Argentina peso, converted all
dollar-denominated utility tariffs and energy contract obligations into pesos at
the same one-to-one exchange rate, and directed the President of Argentina to
renegotiate such tariffs.
Effective April 30, 2002, CMS Energy adopted the Argentine peso as the
functional currency for most of its Argentine investments. CMS had previously
used the U.S. dollar as the functional currency for its Argentine investments.
As a result, on April 30, 2002, CMS Energy translated the assets and liabilities
of its Argentine entities into U.S. dollars, in accordance with SFAS No. 52,
using an exchange rate of 3.45 pesos per U.S. dollar, and recorded an initial
charge to the Foreign Currency Translation component of Common Stockholders'
Equity of approximately $400 million.
While CMS Energy's management cannot predict the most likely future, or average
peso to U.S. dollar exchange rates, it does expect that these non-cash charges
substantially reduce the risk of further material balance sheet impacts when
combined with anticipated proceeds from international arbitration currently in
progress, political risk insurance, and the eventual sale of these assets. At
March 31, 2003, the net foreign currency loss due to the unfavorable exchange
rate of the Argentine peso recorded in the Foreign Currency Translation
component of Common Stockholder's Equity using an exchange rate of 2.973 pesos
per U.S. dollar was $258 million. This amount also reflects the effect of
recording U.S. income taxes with respect to temporary differences between the
book and tax basis of foreign investments, including the foreign currency
translation associated with CMS Energy's Argentine investments, that were
determined to no longer be essentially permanent in duration.
INCOME STATEMENT: For subsidiaries operating in highly inflationary economies or
that meet the U.S. functional currency criteria outlined in SFAS No. 52, the
U.S. dollar is deemed to be the functional currency. Gains and losses that arise
from exchange rate fluctuations on transactions denominated in a currency other
than the U.S. dollar, except those that are hedged, are included in determining
net income.
HEDGING STRATEGY: CMS Energy uses forward exchange and option contracts to hedge
certain receivables, payables, long-term debt and equity value relating to
foreign investments. The purpose of CMS Energy's foreign currency hedging
activities is to protect the company from risk that U.S. dollar net cash flows
resulting from sales to foreign customers and purchases from foreign suppliers
and the repayment of non-U.S. dollar borrowings, as well as the equity reported
on the company's balance sheet, may be adversely affected by changes in exchange
rates. These contracts do not subject CMS Energy to risk from exchange rate
movements because gains and losses on such contracts are inversely correlated
with the losses and gains, respectively, on the assets and liabilities being
hedged. Foreign currency adjustments for other CMS Energy international
investments were immaterial.
ACCOUNTING FOR THE EFFECTS OF INDUSTRY REGULATION
Because Consumers is involved in a regulated industry, regulatory decisions
affect the timing and recognition of revenues and expenses. Consumers uses SFAS
No. 71 to account for the effects of these regulatory decisions. As a result,
Consumers may defer or recognize revenues and expenses differently than a
non-regulated entity.
For example, items that a non-regulated entity would normally expense, Consumers
may capitalize as regulatory assets if the actions of the regulator indicate
such expenses will be recovered in future rates. Conversely, items that
non-regulated entities may normally recognize as revenues, Consumers may record
as regulatory liabilities if the actions of the regulator indicate they will
require such revenues to be refunded to customers. Judgment is required to
discern the recoverability of items recorded as regulatory assets and
liabilities. As of March 31, 2003, Consumers had $1.121 billion recorded as
regulatory assets and $463 million recorded as regulatory liabilities.
CMS-9
CMS Energy Corporation
In March 1999, Consumers received MPSC electric restructuring orders, which,
among other things, identified the terms and timing for implementing electric
restructuring in Michigan. Consistent with these orders and EITF No. 97-4,
Consumers discontinued the application of SFAS No. 71 for the energy supply
portion of its business because Consumers expected to implement retail open
access at competitive market-based rates for its electric customers. Since 1999,
there has been a significant legislative and regulatory change in Michigan that
has resulted in: 1) electric supply customers of utilities remaining on
cost-based rates and 2) utilities being given the ability to recover Stranded
Costs associated with electric restructuring, from customers who choose an
alternative electric supplier. During 2002, Consumers re-evaluated the criteria
used to determine if an entity or a segment of an entity meets the requirements
to apply regulated utility accounting, and determined that the energy supply
portion of its business could meet the criteria if certain regulatory events
occurred. In December 2002, Consumers received a MPSC Stranded Cost order that
allowed Consumers to re-apply regulatory accounting standard SFAS No. 71 to the
energy supply portion of its business. Re-application of SFAS No. 71 had no
effect on the prior discontinuation accounting, but will allow Consumers to
apply regulatory accounting treatment to the energy supply portion of its
business beginning in the fourth quarter of 2002, including regulatory
accounting treatment of costs required to be recognized in accordance with SFAS
No. 143.
ACCOUNTING FOR NUCLEAR DECOMMISSIONING COSTS
Consumers' decommissioning cost estimates for the Big Rock and Palisades plants
assume that each plant site will eventually be restored to conform to the
adjacent landscape with all contaminated equipment and material removed and
disposed of in a licensed burial facility and the site released for unrestricted
use. A March 1999 MPSC order provided for fully funding the decommissioning
trust funds for both sites. The order set the annual decommissioning surcharge
for the Palisades decommissioning at $6 million a year. Consumers estimates that
at the time of the decommissioning of Palisades, its decommissioning trust fund
will be fully funded. Earnings assumptions are that the trust funds are invested
in equities and fixed income investments, equities will be converted to fixed
income investments during decommissioning and fixed income investments are
converted to cash as needed. Decommissioning costs have been developed, in part,
by independent contractors with expertise in decommissioning. These costs
estimates use various inflation rates for labor, non-labor, and contaminated
equipment disposal costs.
On December 31, 2000, the Big Rock trust fund was considered fully funded. A
portion of its current decommissioning cost is due to the failure of the DOE to
remove fuel from the site. These costs, and similar costs incurred at Palisades,
would not be necessary but for the failure of the DOE to take possession of the
spent fuel as required by the Nuclear Waste Policy Act of 1982. A number of
utilities have commenced litigation in the Court of Claims, including Consumers,
which filed its complaint in December 2002. The Chief Judge of the Court of
Claims identified six lead cases to be used as vehicles for resolving
dispositive motions. Consumers' case is not a lead case. It is unclear what
impact this decision by the Chief Judge will have on the outcome of Consumers'
litigation. If the litigation that was commenced in the fourth quarter of 2002,
against the DOE is successful, Consumers anticipates future recoveries from the
DOE to defray the significant costs it will incur for the storage of spent fuel
until the DOE takes possession as required by law.
On March 26, 2003, the Michigan Environmental Council, the Public Interest
Research Group in Michigan, and the Michigan Consumer Federation submitted a
complaint to the MPSC which was served on Consumers by the MPSC on April 18,
2003. The complaint asks the MPSC to commence a generic investigation and
contested case to review all facts and issues concerning costs associated with
spent nuclear fuel storage and disposal. The complaint seeks a variety of relief
with respect to Consumers Energy, The Detroit Edison Company, Indiana & Michigan
Electric Company, Wisconsin Electric Power Company and Wisconsin Public Service
Corporation including establishing external trusts to which amounts collected in
electric rates for spent nuclear fuel storage and disposal should be
transferred, and the adoption of additional measures related to the storage and
disposal of spent nuclear fuel. Consumers is reviewing the complaint. Consumers
is unable to predict the outcome of this matter.
CMS-10
CMS Energy Corporation
The funds provided by the trusts and additional funds from DOE litigation are
expected to fully fund the decommissioning costs. Variance from trust earnings,
a lesser recovery of costs from the DOE, changes in decommissioning technology,
regulations, estimates or assumptions could affect the cost of decommissioning
these sites and the adequacy of the decommissioning trust funds.
ACCOUNTING FOR PENSION AND OPEB
CMS Energy provides postretirement benefits under its Pension Plan, and
postretirement health and life insurance benefits under its OPEB plans to
substantially all its retired employees. CMS Energy uses SFAS No. 87 to account
for pension costs and uses SFAS No. 106 to account for other postretirement
benefit costs. These statements require liabilities to be recorded on the
balance sheet at the present value of these future obligations to employees net
of any plan assets. The calculation of these liabilities and associated expenses
require the expertise of actuaries and are subject to many assumptions including
life expectancies, present value discount rates, expected long-term rate of
return on plan assets, rate of compensation increase and anticipated health care
costs. Any change in these assumptions can significantly change the liability
and associated expenses recognized in any given year. The Pension Plan includes
amounts for employees of Panhandle, which were not distinguishable from the
Pension Plan's total assets. On December 21, 2002, a definitive agreement was
executed to sell Panhandle. The sale is expected to close in 2003. No portion of
the Pension Plan will be transferred with the sale of Panhandle. At the closing
of the sale, all employees of Panhandle will no longer be eligible to accrue
additional benefits. The Pension Plan will retain pension payment obligations
under the Pension Plan for Panhandle employees that are vested under the Pension
Plan. CMS Energy expects a curtailment gain of $2 million for the Pension Plan
and $2 million for the OPEB plan relating to the sale of Panhandle.
CMS Energy estimates pension expense will approximate $46 million, $51 million
and $58 million in 2003, 2004 and 2005, respectively. Future actual pension
expense will depend on future investment performance, changes in future discount
rates and various other factors related to the populations participating in the
Pension Plan.
CMS Energy has announced changes to the Pension Plan. Employees hired on or
after July 1, 2003 will be covered by the cash balance plan section of the plan
currently being used. Under the cash balance plan, an employee's retirement
account is credited annually with a percentage of their salary and any amounts
that are vested are portable when an employee leaves the company. In addition,
the method used to convert an employee's benefit to a lump sum payment is being
changed. Employees who elect the lump sum payment option will not earn any
additional early retirement subsidy. As a result, employees who choose the lump
sum payment option, and retire before age 65, will receive lower lump sum
payments.
In order to keep health care benefits and costs competitive, CMS Energy has
announced several changes to the Health Care Plan. These changes are effective
January 1, 2003. The most significant change is that CMS Energy's future
increases in health care costs will be shared with salaried employees. The
salaried retirees Health Care Plan also has been amended. Pre-Medicare retirees
now elect coverage from four different levels of coverage, with the two best
coverage options requiring premium contributions. These plans also coordinate
benefits under a maintenance of benefits provision to reduce claims cost for the
Company. Mail-order prescription copays also have been increased for all
salaried retirees.
CMS-11
CMS Energy Corporation
RESULTS OF OPERATIONS
CMS ENERGY CONSOLIDATED RESULTS OF OPERATIONS
In Millions (Except for EPS)
- --------------------------------------------------------------------------------
Three Months Ended March 31 2003 2002
- --------------------------------------------------------------------------------
CMS Energy Net Income $ 79 $ 42
CMS Energy Basic Earnings Per Share $ 0.55 $0.32
CMS Energy Diluted Earnings Per Share $ 0.51 $0.32
- --------------------------------------------------------------------------------
CMS Energy net income reflects the continued implementation of the financial
improvement plan and on-going asset sales program first announced in 2001. The
financial improvement plan focuses on strengthening CMS Energy's balance sheet
and improving financial liquidity through debt reduction and aggressive cost
management. The on-going asset sales program's objectives are to generate cash
to reduce debt, reduce business risk and provide for more predictable future
earnings. This program encompasses the sale of non-strategic and
under-performing assets, the proceeds of which are being used primarily to
reduce debt.
CMS Energy Net Income In Millions
- --------------------------------------------------------------------------------
Three Months Ended March 31 2003 2002 Change
- --------------------------------------------------------------------------------
$ 79 $ 42 $ 37
================================================================================
Electric Utility $ 51 $ 50 $ 1
Gas Utility 54 28 26
Enterprises 23 66 (43)
Corporate Interest and Other (52) (51) (1)
Discontinued Operations 27 (51) 78
Accounting Changes (24) - (24)
- --------------------------------------------------------------------------------
Net Income $ 79 $ 42 $ 37
================================================================================
For the three months ended March 31 2003, CMS Energy's net income was $79
million or $0.51 per diluted share, an increase of $37 million or $0.19 per
share from the three months ended March 31, 2002. The increase primarily
reflects increased electric and gas deliveries and the impact of Consumers'
final gas rate order issued in the fourth quarter of 2002 that increased gas
tariff rates. The three months ended March 31, 2003 also includes the cumulative
effect of a change in accounting resulting from the implementation of EITF Issue
No. 02-03 at CMS MST of $(23) million, net of tax and the implementation of SFAS
No. 143 of $(1) million, net of tax. The three months ended March 31, 2002
includes an after-tax gain on the sale of CMS Energy's ownership interests in
Equatorial Guinea properties of $324 million and the cumulative effect of a
change in accounting for goodwill at Panhandle of ($369) million, net of tax and
CMS Viron of $(10) million, net of tax, which are reflected in discontinued
operations.
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CMS Energy Corporation
CONSUMERS' ELECTRIC UTILITY RESULTS OF OPERATIONS
In Millions
- -------------------------------------------------------------------------------
March 31 2003 2002 Change
- -------------------------------------------------------------------------------
Three months ended $51 $50 $1
===============================================================================
Reasons for the change:
Electric deliveries $13
Power supply costs and related revenue 13
Other operating expenses and non-commodity revenue (22)
Fixed charges (3)
- --------------------------------------------------------------------------------
Total change $ 1
===============================================================================
ELECTRIC DELIVERIES: For the three months ended March 31, 2003, electric
delivery revenues increased by $13 million from the previous year. Electric
deliveries, including transactions with other wholesale market participants and
other electric utilities, were 9.7 billion kWh, an increase of 0.5 billion kWh
or 5.6 percent from 2002. This increase is primarily the result of increased
deliveries to the higher margin residential and commercial sectors, along with
the growth in retail deliveries.
POWER SUPPLY COSTS AND RELATED REVENUE: For the three months ended March 31,
2003, power supply costs and related revenues increased electric net income by
$13 million from 2002. This increase is primarily the result of increased
intersystem revenues.
OTHER OPERATING EXPENSES AND NON-COMMODITY REVENUE: For the three months ended
March 31, 2003, operating expenses increased compared to 2002. This increase can
be attributed to a scheduled refueling outage at Palisades that began in March
and higher transmission costs due to the loss of a financial return on the sold
Consumers' transmission system asset in May 2002. Slightly offsetting these
increased operating expenses are increased non-commodity revenues associated
with miscellaneous service revenues.
INCOME TAXES: For the three months ended March 31, 2003, income tax expense
remained relatively flat compared to 2002.
CONSUMERS' GAS UTILITY RESULTS OF OPERATIONS
In Millions
- -------------------------------------------------------------------------------
March 31 2003 2002 Change
- -------------------------------------------------------------------------------
Three months ended $54 $28 $26
===============================================================================
Reasons for the change:
Gas deliveries $33
Gas rate increase 19
Gas wholesales and retail services 3
Operation and maintenance (10)
General taxes, depreciation, and other income (5)
Fixed charges (1)
Income taxes (13)
- -------------------------------------------------------------------------------
Total change $ 26
===============================================================================
CMS-13
CMS Energy Corporation
GAS DELIVERIES: For the three months ended March 31, 2003, gas delivery revenues
increased by $33 million from the previous year. System deliveries, including
miscellaneous transportation, totaled 174 bcf, an increase of 25 bcf or 16.4
percent compared with 2002. This increase is primarily due to colder weather
that resulted in increased deliveries to the residential and commercial sectors
in 2003.
GAS RATE INCREASE: In November 2002, the MPSC issued a final gas rate order
authorizing a $56 million annual increase in Consumers gas tariff rates. As a
result of this order, Consumers recognized increased gas revenues of $19
million.
OPERATION AND MAINTENANCE: For the three months ended March 31, 2003, operation
and maintenance expenses increased $10 million compared to 2002. This increase
reflects the recognition of additional expenditures on safety, reliability and
customer service due to the colder temperatures for the quarter, compared to the
same period in 2002.
INCOME TAXES: For the three months ended March 31, 2003, income tax expense
increased primarily due to improved earnings of the gas utility.
ENTERPRISES RESULTS OF OPERATIONS
For the three months ended March 31, 2003, Enterprises net income was $23
million, a decrease of $43 million from the comparable period in 2002. The
decrease reflects reduced CMS MST and CMS Gas Transmission earnings due
primarily to the shift in business strategy. See the Enterprises Outlook section
in this MD&A. The decrease was partially offset by improved independent power
production results due to improved earnings at the MCV Facility and
stabilization of the Argentine Peso which resulted in foreign currency gains at
the Argentine power plants.
OTHER RESULTS OF OPERATIONS
For the three months ended March 31, 2003, corporate interest and other net
expenses were $52 million compared to $51 million for the comparable period in
2002. Interest expense, net of tax, for the three months ended March 31, 2003
was $43 million, a decrease of $9 million from the comparable 2002 period,
reflecting lower interest costs at the Parent. Corporate overhead and other
expenses increased $11 million from the comparable 2002 period due primarily to
the timing of certain corporate expenses incurred.
OTHER: Discontinued Operations includes Panhandle, CMS Viron, CMS Field Services
and International Energy Distribution. For more information, see Note 3,
Discontinued Operations.
CAPITAL RESOURCES AND LIQUIDITY
CASH POSITION, INVESTING AND FINANCING
CMS Energy's primary ongoing source of cash is dividends and other distributions
from subsidiaries, including proceeds from asset sales. During the first quarter
of 2003, Consumers paid $78 million in common dividends and other distributions
and Enterprises paid $18 million in common dividends and other distributions to
CMS Energy. In March 2003, Consumers declared a $31 million common dividend to
CMS Energy, payable in May 2003. CMS Energy's consolidated cash requirements are
met by its operating and financing activities. Consistent with CMS Energy's
liquidity objectives, $675 million consolidated cash was on hand at March 31,
2003.
CMS-14
CMS Energy Corporation
OPERATING ACTIVITIES: CMS Energy's net cash provided by operating activities is
derived mainly from the processing, storage, transportation and sale of natural
gas and the generation, distribution and sale of electricity. For the first
three months of 2003 and 2002, cash from operations after interest charges
totaled $400 million and $247 million, respectively. The $153 million increase
in cash from operations resulted primarily from an increase in cash earnings and
a decrease in inventories. These improvements in cash from operations were
partially offset by an increase in accounts receivable and accrued revenues and
other temporary changes in working capital items due to timing of cash receipts
and payments. CMS Energy uses cash derived from its operating activities
primarily to maintain and expand its businesses and to pay interest on and
retire portions of its long-term debt.
INVESTING ACTIVITIES: For the first three months of 2003 and 2002, CMS Energy's
net cash (used in) provided by investing activities totaled $(53) million and
$647 million, respectively. The $700 million decrease in cash provided primarily
reflects a decrease in proceeds received from the sale of assets. CMS Energy's
expenditures, including investments and assets placed under capital lease, in
the first three months of 2003 for its utility and diversified energy businesses
were $126 million and $42 million, respectively, compared to $164 million and
$30 million, respectively, for the first three months of 2002.
FINANCING ACTIVITIES: For the first three months of 2003 and 2002, CMS Energy's
net cash used in financing activities totaled $50 million and $891 million,
respectively. The $841 million decreased use of cash resulted primarily from an
increase in proceeds received from notes, bonds and other long-term debt of $15
million, a decrease in retirement of notes, bonds and other long-term debt of
$742 million, a decrease in the retirement of trust preferred securities of $30
million, a decrease in the payment of common stock dividends of $49 million and
a lesser decrease in notes payable of $48 million. These improvements in
financing activities were partially offset by a decrease in proceeds received
from the issuance of common stock of $42 million.
In January 2003, the Board of Directors suspended the payment of common stock
dividends. CMS Energy expects this dividend suspension will improve its
liquidity by more than $100 million in 2003.
OTHER INVESTING AND FINANCING MATTERS: At March 31, 2003, the book value per
share of CMS Energy Common Stock was $8.53.
CREDIT FACILITIES: On March 30, 2003, CMS Energy entered into an amendment and
restatement of its existing $300 million and $295.8 million revolving credit
facilities under which $409 million was then outstanding. The Second Amended and
Restated Senior Credit Agreement includes a $159 million tranche with a maturity
date of April 30, 2004 and a $250 million tranche with a maturity date of
September 30, 2004. The facility was underwritten by several banks at a total
annual cost to CMS Energy of approximately ten percent, which includes the
initial commitment fee. Any proceeds of debt or equity issuances by CMS Energy
and its subsidiaries or any asset sales by CMS Energy or its subsidiaries, other
than Consumers, are required to be used to prepay this facility. This facility
is collateralized primarily by the stock of Consumers, Enterprises and certain
Enterprises subsidiaries.
On March 30, 2003, Enterprises entered into a revolving credit facility in an
aggregate amount of $441 million. The maturity date of this facility is April
30, 2004. Subsequently, on April 21, 2003, Enterprises entered into a $75
million revolving credit facility with a maturity date of April 30, 2004. These
facilities were underwritten by several banks at a total annual cost to CMS
Energy of approximately ten percent, which includes the initial commitment fee.
Proceeds from these loans will be used for general corporate purposes, to retire
debt and to collateralize $160 million of letters of credit. Any proceeds of
debt or equity issuances by CMS Energy and its subsidiaries or any asset sales
by CMS Energy or its subsidiaries, other than Consumers,
CMS-15
CMS Energy Corporation
are required to be used to prepay these facilities. It is expected that proceeds
from the Panhandle sale will be used to pay off these facilities in full. These
facilities are guaranteed by CMS Energy, whose guaranty is primarily secured by
the stock of Consumers and Enterprises.
REQUIRED RATIOS: CMS Energy's credit facilities have contractual restrictions
that require CMS Energy to maintain certain ratios as of the last day of each
fiscal quarter. Violation of these ratios would constitute an event of default
under the facility which provides the lender, among other remedies, the right to
declare the principal and interest immediately due and payable. At March 31,
2003, CMS Energy was in compliance with required ratios.
Required Ratio Limitation Ratio at March 31, 2003
- -------------------------------------------------------------------------------------------------------------------
Consolidated Leverage Ratio not more than 7.00 to 1.00 5.84 to 1.00
Cash Dividend Coverage Ratio not less than 1.20 to 1.00 1.73 to 1.00
- -------------------------------------------------------------------------------------------------------------------
In 1994, CMS Energy executed an indenture with J.P.Morgan Chase Bank pursuant to
CMS Energy's general term notes program. The indenture, through supplements,
contains certain provisions that can trigger a limitation on CMS Energy's
consolidated indebtedness. The limitation can be activated when CMS Energy's
consolidated leverage ratio, as defined in the indenture (essentially the ratio
of consolidated debt to consolidated capital), exceeds 0.75 to 1.0. At March 31,
2003, CMS Energy's consolidated leverage ratio was 0.79 to 1.0. As a result, CMS
Energy will not and will not permit certain material subsidiaries, excluding
Consumers and its subsidiaries, to become liable for new indebtedness. However,
CMS Energy and the material subsidiaries may incur revolving indebtedness to
banks of up to $1 billion in the aggregate and refinance existing debt
outstanding of CMS Energy and of its material subsidiaries. This leverage ratio
may be significantly reduced with the proceeds of CMS Energy's sale of
Panhandle, its sale of CMS Field Services, or other asset sales.
REGULATORY AUTHORIZATION FOR FINANCINGS: At March 31, 2003, Consumers had FERC
authorization to issue or guarantee through June 2004, up to $1.1 billion of
short-term securities outstanding at any one time. Consumers also had remaining
FERC authorization to issue through June 2004 up to $500 million of long-term
securities for refinancing or refunding purposes, $381 million for general
corporate purposes, and $610 million of first mortgage bonds to be issued solely
as collateral for the long-term securities. On April 30, 2003, Consumers sold
$625 million principal amount of first mortgage bonds. Its remaining FERC
authorization after this issue is (1) $250 million of long-term securities for
refinancing or refunding purposes, (2) $6 million for general corporate
purposes, and (3) $610 million remaining first mortgage bonds available to be
issued solely as collateral for the long-term securities. Consumers anticipates
applying in the second quarter of 2003 for an increase in FERC authorization to
issue new long-term securities for refinancing or refunding and for general
corporate purposes. On October 10, 2002, FERC granted a waiver of its
competitive bid/negotiated placement requirements applicable to the remaining
long-term securities authorization indicated above.
LONG TERM FINANCINGS: In March 2003, Consumers entered into a $140 million term
loan secured by first mortgage bonds with a private investor bank. This loan has
a term of six years at a cost of LIBOR plus 475 basis points. Proceeds from this
loan were used for general corporate purposes.
In March 2003, Consumers entered into a $150 million term loan secured by first
mortgage bonds. This term loan has a three-year maturity expiring in March 2006;
the loan has a cost of LIBOR plus 450 basis points. Proceeds from this loan were
used for general corporate purposes.
In April 2003, Consumers sold $625 million principal amount of first mortgage
bonds in a private offering to institutional investors; $250 million were issued
at 4.25 percent, maturing on April 15, 2008, and net proceeds
CMS-16
CMS Energy Corporation
were approximately $248 million, $375 million were issued at 5.38 percent,
maturing on April 15, 2013, and net proceeds were approximatley $371 million.
Consumers used the net proceeds to replace a $250 million senior reset put bond
that matured in May 2003, to pay an associated $32 million option call payment,
and for general corporate purposes that may include paying down additional debt.
Consumers has agreed to file a registration statement with the SEC to permit
holders of these first mortgage bonds to exchange the bonds for new bonds that
will be registered under the Securities Act of 1933. Consumers has agreed to
file this registration statement by December 31, 2003.
SHORT TERM FINANCINGS: In March 2003, Consumers obtained a replacement revolving
credit facility in the amount of $250 million secured by first mortgage bonds.
The cost of the facility is LIBOR plus 350 basis points. The new credit facility
matures in March 2004 with two annual extensions at Consumers' option, which
would extend the maturity to March 2006. The prior facility was due to expire in
July 2003.
RESTRICTED PAYMENTS: Pursuant to restrictive covenants in debt facilities,
Consumers is limited to common stock dividend payments that will not exceed $300
million in any calendar year. In January 2003, Consumers declared and paid a $78
million common dividend. In March 2003, Consumers declared a $31 million common
dividend payable in May 2003.
OBLIGATIONS AND COMMITMENTS
The following information on CMS Energy's contractual obligations, off-balance
sheet arrangements and commercial commitments is provided to collect information
in a single location so that a picture of liquidity and capital resources is
readily available.
CONTRACTUAL OBLIGATIONS: CMS Energy has contractual obligations including
long-term debt, notes payable, and capital lease obligations. Notes payable
include Consumers' $250 million revolving credit agreement. Capital leases
include leased service vehicles and the new headquarters building.
OFF-BALANCE SHEET ARRANGEMENTS: CMS Energy's use of long-term contracts for the
purchase of commodities and services, the sale of Consumers' accounts
receivables, and operating leases are considered to be off-balance sheet
arrangements.
CMS Energy's operating leases are predominately railroad coal car leases,
aircraft, vehicles and miscellaneous office equipment. The full lease obligation
becomes due in case of lease payment default.
At March 31, 2003, Consumers had, through its wholly owned subsidiary Consumers
Receivables Funding, a $325 million trade receivable sale program in place as an
anticipated source of funds for general corporate purposes. At March 31, 2003
and 2002, the receivables sold totaled $325 million for each year; the average
annual discount rate was 1.57 percent and 2.15 percent, respectively. Accounts
receivable and accrued revenue in the Consolidated Balance Sheets have been
reduced to reflect receivables sold. On April 30, 2003, Consumers ended its
trade receivable sale program with its then existing purchaser and anticipates
that a new receivable program will be in place with a new purchaser in May 2003.
Unconditional purchase obligations include natural gas, electricity, and coal
purchase contracts and their associated cost of transportation. These
obligations represent normal business operating contracts used to assure
adequate supply and to minimize exposure to market price fluctuations. Consumers
has long-term power purchase agreements with various generating plants including
the MCV Facility. These contracts require monthly capacity payments based on the
plants' availability or deliverability. These payments are approximately $47
million per month for the remaining nine months of 2003, including $34 million
related to the MCV Facility. If a plant is not available to deliver electricity
to Consumers, then Consumers would not be obligated to make the capacity payment
while the plant is unable to deliver. CMS Energy uses these off-balance sheet
arrangements in its normal business operations.
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CMS Energy Corporation
In addition, CMS Energy, through its subsidiary companies, has equity
investments in partnerships and joint ventures in which they have a minority
ownership interest. As of March 31, 2003, CMS Energy's proportionate share of
unconsolidated debt associated with these investments was $2.6 billion. This
unconsolidated debt is non-recourse to CMS Energy and is not included in the
amount of long-term debt that appears on CMS Energy's Consolidated Balance
Sheets.
The following table shows a summary of CMS Energy's contractual obligations,
including off-balance sheet commitments at March 31, 2003.
Contractual Obligations In Millions
- --------------------------------------------------------------------------------------------------------------
Payments Due
------------------------------------------------------------
March 31 Total 2003 2004 2005 2006 2007 Beyond
- --------------------------------------------------------------------------------------------------------------
On-balance sheet:
Long-term debt $ 6,127 $ 915 $ 461 $ 744 $ 663 $ 538 $ 2,806
Notes payable 253 253 - - - - -
Capital lease obligations(a) 153 12 19 18 17 16 71
- --------------------------------------------------------------------------------------------------------------
Total on-balance sheet $ 6,533 $1,180 $ 480 $ 762 $ 680 $ 554 $ 2,877
==============================================================================================================
Off-balance sheet:
Non-recourse debt $ 2,614 $ 270 $152 $ 128 $ 392 $ 32 $ 1,640
Operating leases 94 13 14 10 10 8 39
Sale of accounts receivable 325 325 - - - - -
Unconditional purchase
Obligations 18,888 1,843 1,386 1,119 874 742 12,924
- --------------------------------------------------------------------------------------------------------------
Total off-balance sheet $21,921 $2,451 $1,552 $1,257 $1,276 $ 782 $14,603
==============================================================================================================
(a) Capital lease obligations include $20 million of imputed interest.
COMMERCIAL COMMITMENTS: As of March 31, 2003, CMS Energy, Enterprises, and their
subsidiaries have guaranteed payment of obligations through guarantees,
indemnities and letters of credit, of unconsolidated affiliates and related
parties approximating $993 million. Included in this amount, Enterprises, in the
ordinary course of its business, has guaranteed contracts of CMS MST that
contain certain schedule and performance requirements. As of March 31, 2003, the
actual amount of financial exposure covered by these guarantees and indemnities
was $297 million. Management monitors and approves these obligations and
believes it is unlikely that CMS Energy would be required to perform or
otherwise incur any material losses associated with these guarantees.
Indemnities are three-party agreements used to assure performance of contracts
by CMS Energy. Letters of credit are issued by banks guaranteeing CMS Energy's
payments of its drafts. Drafts are for a stated amount and for a specified
period; they substitute the bank's credit for CMS Energy's and eliminate the
credit risk for the other party.
Commercial Commitments In Millions
- ----------------------------------------------------------------------------------------------------------------
Commitment Expiration
---------------------------------------------------------------
March 31 Total 2003 2004 2005 2006 2007 Beyond
- ----------------------------------------------------------------------------------------------------------------
Off-balance sheet:
Guarantees $ 469 $ 20 $ - $ - $ 4 $ - $445
Indemnities 241 5 - 36 - - 200
Letters of Credit 283 247 32 - - - 4
- ----------------------------------------------------------------------------------------------------------------
Total $993 $ 272 $ 32 $ 36 $ 4 $ - $649
================================================================================================================
For further information, see Note 5, Short-Term and Long-Term Financings and
Capitalization, incorporated by reference herein.
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CMS Energy Corporation
OUTLOOK
CAPITAL RESOURCES AND LIQUIDITY
CMS Energy's liquidity and capital requirements generally are a function of its
results of operations, capital expenditures, contractual obligations, working
capital needs and collateral requirements. CMS Energy has historically met its
consolidated cash needs through its operating and investing activities and, as
needed, through access to bank financing and the capital markets.
In 2003, CMS Energy has contractual obligations and planned capital expenditures
that would require substantial amounts of cash. CMS Energy at the parent level
had approximately $598 million, Consumers and its subsidiaries had approximately
$727 million, and Panhandle and its subsidiaries had approximately $52 million
of publicly issued and credit facility debt maturing in 2003.
CMS Energy and Consumers have taken significant steps to address their 2003
maturities, as described below. As of May 9, 2003, CMS Energy at the parent
level had approximately $220 million, Consumers and its subsidiaries had
approximately $20 million, and Panhandle and its subsidiaries had approximately
$39 million of remaining publicly issued and credit facility debt maturing in
2003. CMS Energy has amounts held in escrow to satisfy its 2003 maturities
including interest. In addition, CMS Energy could also become subject to
liquidity demands pursuant to commercial commitments under guarantees,
indemnities and letters of credit. Management is pursuing actively plans to
refinance debt and to sell assets, including the sale of Panhandle and Field
Services. See Corporate Outlook section below.
CMS ENERGY PARENT LEVEL LIQUIDITY
CMS Energy at the parent level is addressing its near-to-mid-term liquidity and
capital requirements through a financial improvement plan that involves the sale
of non-strategic and under-performing assets of approximately $900 million,
receipt of dividends from its subsidiaries of approximately $327 million, and
reduction of approximately $1.290 billion of outstanding debt along with reduced
capital expenditures, cost reductions and other measures.
CMS Energy has reduced debt through asset sales and securitization proceeds,
with a total of approximately $2.8 billion in cash proceeds from such events
over the past two years. Through March of 2003, CMS Energy has accomplished
approximately $97 million of additional asset sales as described below. In
January 2003, CMS MST closed on the sale of a substantial portion of its natural
gas trading contracts for $17 million of cash proceeds. The sale of Centennial,
resulting in proceeds to CMS Energy of $40 million, closed in February 2003. In
March 2003, CMS MST sold the majority of its wholesale power book and related
supply portfolio for cash proceeds of $34 million to Constellation Power Source,
Inc. The sale contains a potential to increase proceeds to $40 million dependent
upon future years' performance of the sold assets. Additionally, during the
first quarter of 2003, CMS MST sold its 50 percent joint venture ownership
interest in Texon, its 50 percent interest in Premstar and its Tulsa retail
contracts, resulting in net cash proceeds of approximately $6 million.
CMS Energy believes that further targeted asset sales, together with its planned
reductions in operating expenses, capital expenditures, and the suspension of
the common dividend also will contribute to improved liquidity. CMS Energy
believes that, assuming the successful implementation of its financial
improvement plan, its present level of cash and borrowing capacity along with
anticipated cash flows from operating and investing activities will be
sufficient to meet its liquidity needs through 2003. There can be no assurances
that the financial improvement plan will be successful and failure to achieve
its goals could have a material adverse effect on CMS Energy's liquidity and
operations. In such event, CMS Energy would be required to consider the full
range of strategic measures available to companies in similar circumstances. CMS
Energy continues to explore financing opportunities to supplement its financial
improvement plan.
CMS-19
CMS Energy Corporation
These potential opportunities include refinancing its bank credit facilities;
entering into leasing arrangements and/or vendor financing; refinancing and
issuing new capital markets debt, preferred and/or common equity; and
negotiating private placement debt, preferred and/or common equity.
CONSUMERS ENERGY LIQUIDITY
Consumers plans to meet its liquidity and capital requirements in 2003 through a
combination of approximately $290 million from operations, $1.290 billion from
borrowings including $563 million of new debt and $727 million refinancing of
existing debt, reduced capital expenditures, cost reductions and other measures.
The following table is a summary of Consumers' debt financing plan and actual
borrowings for 2003:
Debt Financing in 2003 In Millions
- ----------------------------------------------------------------------------------------------------------------
Financing Actual Retired or
Financing Plan Borrowing Type Issued Date Maturity Collateral
- ----------------------------------------------------------------------------------------------------------------
Anticipated Maturities:
Revolving credit $ 250 $ 250 Refinanced March 2003 March 2004 (a) FMB
facility
Senior note 250 250 Refunded (b) April 2003 April 2008 -
Gas Inventory
facility 227 - Retired (c) March 2003 - -
------ ------
Subtotal $ 727 $ 500
------ ------
New Financings:
Bank loan 140 140 New issue March 2003 March 2009 FMB(e)
Term loan 150 150 New issue March 2003 March 2006 FMB(e)
First mortgage bonds 250 375 New issue April 2003 April 2013 -
Additional gas
Inventory facility 23 - (d)- - - -
------ ------
Subtotal $ 563 $ 665
------ ------
Total $1,290 $1,165
================================================================================================================
(a) This facility has two annual extensions at Consumers' option, which would
extend the maturity to March 2006.
(b) Refunded and replaced with FMB.
(c) Includes a gas inventory facility of $207 million retired in March 2003 and
anticipated new gas inventory facility pay down of $20 million expected to occur
in December 2003. See footnote (d).
(d) Consumers will seek to arrange a $125 million gas inventory loan in the
third quarter 2003 and thus complete the $1.290 billion financing plan.
(e) Refer to Capital Resources and Liquidity, "Regulatory Authorization For
Financings" above for information about Consumers' remaining FERC debt
authorization.
Consumers believes that its current level of cash and borrowing capacity, along
with anticipated cash flows from operating and investing activities, will be
sufficient to meet its liquidity needs through 2003, including debt maturities
in 2003. In addition to executing the debt financing plan for 2003 as discussed
above, the following activities also have been initiated by Consumers to enhance
further its liquidity beyond 2003.
CMS-20
CMS Energy Corporation
o Consumers filed a general rate case for its gas utility
business on March 14, 2003. Consumers requested rate relief in
the amount of approximately $156 million. In its filing,
Consumers requested immediate interim relief. If interim
relief of $156 million were granted, Consumers expects that it
will be in place by the fourth quarter of 2003.
o Consumers filed an application in March 2003, with the MPSC
seeking authorization to issue $1.084 billion of
Securitization bonds. These bonds would provide liquidity to
Consumers at interest rates reflective of high quality credit.
Consumers would utilize these proceeds to retire higher cost
debt and in turn would realize significant interest expense
savings over the life of the bonds. If the MPSC approves a
financing in the amount requested, and there are no rehearing
or court appeals and no other delays in the offering process,
Consumers anticipates that bonds could be issued by year-end
2003.
There is no assurance that the pending Securitization bond issuance transaction
noted above will be completed, nor is there assurance that the MPSC will grant
either interim or final gas utility rate relief.
CORPORATE OUTLOOK
During the first quarter of 2003, CMS Energy continued to implement its
financial improvement plan and on-going asset sales program first announced in
2001. The financial improvement plan focuses on strengthening CMS Energy's
balance sheet and improving financial liquidity through debt reduction and
aggressive cost management. The on-going asset sales program's objectives are to
generate cash to reduce debt, reduce business risk, and provide for more
predictable future earnings. This encompasses the sale of non-strategic and
under-performing assets, the proceeds of which are being used to reduce debt.
Consistent with its "back-to-basics" strategy, CMS Energy is pursuing actively
the sale of non-strategic and under-performing assets and has received
approximately $2.8 billion of cash from asset sales, securitization proceeds and
proceeds from LNG monetization. Upon the sale of additional non-strategic and
under-performing assets, the proceeds realized may be materially different than
the book value of those assets. Even though these assets have been identified
for sale, management cannot predict when, nor make any assurances that, these
asset sales will occur. CMS Energy anticipates, however, that the sales, if any,
will result in additional cash proceeds that will be used to retire existing
debt of CMS Energy or Consumers.
In December 2002, CMS Energy reached a definitive agreement to sell the
Panhandle companies to Southern Union Panhandle Corp. The agreement called for
Southern Union Panhandle Corp, a newly formed entity owned by Southern Union
Company and AIG Highstar Capital L.P. to pay $662 million in cash and assume
$1.166 billion in debt. On March 13, 2003, CMS Energy and Southern Union
Company received requests for additional information ("second requests") from
the FTC related to Southern Union's acquisition of Panhandle. CMS Energy and
Southern Union are in the process of responding to the second requests.
On May 12, 2003, the parties entered into an amendment to the original stock
purchase agreement that was executed in December 2002. Under the amendment, AIG
Highstar Capital, L.P. and AIG Highstar II Funding Corp. will no longer be
parties to the transaction. the Amended and Restated Stock Purchase Agreement
calls for Southern Union Panhandle Corp. to purchase all of Panhandle's
outstanding capital stock. Southern Union Panhandle Corp. agreed to pay
approximately $584 million in cash and 3 million shares of Southern Union
Company common stock, and to assume approximately $1.166 billion in debt. The
total value of the transaction to CMS Energy will depend on the price of
Southern Union Company common stock at the closing. At May 12, 2003, the closing
price of Southern Union common stock on the New York Stock Exchange was $12.79.
The boards of directors of all applicable companies have approved the amended
agreement. The sale of Panhandle is subject to customary closing conditions and
action by the Federal Trade Commission under the Hart-Scott-Rodino Act. All
necessary state regulatory approvals for the sale pursuant to the original stock
purchase agreement have been received. The parties expect the amendment will
expedite the regulatory approval of the transaction and anticipate that state
regulatory authorities will not object to the changed terms provided for in the
amended agreement. The closing is expected to occur by June 30, 2003. AIG
Highstar Capital's withdrawal from the transaction should help resolve
regulatory issues that arose as a result of AIG Highstar Capital's ownership of
Southern Star Central Gas Pipeline's Inc. CMS Gas Transmission and Southern
Union also entered into a shareholder agreement, relating to CMS Gas
Transmissions's ownership of the Southern Union shares of common stock. Pursuant
to this shareholder agreement, CMS Gas Transmission generally will be prohibited
from disposing of the Southern Union common stock for a period ending 90 - 105
days following the closing of the transaction.
Under the terms of the Panhandle sale agreement, CMS Energy was to retain
Panhandle's ownership interests in the Centennial and Guardian pipeline
projects, as well as certain of Panhandle's net deferred tax assets, all tax
liabilities, and pension assets and liabilities. Panhandle has since sold its
interest in Centennial and the Guardian interest has been transferred to
Panhandle's direct parent, CMS Gas Transmission, which has signed a definitive
agreement to sell its interest in Guardian. The sale is expected to close in
the second quarter of 2003.
In December 2002, CMS Energy discontinued the operations of Field Services, a
subsidiary of CMS Gas Transmission. In May 2003, CMS Energy signed a definitive
agreement to sell CMS Field Services to Cantera Resources Inc. for $115.5
million cash and $50 million face value note. The note is payable to CMS Energy
for up to $50 million subject to the financial performance of the Fort Union
and Bighorn natural gas gathering systems, from 2004 through 2008.
CMS-21
CMS Energy Corporation
CONSUMERS' ELECTRIC UTILITY BUSINESS OUTLOOK
GROWTH: Over the next five years, Consumers expects electric deliveries
(including both full service sales and delivery service to customers who choose
to buy generation service from an alternative electric supplier, but excluding
transactions with other wholesale market participants including other electric
utilities) to grow at an average rate of approximately two percent per year
based primarily on a steadily growing customer base. This growth rate reflects a
long-range expected trend of growth. Growth from year to year may vary from this
trend due to customer response to abnormal weather conditions and changes in
economic conditions including, utilization and expansion of manufacturing
facilities. Consumers has experienced much stronger than expected growth in 2002
as a result of warmer than normal summer weather. Assuming that normal weather
conditions will occur in the remaining three quarters of 2003, electric
deliveries are expected to grow less than one percent over the strong 2002
electric deliveries.
COMPETITION AND REGULATORY RESTRUCTURING: The enactment in 2000 of Michigan's
Customer Choice Act and other developments will continue to result in increased
competition in the electric business. Generally, increased competition can
reduce profitability and threatens Consumers' market share for generation
services. The Customer Choice Act allowed all of the company's electric
customers to buy electric generation service from Consumers or from an
alternative electric supplier as of January 1, 2002. As a result, alternative
electric suppliers for generation services have entered Consumers' market. As of
early May 2003, alternative electric suppliers are providing 571 MW of
generation supply to customers. To the extent Consumers experiences "net"
Stranded Costs as determined by the MPSC, the Customer Choice Act allows for the
company to recover such "net" Stranded Costs by collecting a transition
surcharge from those customers who switch to an alternative electric supplier.
Consumers cannot predict the total amount of electric supply load that may be
lost to competitor suppliers, nor whether the stranded cost recovery method
adopted by the MPSC will be applied in a manner that will fully offset any
associated margin loss.
Stranded and Implementation Costs: The Customer Choice Act allows electric
utilities to recover the act's implementation costs and "net" Stranded Costs
(without defining the term). The act directs the MPSC to establish a method of
calculating "net" Stranded Costs and of conducting related true-up adjustments.
In December 2001, the MPSC adopted a methodology which calculated "net" Stranded
Costs as the shortfall between: (a) the revenue required to cover the costs
associated with fixed generation assets, generation-related regulatory assets,
and capacity payments associated with purchase power agreements, and (b) the
revenues received from customers under existing rates available to cover the
revenue requirement. The MPSC authorized Consumers to use deferred accounting to
recognize the future recovery of costs determined to be stranded. Consumers has
initiated an appeal at the Michigan Court of Appeals related to the MPSC's
December 2001 "net" Stranded Cost order.
According to the MPSC, "net" Stranded Costs were to be recovered from retail
open access customers through a Stranded Cost transition charge. In April 2002,
Consumers made "net" Stranded Cost filings with the MPSC for $22 million for
2000 and $43 million for 2001. In the same filing, Consumers estimated that it
would experience "net" Stranded Costs of $126 million for 2002. Consumers, in
its hearing brief, filed in August 2002, revised its request for "net" Stranded
Costs to $7 million and $4 million for 2000 and 2001, respectively, and an
estimated $73 million for 2002. The single largest reason for the difference was
the exclusion, as ordered by the MPSC, of all costs associated with expenditures
required by the Clean Air Act.
In December 2002, the MPSC issued an order finding that Consumers experienced
zero "net" Stranded Costs in 2000 and 2001, but declined to establish a defined
methodology that would allow a reliable prediction of the level of Stranded
Costs for 2002 and future years. In January 2003, Consumers filed a petition for
rehearing of the December 2002 Stranded Cost order in which it asked the MPSC to
grant rehearing and
CMS-22
CMS Energy Corporation
revise certain features of the order. Several other parties also filed rehearing
petitions with the MPSC. As discussed below, Consumers has filed a request with
the MPSC for authority to issue securitization bonds that would allow recovery
of the Clean Air Act expenditures that were excluded from the Stranded Cost
calculation and post-2000 Palisades expenditures.
On March 4, 2003, Consumers filed an application with the MPSC seeking approval
of "net" Stranded Costs incurred in 2002, and for approval of a "net" Stranded
Cost recovery charge. In the application, Consumers indicated that if Consumers'
proposal to securitize Clean Air Act expenditures and post-2000 Palisades
expenditures were approved as proposed in its securitization case as discussed
below, then Consumers' "net" Stranded Costs incurred in 2002 are approximately
$35 million. If the proposal to securitize those costs is not approved, then
Consumers indicated that the costs would be properly included in the 2002 "net"
Stranded Cost calculation, which would increase Consumers' 2002 "net" Stranded
Costs to approximately $103 million. Consumers cannot predict the recoverability
of Stranded Costs, and therefore has not recorded any regulatory assets to
recognize the future recovery of such costs.
The MPSC staff has scheduled a collaborative process to discuss Stranded Costs
and related issues and to identify and make recommendations to the MPSC.
Consumers is participating in this collaborative process.
Since 1997, Consumers has incurred significant electric utility restructuring
implementation costs. The following table outlines the applications filed by
Consumers with the MPSC and the status of recovery for these costs.
In Millions
- --------------------------------------------------------------------------------------------------------------
Year Filed Year Incurred Requested Pending Allowed Disallowed
1999 1997 & 1998 $ 20 $ - $ 15 $ 5
2000 1999 30 - 25 5
2001 2000 25 - 20 5
2002 2001 8 8 Pending Pending
2003 2002 2 2 Pending Pending
==============================================================================================================
The MPSC disallowed certain costs based upon a conclusion that these amounts did
not represent costs incremental to costs already reflected in electric rates. In
the orders received for the years 1997 through 2000, the MPSC also reserved the
right to review again the total implementation costs depending upon the progress
and success of the retail open access program, and ruled that due to the rate
freeze imposed by the Customer Choice Act, it was premature to establish a cost
recovery method for the allowable implementation costs. In addition to the
amounts shown above, as of March 31, 2003, Consumers incurred and deferred as a
regulatory asset, $2 million of additional implementation costs and has also
recorded as a regulatory asset $14 million for the cost of money associated with
total implementation costs. Consumers believes the implementation costs and the
associated cost of money are fully recoverable in accordance with the Customer
Choice Act. Cash recovery from customers will probably begin after the rate
freeze or rate cap period has expired. As discussed below, Consumers has asked
to include implementation costs through December 31, 2003 in the pending
securitization case. If approved, the sale of Securitization bonds will allow
for the recovery of these costs. Consumers cannot predict the amounts the MPSC
will approve as allowable costs.
Consumers is also pursuing authorization at the FERC for MISO to reimburse
Consumers for approximately $8 million in certain electric utility restructuring
implementation costs related to its former participation in the development of
the Alliance RTO, a portion of which has been expensed. However, Consumers
cannot predict the amount the FERC will ultimately order to be reimbursed by the
MISO.
Securitization: In March 2003, Consumers filed an application with the MPSC
seeking approval to issue Securitization bonds in the amount of approximately
$1.084 billion. If approved, this would allow the
CMS-23
CMS Energy Corporation
recovery of costs and reduce interest rates associated with financing Clean Air
Act expenditures, post-2000 Palisades expenditures, and retail open access
implementation costs through December 31, 2003, and certain pension fund
expenses, and expenses associated with the issuance of the bonds.
Rate Caps: The Customer Choice Act imposes certain limitations on electric rates
that could result in Consumers being unable to collect from electric customers
its full cost of conducting business. Some of these costs are beyond Consumers'
control. In particular, if Consumers needs to purchase power supply from
wholesale suppliers while retail rates are frozen or capped, the rate
restrictions may make it impossible for Consumers to fully recover purchased
power and associated transmission costs from its customers. As a result,
Consumers may be unable to maintain its profit margins in its electric utility
business during the rate freeze or rate cap periods. The rate freeze is in
effect through December 31, 2003. The rate caps are in effect through at least
December 31, 2004 for small commercial and industrial customers, and at least
through December 31, 2005 for residential customers.
Industrial Contracts: In response to industry restructuring efforts, in 1995 and
1996, Consumers entered into multi-year electric supply contracts with certain
large industrial customers to provide electricity at specially negotiated
prices, usually at a discount from tariff prices. The MPSC approved these
special contracts as part of its phased introduction to competition. Unless
terminated or restructured, the majority of these contracts are in effect
through 2005. As of March 31, 2003, outstanding contracts involve approximately
513 MW. Consumers cannot predict the ultimate financial impact of changes
related to these power supply contracts, or whether additional contracts will be
necessary or advisable. However, of the original special contracts that have
terminated, contracts for 52 MW have gone to an alternative electric supplier
and contracts for 129 MW have returned to bundled tariff rates.
Code of Conduct: In December 2000, as a result of the passage of the Customer
Choice Act, the MPSC issued a new code of conduct that applies to electric
utilities and alternative electric suppliers. The code of conduct seeks to
prevent cross-subsidization, information sharing, and preferential treatment
between a utility's regulated and unregulated services. The new code of conduct
is broadly written, and as a result, could affect Consumers' retail gas
business, the marketing of unregulated services and equipment to Michigan
customers, and internal transfer pricing between Consumers' departments and
affiliates. In October 2001, the new code of conduct was reaffirmed by the MPSC
without substantial modification. Consumers appealed the MPSC orders related to
the code of conduct and sought a stay of the orders until the appeal was
complete; however, the request for a stay was denied. Consumers filed a
compliance plan in accordance with the code of conduct. It also sought waivers
to the code of conduct in order to continue utility activities that provide
approximately $50 million in annual electric and gas revenues. In October 2002,
the MPSC denied waivers for three programs that provided approximately $32
million in gas revenues in 2001, of which $30 million relates to the appliance
service plan. The waivers denied included all waivers associated with the
appliance service plan program that has been offered by Consumers for many
years. Consumers filed a renewed motion for a stay of the effectiveness of the
code of conduct and an appeal of the waiver denials with the Michigan Court of
Appeals. On November 8, 2002, the Michigan Court of Appeals denied Consumers'
request for a stay. Consumers filed an application for leave to appeal with the
Michigan Supreme Court with respect to the Michigan Court of Appeals' November
ruling denying the stay. In February 2003, the Michigan Supreme Court denied the
application. In December 2002, Consumers filed a renewed request with the MPSC
for a temporary waiver until April 2004 for the appliance service plan, which
generated $33 million in gas revenues in 2002. In February 2003, the MPSC
granted an extension of the temporary waiver until December 31, 2003. The full
impact of the new code of conduct on Consumers' business will remain uncertain
until the appellate courts issue definitive rulings. Recently, in an appeal
involving affiliate pricing guidelines, the Michigan Court of Appeals struck the
guidelines down because of a procedurally defective manner of enactment by the
MPSC. A similar procedure was used by the MPSC in enacting the new code of
conduct. Consumers is also exploring seeking legislative clarification of the
scope of the code of conduct.
Energy Policy: Uncertainty exists regarding the enactment of a national
comprehensive energy policy, specifically federal electric industry
restructuring legislation. A variety of bills introduced in the United
CMS-24
CMS Energy Corporation
States Congress in recent years aimed to change existing federal regulation of
the industry. If the federal government enacts a comprehensive energy policy or
electric restructuring legislation, then that legislation could potentially
affect company operations and financial requirements.
Transmission: In 2002, Consumers sold its electric transmission system to MTH, a
non-affiliated limited partnership whose general partner is a subsidiary of
Trans-Elect, Inc.
As a result of the sale, Consumers anticipates its after-tax earnings will be
decreased by $15 million in 2003, and decrease by approximately $14 million
annually for the next three years due to a loss of revenue from wholesale and
retail open access customers who will buy services directly from MTH and the
loss of a return on the sold electric transmission system.
Under an agreement with MTH, and subject to certain additional RTO surcharges,
transmission rates charged to Consumers are fixed by contract at current levels
through December 31, 2005, and subject to FERC ratemaking thereafter. MTH has
completed the capital program to expand the transmission system's capability to
import electricity into Michigan, as required by the Customer Choice Act, and
Consumers will continue to maintain the system under a five-year contract with
MTH.
Consumers is a customer of AEP, holding 300 MW of long-term transmission service
reservations through the AEP transmission system. Effective June 1, 2003,
Consumers will have an additional 100 MW of long-term transmission, resulting in
a total of 400 MW of long-term transmission for summer 2003, reserved through
the AEP transmission system. AEP has indicated its intent, and has received
preliminary FERC approval, to turn control of its transmission system over to
the PJM RTO. This will require current AEP wholesale transmission customers to
become members of, and resubmit reservation requests to, PJM. Due to legislation
recently enacted in Virginia, which precludes Virginia utilities (including AEP)
from joining an RTO until at least July 2004, as well as uncertainty associated
with state approvals AEP is seeking from various state regulatory bodies, the
timing of AEP's membership in PJM is currently in some doubt. Upon completion of
the steps necessary for the integration of AEP into PJM, Consumers will complete
the application process to join PJM as a transmission customer.
There are multiple proceedings and a proposed rulemaking pending before the FERC
regarding transmission pricing mechanisms and standard market design for
electric bulk power markets and transmission. The results of these proceedings
and proposed rulemaking could significantly affect the trend of transmission
costs and increase the delivered power costs to Consumers and the retail
electric customers it serves. The specific financial impact on Consumers of such
proceedings, rulemaking and trends are not currently quantifiable.
In addition, Consumers is evaluating whether or not there may be impacts on
electric reliability associated with the outcomes of these various transmission
related proceedings. Consumers cannot assure that all risks to reliability can
be avoided.
Consumers cannot predict the impact of these electric industry-restructuring
issues on its financial position, liquidity, or results of operations.
PERFORMANCE STANDARDS: In July 2001, the MPSC proposed electric distribution
performance standards for Consumers and other Michigan electric distribution
utilities. The proposal would establish standards related to restoration after
an outage, safety, and customer relations. Failure to meet the standards would
result in customer bill credits. Consumers submitted comments to the MPSC. In
December 2001, the MPSC issued an order stating its intent to initiate a formal
rulemaking proceeding to develop and adopt performance standards. In November
2002, the MPSC issued an order initiating the formal rulemaking proceeding.
Consumers has filed comments on the proposed rules and will continue to
participate in this process. Consumers cannot predict the nature of the proposed
standards or the likely effect, if any, on Consumers.
CMS-25
CMS Energy Corporation
For further information and material changes relating to the rate matters and
restructuring of the electric utility industry, see Note 1, Corporate Structure
and Summary of Significant Accounting Policies, and Note 4, Uncertainties,
"Consumers' Electric Utility Rate Matters - Electric Restructuring" and
"Consumers' Electric Utility Rate Matters - Electric Proceedings."
UNCERTAINTIES: Several electric business trends or uncertainties may affect
Consumers' financial results and condition. These trends or uncertainties have,
or Consumers reasonably expects could have, a material impact on net sales,
revenues, or income from continuing electric operations. Such trends and
uncertainties include: 1) pending litigation and government investigations; 2)
the need to make additional capital expenditures and increase operating expenses
for Clean Air Act compliance; 3) environmental liabilities arising from various
federal, state and local environmental laws and regulations, including potential
liability or expenses relating to the Michigan Natural Resources and
Environmental Protection Acts and Superfund; 4) uncertainties relating to the
storage and ultimate disposal of spent nuclear fuel; 5) electric industry
restructuring issues, including those described above; 6) Consumers' ability to
meet peak electric demand requirements at a reasonable cost, without market
disruption, and successfully implement initiatives to reduce exposure to
purchased power price increases; 7) the recovery of electric restructuring
implementation costs; 8) Consumers new status as an electric transmission
customer and not as an electric transmission owner/operator; 9) sufficient
reserves for OATT rate refunds; 10) the effects of derivative accounting and
potential earnings volatility; 11) increased costs for safety and homeland
security initiatives that are not recoverable on a timely basis from customers;
and 12) potentially rising pension costs due to market losses (as discussed
above in Accounting for Pension and OPEB). For further information about these
trends or uncertainties, see Note 4, Uncertainties.
CONSUMERS' GAS UTILITY BUSINESS OUTLOOK
GROWTH: Over the next five years, Consumers expects gas deliveries, including
gas full service and customer choice deliveries (excluding transportation to the
MCV Facility and off-system deliveries), to grow at an average rate of less than
one percent per year based primarily on a steadily growing customer base. Actual
gas deliveries in future periods may be affected by abnormal weather, use of gas
by independent power producers, changes in competitive and economic conditions,
and the level of natural gas consumption per customer.
2001 GAS RATE CASE: In June 2001, Consumers filed an application with the MPSC
seeking a distribution service rate increase. On November 7, 2002, the MPSC
issued a final order approving a $56 million annual distribution service rate
increase, which includes the $15 million interim increase, with an 11.4 percent
authorized return on equity, for service effective November 8, 2002. As part of
this order, the MPSC approved Consumers' proposal to absorb the assets and
liabilities of Michigan Gas Storage Company into Consumers' rate base and rates.
This has occurred through a statutory merger of Michigan Gas Storage Company
into Consumers and this is not expected to have an impact on Consumers'
consolidated financial statements.
2003 GAS RATE CASE: On March 14, 2003, Consumers filed an application with the
MPSC seeking a $156 million increase in its gas delivery and transportation
rates, which includes a 13.5 percent authorized return on equity, based on a
2004 test year. If approved, the request would add about $6.40 per month, or
about 9 percent, to the typical residential customer's average monthly bill.
Contemporaneously with this filing, Consumers has requested interim rate relief
in the same amount.
CMS-26
CMS Energy Corporation
In September 2002, the FERC issued an order rejecting a filing by Consumers to
assess certain rates for non-physical gas title tracking services offered by
Consumers. Despite Consumers' arguments to the contrary, the FERC asserted
jurisdiction over such activities and allowed Consumers to refile and justify a
title transfer fee not based on volumes as Consumers proposed. Because the order
was issued six years after Consumers made its original filing initiating the
proceeding, over $3 million in non-title transfer tracking fees had been
collected. No refunds have been ordered, and Consumers sought rehearing of the
September order. If refunds were ordered they may include interest which would
increase the refund liability to more than the $3 million collected. In December
2002, Consumers established a $3.6 million reserve related to this matter.
Consumers is unable to say with certainty what the final outcome of this
proceeding might be.
ENERGY-RELATED SERVICES: Consumers offers a variety of energy-related services
to retail customers that focus on appliance maintenance, home safety, commodity
choice, and assistance to customers purchasing heating, ventilation and air
conditioning equipment. Consumers continues to look for additional growth
opportunities in providing energy-related services to its customers. The ability
to offer all or some of these services and other utility related
revenue-generating services, which provide approximately $36 million in annual
gas revenues, may be restricted by the new code of conduct issued by the MPSC,
as discussed above in Consumers' Electric Utility Business Outlook, "Competition
and Regulatory Restructuring - Code of Conduct."
UNCERTAINTIES: Several gas business trends or uncertainties may affect
Consumers' financial results and conditions. These trends or uncertainties have,
or Consumers reasonably expects could have, a material impact on net sales,
revenues, or income from continuing gas operations. Such trends and
uncertainties include: 1) pending litigation and government investigations; 2)
potential environmental costs at a number of sites, including sites formerly
housing manufactured gas plant facilities; 3) future gas industry restructuring
initiatives; 4) any initiatives undertaken to protect customers against gas
price increases; 5) an inadequate regulatory response to applications for
requested rate increases; 6) market and regulatory responses to increases in gas
costs, including a reduced average use per residential customer; 7) increased
costs for pipeline integrity and safety and homeland security initiatives that
are not recoverable on a timely basis from customers; and 8) potentially rising
pension costs due to market losses (as discussed above in Accounting for Pension
and OPEB). For further information about these uncertainties, see Note 4,
Uncertainties.
CONSUMERS' OTHER OUTLOOK
SECURITY COSTS: Since the September 11, 2001 terrorist attacks in the United
States, Consumers has increased security at all critical facilities and over its
critical infrastructure, and will continue to evaluate security on an ongoing
basis. Consumers may be required to comply with federal and state regulatory
security measures promulgated in the future. Through December 31, 2002,
Consumers has incurred approximately $4 million in incremental security costs,
including operating, capital, and decommissioning and removal costs. Consumers
estimates it may incur additional incremental security costs in 2003 of
approximately $6 million. Consumers will attempt to seek recovery of these costs
from its customers. In December 2002, the Michigan legislature passed, and the
governor signed, a bill that would allow Consumers to seek recovery of
additional nuclear electric division security costs incurred during the rate
freeze and cap periods imposed by the Customer Choice Act. Of the $4 million in
incremental security costs incurred through December 31, 2002, approximately $3
million related to nuclear security costs. Of the estimated $6 million for
incremental security costs expected to be incurred in 2003, $4 million relates
to nuclear security costs. On February 5, 2003, the MPSC adopted filing
requirements for the recovery of enhanced security costs.
ENTERPRISES OUTLOOK
CMS Energy's IPP subsidiary plans to complete the restructuring of its
operations by narrowing the scope of its existing operations and commitments to
two regions: North America and the Middle East/North Africa. In addition, its
plans include selling designated assets and investments that are
under-performing, non-region
CMS-27
CMS Energy Corporation
focused and non-synergistic with other CMS Energy business units. The
independent power production business unit will continue to optimize the
operations and management of its remaining portfolio of assets in order to
contribute to CMS Energy's earnings and to maintain its reputation for solid
performance in the construction and operation of power plants.
CMS MST has continued to streamline its portfolio in order to reduce its
business risk and outstanding credit guarantees. In January 2003, CMS MST closed
on the sale of a majority of the natural gas trading book inventory to Sempra
Energy Trading and in March 2003, CMS MST sold a majority of its wholesale power
trading portfolio to a unit of Constellation Energy Group, Inc. Also during the
first quarter of 2003, CMS MST sold its 50 percent joint venture ownership
interest in Texon, its 50 percent interest in Premstar and the Tulsa retail
contracts. The company expects the sale of its energy conservation unit, CMS
Viron, to be completed in the second quarter of 2003, however, management cannot
make any assurances as to when this asset sale will actually occur. Upon
completion of these sales, CMS Energy will exit from the energy services and
trading business and future activities will be centered around meeting
contractual obligations, as well as purchasing fuel for and marketing the
merchant power from DIG, Michigan Power, LLC and other IPPs as their current
power purchase agreements expire.
CMS Gas Transmission also plans to narrow its scope of existing operations and
commitments. In doing so, CMS Energy is actively pursuing the sale, liquidation,
or other disposition of certain of its assets and investments, but management
cannot predict when, nor make any assurances that, these asset and investment
sales will occur.
UNCERTAINTIES: The results of operations and financial position of CMS Energy's
diversified energy businesses may be affected by a number of trends or
uncertainties that have, or CMS Energy reasonably expects could have, a material
impact on income from continuing operations, cash flows and balance sheet and
credit improvement. Such trends and uncertainties include: 1) the ability to
sell or optimize assets or businesses in accordance with its financial plan; 2)
the international monetary fluctuations, particularly in Argentina, as well as
Brazil and Australia; 3) the changes in foreign laws, governmental and
regulatory policies that could significantly reduce the tariffs charged and
revenues recognized by certain foreign investments; 4) the imposition of stamp
taxes on certain South American contracts that could significantly increase
project expenses; 5) the impact of any future rate cases or FERC actions or
orders on regulated businesses and the effects of changing regulatory and
accounting related matters resulting from current events; and 6) the impact of
ratings downgrades on CMS Energy's liquidity, costs of operating, and cost of
capital.
OTHER OUTLOOK
SEC AND OTHER INVESTIGATIONS: As a result of round-trip trading transactions at
CMS MST, CMS Energy's Board of Directors established a Special Committee of
independent directors to investigate matters surrounding the transactions and
retained outside counsel to assist in the investigation. The Special Committee
completed its investigation and reported its findings to the Board of Directors
in October 2002. The Special Committee concluded, based on an extensive
investigation, that the round-trip trades were undertaken to raise CMS MST's
profile as an energy marketer with the goal of enhancing its ability to promote
its services to new customers. The Special Committee found no effort to
manipulate the price of CMS Energy Common Stock or affect energy prices. The
Special Committee also made recommendations designed to prevent any reoccurrence
of this practice, most of which have already been implemented. Previously, CMS
Energy terminated its speculative trading business and revised its risk
management policy. The Board of Directors adopted, and CMS Energy has begun
implementing, the remaining recommendations of the Special Committee.
CMS Energy is cooperating with other investigations concerning round-trip
trading, including an
CMS-28
CMS Energy Corporation
investigation by the SEC regarding round-trip trades and CMS Energy's financial
statements, accounting policies and controls, and investigations by the United
States Department of Justice, the Commodity Futures Trading Commission and the
FERC. The FERC issued an order on April 30, 2003 directing eight companies,
including CMS MST, to submit written demonstrations within forty-five days that
they have taken certain specified remedial measures with respect to the
reporting of natural gas trading data to publications that compile and publish
price indices. CMS MST intends to make a written submission within the specified
time period demonstrating compliance with the FERC's directives. Other than the
FERC investigation, CMS Energy is unable to predict the outcome of these
matters, and what effect, if any, these investigations will have on its
business.
SECURITIES CLASS ACTION LAWSUITS: Beginning on May 17, 2002, a number of
securities class action complaints were filed against CMS Energy, Consumers, and
certain officers and directors of CMS Energy and its affiliates. The complaints
were filed as purported class actions in the United States District Court for
the Eastern District of Michigan. The cases were consolidated into a single
lawsuit and an amended and consolidated class action complaint was filed on May
1, 2003. The defendants named in the amended and consolidated class action
complaint consist of CMS Energy, Consumers, certain officers and directors of
CMS Energy and its affiliates, and certain underwriters of CMS Energy
securities. The purported class period is from May 1, 2000 through and including
March 31, 2003. The amended and consolidated class action complaint seeks
unspecified damages based on allegations that the defendants violated United
States securities laws and regulations by making allegedly false and misleading
statements about CMS Energy's business and financial condition. The companies
intend to vigorously defend against this action but cannot predict the outcome
of this litigation.
DEMAND FOR ACTIONS AGAINST OFFICERS AND DIRECTORS: The Board of Directors
received a demand, on behalf of a shareholder of CMS Energy Common Stock, that
it commence civil actions (i) to remedy alleged breaches of fiduciary duties by
CMS Energy officers and directors in connection with round-trip trading at CMS
Energy, and (ii) to recover damages sustained by CMS Energy as a result of
alleged insider trades alleged to have been made by certain current and former
officers of CMS Energy and its subsidiaries. If the Board elects not to commence
such actions, the shareholder has stated that he will initiate a derivative
suit, bringing such claims on behalf of CMS Energy. CMS Energy has elected two
new members to its Board of Directors who will serve as an independent
litigation committee to determine whether it is in the best interest of CMS
Energy to bring the action demanded by the shareholder. Counsel for the
shareholder has agreed to extend the time for CMS Energy to respond to the
demand. CMS Energy cannot predict the outcome of this litigation.
ERISA CLAIMS: CMS Energy is a named defendant, along with Consumers, CMS MST and
certain named and unnamed officers and directors, in two lawsuits brought as
purported class actions on behalf of participants and beneficiaries of the
401(k) Plan. The two cases, filed in July 2002 in the United States District
Court for the Eastern District of Michigan, were consolidated by the trial judge
and an amended and consolidated complaint has been filed. Plaintiffs allege
breaches of fiduciary duties under ERISA and seek restitution on behalf of the
Plan with respect to a decline in value of the shares of CMS Energy Common Stock
held in the Plan. Plaintiffs also seek other equitable relief and legal fees.
These cases will be vigorously defended. CMS Energy cannot predict the outcome
of this litigation.
GAS INDEX PRICING REPORTING: CMS Energy has notified appropriate regulatory and
governmental agencies that some employees at CMS MST and CMS Field Services
appeared to have provided inaccurate information regarding natural gas trades to
various energy industry publications which compile and report index prices. CMS
Energy is cooperating with investigations by the Commodity Futures Trading
Commission, Department of Justice and FERC regarding this matter. CMS Energy is
unable to predict the outcome of these matters and what effect, if any, these
investigations will have on its business.
CMS-29
CMS Energy Corporation
OTHER MATTERS
DISCLOSURE AND INTERNAL CONTROLS
CMS Energy's CEO and CFO are responsible for establishing and maintaining CMS
Energy's disclosure controls and procedures. Management, under the direction of
CMS Energy's principal executive and financial officers, has evaluated the
effectiveness of CMS Energy's disclosure controls and procedures within the past
ninety days prior to this filing. Based on this evaluation, CMS Energy's CEO and
CFO have concluded that disclosure controls and procedures are effective to
ensure that material information was presented to them and properly disclosed.
There have been no significant changes in CMS Energy's internal controls or in
factors, other than as discussed below, that could significantly affect internal
controls subsequent to such evaluation.
CONTROL WEAKNESSES AT CMS MST
In late 2001 and during 2002, the Company identified a number of deficiencies in
MST's systems of internal accounting controls. The internal control deficiencies
related to, among other things, a lack of account reconciliations, unidentified
differences between subsidiary ledgers and the general ledger, and procedures
and processes surrounding the Company's accounting for energy trading contracts,
including mark-to-market accounting.
Senior management, the Audit Committee of the Board of Directors, the Board of
Directors, and the independent auditors were notified of these deficiencies as
they were discovered, and the Company commenced a plan of remediation that
included the replacement of certain key personnel and the deployment of
additional internal and external accounting personnel to CMS MST. Certain
aspects of the remediation plan, which includes the implementation of
improvements and changes to CMS MST's internal accounting controls, were
postponed to enable the Company to prepare restated financial statements for
2000 and 2001. While a number of these control improvements and changes were
implemented in late 2002, the most important ones occurred in the first quarter
of 2003.
The implementation of certain elements of its remediation plan enabled the
Company to prepare reliable restated financial statements for CMS MST for
December 31, 2000, 2001 and 2002, as well as for the quarterly periods of 2002.
Management is in the process of preparing restated quarterly financial
statements for 2001.
Management believes that the improvements to its system of internal accounting
controls implemented in late 2002 and the first quarter of 2003 are appropriate
and responsive to the internal control deficiencies that were identified.
Management will continue to monitor the operation of the improved internal
controls to assess their sustained effectiveness through 2003.
CASH MANAGEMENT
In August 2002, FERC issued a NOPR concerning the management of funds by certain
FERC-regulated companies. The proposed rule could establish limits on the amount
of funds that may be swept from a regulated subsidiary to a non-regulated parent
under cash management programs. The proposed rule would require written cash
management arrangements that would specify the duties and restrictions of the
participants, the methods of calculating interest and allocating interest income
and expenses, and the restrictions on deposits or borrowings by money pool
members. These cash management agreements may also require participants to
provide documentation of certain transactions. In the NOPR, FERC proposed that
to participate in a cash management or money pool arrangement, FERC-regulated
entities would be required
CMS-30
CMS Energy Corporation
to maintain a minimum proprietary capital balance (stockholder's equity) of 30
percent and both the FERC-regulated entity and its parent would be required to
maintain investment grade credit ratings. The FERC recently met, but no action
was taken on cash management issues related to the NOPR.
NEW ACCOUNTING STANDARDS
FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES: Issued
by the FASB in January 2003, the interpretation expands upon and strengthens
existing accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another entity.
The consolidation requirements of the interpretation apply immediately to
variable interest entities created after January 31, 2003. For CMS Energy, the
consolidation requirements apply to pre-existing entities beginning July 1,
2003. CMS Energy will be required to consolidate any entities that meet the
requirements of the interpretation. CMS Energy is in the process of studying
this interpretation, and has yet to determine the effects, if any, on its
consolidated financial statements.
CMS-31
CMS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31 2003 2002
- -------------------------------------------------------------------------------------------------------------------
In Millions, Except Per Share Amounts
OPERATING REVENUE
Electric utility $ 650 $ 608
Gas utility 789 616
Enterprises 553 1,038
Other - 1
-----------------------------------
1,992 2,263
- -------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation
Fuel for electric generation 94 86
Purchased and interchange power 249 466
Purchased power - related parties 132 140
Cost of gas sold 837 890
Other 194 172
-----------------------------------
1,506 1,754
Maintenance 57 55
Depreciation, depletion and amortization 126 122
General taxes 64 57
-----------------------------------
1,753 1,988
- -------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS)
Electric utility 116 115
Gas utility 103 64
Enterprises 23 85
Other (3) 11
-----------------------------------
239 275
OTHER INCOME (DEDUCTIONS)
Accretion expense (7) (8)
Gain (loss) on asset sales, net (5) 22
Other, net 10 -
-----------------------------------
(2) 14
- -------------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES 237 289
- -------------------------------------------------------------------------------------------------------------------
FIXED CHARGES
Interest on long-term debt 97 95
Other interest 6 11
Capitalized interest (2) (3)
Preferred dividends - -
Preferred securities distributions 18 25
-----------------------------------
119 128
- -------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 118 161
INCOME TAXES 41 68
MINORITY INTERESTS 1 -
-----------------------------------
INCOME FROM CONTINUING OPERATIONS 76 93
INCOME (LOSS) FROM DISCONTINUED OPERATIONS, NET OF $15
TAX EXPENSE IN 2003 AND $33 TAX BENEFIT IN 2002 27 (51)
-----------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING 103 42
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING, NET OF $13
TAX BENEFIT IN 2003:
ENERGY TRADING CONTRACTS, EITF 02-03 (NOTE 10) (23) -
ASSET RETIREMENT OBLIGATIONS, SFAS NO. 143 (NOTE 10) (1) -
-----------------------------------
(24) -
NET INCOME $ 79 $ 42
===================================================================================================================
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CMS-32
THREE MONTHS ENDED
MARCH 31 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
In Millions, Except Per Share Amounts
CMS ENERGY
NET INCOME
Net Income Available to Common Stock $ 79 $ 42
==============================
BASIC EARNINGS PER AVERAGE COMMON SHARE
Income from Continuing Operations $ 0.53 $ 0.70
Income (Loss) from Discontinued Operations 0.18 (0.38)
Loss from Cumulative Effect of Change in Accounting (0.16) -
------------------------------
Net Income Attributable to Common Stock $ 0.55 $ 0.32
==============================
DILUTED EARNINGS PER AVERAGE COMMON SHARE
Income from Continuing Operations $ 0.49 $ 0.70
Income (Loss) from Discontinued Operations 0.16 (0.38)
Loss from Cumulative Effect of Change in Accounting (0.14) -
------------------------------
Net Income Attributable to Common Stock $ 0.51 $ 0.32
==============================
DIVIDENDS DECLARED PER COMMON SHARE $ - $ 0.365
- ---------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CMS-33
CMS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31 2003 2002
- -------------------------------------------------------------------------------------------------------------
In Millions
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 79 $ 42
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization (includes nuclear
decommissioning of $2 and $2, respectively) 126 122
Gain on disposal of discontinued operations (1) -
Capital lease and debt discount amortization 2 4
Deferred income taxes and investment tax credit 27 (245)
Accretion expense 7 8
Undistributed earnings from related parties (31) (36)
(Gain) loss on the sale of assets 5 (22)
Cumulative effect of accounting changes 24 -
Changes in other assets and liabilities:
Decrease (increase) in accounts receivable and accrued revenues (122) 36
Decrease in inventories 241 185
Increase (decrease) in accounts payable and accrued expenses (54) 84
Changes in other assets and liabilities 97 69
-----------------------------
Net cash provided by operating activities 400 247
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (excludes assets placed under capital lease) (156) (156)
Investments in partnerships and unconsolidated subsidiaries - (16)
Cost to retire property, net (17) (20)
Investment in Electric Restructuring Implementation Plan (2) (3)
Investments in nuclear decommissioning trust funds (2) (2)
Proceeds from nuclear decommissioning trust funds 6 8
Proceeds from sale of assets 97 878
Other investing 21 (42)
-----------------------------
Net cash provided by (used in) investing activities (53) 647
- -------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes, bonds, and other long-term debt 326 311
Issuance of common stock - 42
Retirement of bonds and other long-term debt (170) (912)
Retirement of trust preferred securities - (30)
Payment of common stock dividends - (49)
Decrease in notes payable, net (201) (249)
Payment of capital lease obligations (3) (3)
Other financing (2) (1)
-----------------------------
Net cash used in financing activities (50) (891)
- -------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATES ON CASH 1 (1)
- -------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS 298 2
CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF PERIOD 377 127
-----------------------------
CASH AND TEMPORARY CASH INVESTMENTS, END OF PERIOD $ 675 $ 129
=============================================================================================================
CMS-34
OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES WERE:
CASH TRANSACTIONS
Interest paid (net of amounts capitalized) $ 119 $ 94
Income taxes paid (net of refunds) - (42)
Pension and OPEB cash contribution 18 61
NON-CASH TRANSACTIONS
Other assets placed under capital leases $ 8 $ 17
=============================================================================================================
All highly liquid investments with an original maturity of three months or less
are considered cash equivalents.
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CMS-35
CMS ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
MARCH 31 MARCH 31
2003 DECEMBER 31 2002
(UNAUDITED) 2002 (UNAUDITED)
- ----------------------------------------------------------------------------------------------------------------------
In Millions
PLANT AND PROPERTY (AT COST)
Electric utility $ 7,356 $ 7,523 $ 7,733
Gas utility 2,787 2,719 2,625
Enterprises 527 508 1,172
Other 42 45 61
--------------------------------------------
10,712 10,795 11,591
Less accumulated depreciation, depletion and amortization 5,490 6,110 6,259
--------------------------------------------
5,222 4,685 5,332
Construction work-in-progress 488 549 580
--------------------------------------------
5,710 5,234 5,912
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENTS
Enterprises 781 753 1,172
Midland Cogeneration Venture Limited Partnership 405 388 316
First Midland Limited Partnership 259 255 257
Other 2 2 (4)
--------------------------------------------
1,447 1,398 1,741
- ----------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and temporary cash investments at cost, which approximates market 675 377 129
Accounts receivable, notes receivable and accrued revenue, less
allowances of $7, $8 and $5, respectively 365 322 275
Accounts receivable - Marketing, services and trading,
less allowances of $9, $8 and $10, respectively 305 248 276
Accounts receivable and notes receivable - related parties 180 187 115
Inventories at average cost
Gas in underground storage 258 491 407
Materials and supplies 93 89 92
Generating plant fuel stock 26 37 50
Assets held for sale 355 644 385
Price risk management assets 95 115 366
Prepayments and other 239 238 168
--------------------------------------------
2,591 2,748 2,263
- ----------------------------------------------------------------------------------------------------------------------
NON-CURRENT ASSETS
Regulatory Assets
Securitized costs 678 689 714
Postretirement benefits 180 185 203
Abandoned Midland Project 11 11 11
Other 233 168 171
Assets held for sale 2,042 2,081 2,697
Price risk management assets 172 135 434
Nuclear decommissioning trust funds 529 536 576
Notes receivable - related parties 148 160 213
Notes receivable 126 126 126
Other 428 444 543
--------------------------------------------
4,547 4,535 5,688
--------------------------------------------
TOTAL ASSETS $ 14,295 $ 13,915 $ 15,604
======================================================================================================================
CMS-36
STOCKHOLDERS' INVESTMENT AND LIABILITIES
MARCH 31 MARCH 31
2003 DECEMBER 31 2002
(UNAUDITED) 2002 (UNAUDITED)
- -------------------------------------------------------------------------------------------------------------------------
In Millions
CAPITALIZATION
Common stockholders' equity
Common stock, authorized 250.0 shares; outstanding 144.1 shares,
144.1 shares and 134.2 shares, respectively $ 1 $ 1 $ 1
Other paid-in-capital 3,605 3,605 3,299
Other comprehensive loss (737) (753) (263)
Retained deficit (1,641) (1,720) (957)
----------------------------------------------
1,228 1,133 2,080
Preferred stock of subsidiary 44 44 44
Company-obligated convertible Trust Preferred Securities
of subsidiaries (a) 393 393 694
Company-obligated mandatorily redeemable preferred securities
of Consumer's subsidiaries (a) 490 490 490
Long-term debt 5,212 5,356 5,475
Non-current portion of capital leases 121 116 84
----------------------------------------------
7,488 7,532 8,867
- -------------------------------------------------------------------------------------------------------------------------
MINORITY INTERESTS 22 21 24
- -------------------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt and capital leases 927 640 736
Notes payable 253 458 164
Accounts payable 350 363 296
Accounts payable - Marketing, services and trading 131 119 211
Accrued interest 108 131 142
Accrued taxes 283 291 111
Accounts payable - related parties 55 53 59
Liabilities held for sale 299 465 603
Price risk management liabilities 95 96 356
Current portion of purchase power contracts 26 26 24
Current portion of gas supply contract obligations 26 25 23
Deferred income taxes 23 15 15
Other 193 216 245
----------------------------------------------
2,769 2,898 2,985
- -------------------------------------------------------------------------------------------------------------------------
NON-CURRENT LIABILITIES
Postretirement benefits 732 725 298
Deferred income taxes 377 414 609
Deferred investment tax credit 89 91 100
Regulatory liabilities for income taxes, net 311 297 276
Other regulatory liabilities 152 4 -
Asset retirement obligation 365 - -
Liabilities held for sale 1,298 1,243 1,475
Price risk management liabilities 165 135 341
Gas supply contract obligations 226 241 254
Power purchase agreement - MCV Partnership 21 27 47
Other 280 287 328
----------------------------------------------
4,016 3,464 3,728
- -------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 1, 4 and 5)
TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES $ 14,295 $ 13,915 $ 15,604
=========================================================================================================================
(a) For further discussion, see Note 5 of the Condensed Notes to Consolidated
Financial Statements.
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CMS-37
CMS ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31 2003 2002
- ------------------------------------------------------------------------------------------------------------------
In Millions
COMMON STOCK
At beginning and end of period $ 1 $ 1
- ------------------------------------------------------------------------------------------------------------------
OTHER PAID-IN CAPITAL
At beginning of period 3,605 3,257
Common stock repurchased - -
Common stock reacquired - -
Common stock issued - 42
----------------------------
At end of period 3,605 3,299
- ------------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME (LOSS)
Minimum Pension Liability
At beginning of period (241) -
Unrealized gain (loss) on investments (a) - -
----------------------------
At end of period (241) -
----------------------------
Investments
At beginning of period 2 (5)
Unrealized gain (loss) on investments (a) - -
----------------------------
At end of period 2 (5)
----------------------------
Derivative Instruments (b)
At beginning of period (56) (31)
Unrealized gain (loss) on derivative instruments (a) 8 12
Reclassification adjustments included in consolidated net income (a) (5) 2
----------------------------
At end of period (53) (17)
- ------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION
At beginning of period (458) (233)
Change in foreign currency translation (a) 13 (8)
----------------------------
At end of period (445) (241)
- ------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS (DEFICIT)
At beginning of period (1,720) (951)
Consolidated net income (a) 79 42
Common stock dividends declared - (48)
----------------------------
At end of period (1,641) (957)
----------------------------
TOTAL COMMON STOCKHOLDERS' EQUITY $ 1,228 $ 2,080
==================================================================================================================
(a) Disclosure of Comprehensive Income (Loss):
Other Comprehensive Income
Minimum Pension Liability
Minimum pension liability adjustments, net of tax of
$- and $-, respectively $ - $ -
Derivative Instruments
Unrealized gain (loss) on derivative instruments,
net of tax of $(5) and $(3), respectively 8 12
Reclassification adjustments included in net income,
net of tax of $3 and $(1), respectively (5) 2
Foreign currency translation, net 13 (8)
Net income 79 42
----------------------------
Total Comprehensive Income $ 95 $ 48
============================
(b) Included in these amounts is CMS Energy's proportionate share of the
effects of derivative accounting related to its equity investment in the
MCV Partnership and Taweelah as follows:
MCV Partnership:
At the beginning of the period $ 8 $ (8)
Unrealized gain (loss) on derivative instruments 7 5
Reclassification adjustments included in net income (4) 2
----------------------------
At the end of the period $ 11 $ (1)
============================
Taweelah:
At the beginning of the period $ (32) $ -
Unrealized gain (loss) on derivative instruments - -
----------------------------
At the end of the period $ (32) $ -
============================
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CMS-38
CMS Energy Corporation
CMS ENERGY CORPORATION
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
These interim Consolidated Financial Statements have been prepared by CMS Energy
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. As such, certain information and footnote
disclosures normally included in full year financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted. Certain prior year amounts have been
reclassified to conform to the presentation in the current year. In management's
opinion, the unaudited information contained in this report reflects all
adjustments necessary to assure the fair presentation of financial position,
results of operations and cash flows for the periods presented. The Condensed
Notes to Consolidated Financial Statements and the related Consolidated
Financial Statements should be read in conjunction with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements contained in
CMS Energy's Form 10-K for the year ended December 31, 2002, which includes the
Reports of Independent Auditors. Due to the seasonal nature of CMS Energy's
operations, the results as presented for this interim period are not necessarily
indicative of results to be achieved for the fiscal year.
1: CORPORATE STRUCTURE AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CORPORATE STRUCTURE: CMS Energy is the parent holding company of Consumers and
Enterprises. Consumers is a combination electric and gas utility company serving
Michigan's Lower Peninsula. Enterprises, through subsidiaries, is engaged in
domestic and international diversified energy businesses including: natural gas
transmission, storage and processing; independent power production; and energy
marketing, services and trading.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of CMS Energy, Consumers and Enterprises and their majority-owned
subsidiaries. Investments in affiliated companies where CMS Energy has the
ability to exercise significant influence, but not control are accounted for
using the equity method. Intercompany transactions and balances have been
eliminated.
USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
The principles in SFAS No. 5 guide the recording of estimated liabilities for
contingencies within the financial statements. SFAS No. 5 requires a company to
record estimated liabilities in the financial statements when it is probable
that a loss will be paid in the future as a result of a current event, and when
an amount can be reasonably estimated. CMS Energy has used this accounting
principle to record estimated liabilities as discussed in Note 4, Uncertainties.
REVENUE RECOGNITION POLICY: Revenues from deliveries of electricity and the
transportation and storage of natural gas are recognized as services are
provided. Revenues on sales of marketed electricity, natural gas, and other
energy products, as well as natural gas and LNGs, are recognized at delivery.
Revenues on sales of oil and natural gas produced are recognized when production
occurs, a sale is completed, and the risk of loss transfers to a third-party
purchaser. Mark-to-market changes in the fair value of energy trading contracts
that qualify as derivatives are recognized as revenues in the periods in which
the changes occur.
CMS-39
CMS Energy Corporation
CAPITALIZED INTEREST: SFAS No. 34 requires capitalization of interest on certain
qualifying assets that are undergoing activities to prepare them for their
intended use. SFAS No. 34 limits the capitalization of interest for the period
to the actual interest cost that is incurred and prohibits imputing interest
costs on any equity funds. The nonregulated portions of CMS Energy are subject
to these rules. The regulated businesses of CMS Energy are permitted to
capitalize an allowance for funds used during construction on regulated
construction projects and to include such amounts in plant in service.
EARNINGS PER SHARE: Basic and diluted earnings per share are based on the
weighted average number of shares of common stock and potential common stock
outstanding during the period. Potential common stock, for purposes of
determining diluted earnings per share, includes the effects of dilutive stock
options and convertible securities. The effect of such potential common stock is
computed using the treasury stock method or the if-converted method, as
applicable. For earnings per share computation, see Note 6.
FINANCIAL INSTRUMENTS: CMS Energy accounts for its debt and equity investment
securities in accordance with SFAS No. 115. As such, debt and equity securities
can be classified into one of three categories: held-to-maturity, trading, or
available-for-sale securities. CMS Energy's investments in equity securities are
classified as available-for-sale securities. They are reported at fair value,
with any unrealized gains or losses from changes in fair value usually reported
in equity as part of other comprehensive income and excluded from earnings
unless such changes in fair value are other than temporary. Unrealized gains or
losses from changes in the fair value of Consumers' nuclear decommissioning
investments are reported as regulatory liabilities. The fair value of these
investments is determined from quoted market prices.
FOREIGN CURRENCY TRANSLATION: CMS Energy's subsidiaries and affiliates whose
functional currency is other than the U.S. dollar translate their assets and
liabilities into U.S. dollars at the current exchange rates in effect at the end
of the fiscal period. The revenue and expense accounts of such subsidiaries and
affiliates are translated into U.S. dollars at the average exchange rates that
prevailed during the period. The gains or losses that result from this process,
and gains and losses on intercompany foreign currency transactions that are
long-term in nature, and which CMS Energy does not intend to settle in the
foreseeable future, are shown in the stockholders' equity section of the balance
sheet. For subsidiaries operating in highly inflationary economies, the U.S.
dollar is considered to be the functional currency, and transaction gains and
losses are included in determining net income. Gains and losses that arise from
exchange rate fluctuations on transactions denominated in a currency other than
the functional currency, except those that are hedged, are included in
determining net income. For the three months ended March 31, 2003 and 2002, the
change in the foreign currency translation adjustment increased equity by $13
million and decreased equity by $8 million, respectively, net of after-tax
hedging proceeds.
IMPAIRMENT OF INVESTMENTS AND LONG-LIVED ASSETS: In accordance with APB Opinion
No. 18 and SFAS No. 144, CMS Energy evaluates the potential impairment of its
investments in projects and other long-lived assets, other than goodwill, based
on various analyses, including the projection of undiscounted cash flows,
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. If the carrying amount of the investment or
asset exceeds the amount of the expected future undiscounted cash flows, an
impairment loss is recognized and the investment or asset is written down to its
estimated fair value.
PLANT AND PROPERTY: Plant and Property, including improvements, is stated at
cost. Construction-related labor and material costs, as well as indirect
construction costs such as engineering and interest costs, are capitalized.
Property repairs, minor property replacements and maintenance are charged to
maintenance expense as incurred. When depreciable plant and property maintained
by CMS Energy's regulated operations are retired or sold, the original cost plus
cost of removal (net of salvage credits), is charged to accumulated
depreciation.
CMS-40
CMS Energy Corporation
STOCK-BASED COMPENSATION: In December 2002, the FASB issued SFAS No. 148,
Accounting for Stock-Based Compensation - Transition and Disclosure. This
standard provides for alternative methods of transition for a voluntary change
to the fair value based method of accounting for stock-based employee
compensation. In addition, the statement amends the disclosure requirements of
SFAS No. 123 to require more prominent and more frequent disclosures in
financial statements about the effects of stock-based compensation. The
transition guidance and annual disclosure provisions of the statement are
effective as of December 31, 2002 and interim disclosure provisions are
effective for interim financial reports starting in 2003. In the fourth quarter
of 2002, CMS Energy adopted the fair value method of accounting for stock-based
compensation under SFAS No. 123 as amended by SFAS No. 148, applying the
prospective method. If compensation cost for stock options had been determined
in accordance with SFAS No. 123 for the three months ended March 31, 2002,
consolidated net income as reported and pro forma would have been as follows:
In Millions, Except Per Share Amounts
- ----------------------------------------------------------------------------------------------------------
Three Months Ended March 31 2002 Basic Diluted
- ----------------------------------------------------------------------------------------------------------
Net income, as reported $ 42 $0.32 $0.32
Add: Stock-based employee compensation expense included
In reported net income, net of taxes - - -
Deduct: Total stock-based compensation expense determined
Under fair value based method for all awards, net of tax (2) (0.02) (0.01)
- ----------------------------------------------------------------------------------------------------------
Pro forma net income $ 40 $0.30 $0.31
==========================================================================================================
UTILITY REGULATION: Consumers accounts for the effects of regulation based on
the regulated utility accounting standard SFAS No. 71. As a result, the actions
of regulators affect when Consumers recognizes revenues, expenses, assets and
liabilities.
In March 1999, Consumers received MPSC electric restructuring orders, which,
among other things, identified the terms and timing for implementing electric
restructuring in Michigan. Consistent with these orders and EITF No. 97-4,
Consumers discontinued the application of SFAS No. 71 for the energy supply
portion of its business because Consumers expected to implement retail open
access at competitive market based rates for its electric customers.
Discontinuation of SFAS No. 71 for the energy supply portion of Consumers'
business resulted in Consumers reducing the carrying value of its Palisades
plant-related assets, in 1999, by approximately $535 million and establishing a
regulatory asset for a corresponding amount. As of March 31, 2003, Consumers had
a net investment in energy supply facilities of $1.554 billion included in
electric plant and property.
Since 1999, there has been a significant legislative and regulatory change in
Michigan that has resulted in: 1) electric supply customers of utilities
remaining on cost-based rates and 2) utilities being given the ability to
recover Stranded Costs associated with electric restructuring, from customers
who choose an alternative electric supplier. During 2002, Consumers re-evaluated
the criteria used to determine if an entity or a segment of an entity meets the
requirements to apply regulated utility accounting, and determined that the
energy supply portion of its business could meet the criteria if certain
regulatory events occurred. In December 2002, Consumers received a MPSC Stranded
Cost order that allowed Consumers to re-apply regulatory accounting standard
SFAS No. 71 to the energy supply portion of its business. Re-application of SFAS
No. 71 had no effect on the prior discontinuation accounting, but will allow
Consumers to apply regulatory accounting treatment to the energy supply portion
of its business beginning in the fourth quarter of
CMS-41
CMS Energy Corporation
2002, including regulatory accounting treatment of costs required to be
recognized in accordance with SFAS No. 143. See Note 4, Uncertainties,
"Consumers' Electric Utility Rate Matters - Electric Restructuring."
SFAS No. 144 imposes strict criteria for retention of regulatory-created assets
by requiring that such assets be probable of future recovery at each balance
sheet date. Management believes these assets are probable of future recovery.
NEW ACCOUNTING STANDARDS:
FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES: Issued
by the FASB in January 2003, the interpretation expands upon and strengthens
existing accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another entity.
The consolidation requirements of the interpretation apply immediately to
variable interest entities created after January 31, 2003. For CMS Energy, the
consolidation requirements apply to pre-existing entities beginning July 1,
2003. Certain of the disclosure requirements apply to all financial statements
initially issued after January 31, 2003. CMS Energy will be required to
consolidate any entities that meet the requirements of the interpretation. CMS
Energy is in the process of studying this interpretation, and has yet to
determine the effects, if any, on its consolidated financial statements.
2. ASSET SALES AND RESTRUCTURING
CMS Energy continues to implement its financial improvement plan and on-going
asset sales program that was initiated in late 2001. The asset sales program
encompasses the sale of all non-strategic and under-performing assets. The
impacts of these sales are included in "Gain (loss) on asset sales, net" in the
Consolidated Statements of Income.
ASSET SALES
In January 2003, CMS Energy closed on the sale of a substantial portion of CMS
MST's wholesale natural gas trading contracts and inventory to Sempra Energy
Trading, the wholesale commodity trading unit of Sempra Energy and received $17
million of cash proceeds. In February 2003, Panhandle sold its one-third
interest in Centennial Pipeline, LLC for $40 million to Centennial's two other
partners, Marathon Ashland Petroleum, LLC and TE Products Pipeline Company,
Limited Partner, through its general partner, Texas Eastern Products Pipeline
Company. In March 2003, CMS MST sold a majority of its wholesale power book and
related supply portfolio for $34 million cash proceeds to Constellation Power
Source, Inc. The sale contains a potential to increase proceeds to $40 million
in 2006 dependent upon future years' performance of the sold contracts. In
addition, during the first quarter of 2003, CMS MST sold its 50 percent joint
venture ownership interest in Texon, its 50 percent interest in Premstar and its
Tulsa retail contracts, resulting in net cash proceeds of approximately $6
million.
In January 2002, CMS Energy completed the sale of its ownership interests in
Equatorial Guinea to Marathon Oil Company for approximately $993 million.
Proceeds from this transaction were used primarily to retire existing debt.
Included in the sale were all of CMS Oil and Gas' oil and gas reserves in
Equatorial Guinea and CMS Gas Transmission's ownership interest in the related
methanol plant. The gain on the methanol plant of $21 million ($14 million, net
of tax) is included in "Gain (loss) on asset sales, net" in the accompanying
Consolidated Statements of Income. The gain was subsequently adjusted during the
finalization of the sales agreement in June 2002 to $18 million ($12 million,
net of tax). The gain on the sale of CMS Oil & Gas' Equatorial Guinea properties
of $497 million ($310 million, net of tax) is included in discontinued
operations in 2002.
CMS-42
CMS Energy Corporation
In Millions
- ----------------------------------------------------------------------------------------
Pre-tax After-tax Pre-tax After-tax
2003 2003 2002 2002
- ----------------------------------------------------------------------------------------
Asset Sales - Gain (Loss):
Marketing, Services and Trading $(5) $(3) $ - $ -
Natural Gas Transmission - - 21 14
Other - - 1 -
-----------------------------------------------------------------------------------
Total Gain (Loss) on Asset Sales $(5) $(3) $ 22 $ 14
========================================================================================
RESTRUCTURING AND OTHER COSTS
CMS Energy announced in June 2002 a series of new initiatives intended to
sharpen its business focus and help restore its financial health by reducing
operating costs by an estimated $50 million annually. The initiatives announced
included the following:
o Relocating CMS Energy's corporate headquarters from Dearborn, Michigan
to a new combined CMS Energy and Consumers headquarters building then
under construction in Jackson, Michigan. The Jackson headquarters
building opened in March 2003 and will house an estimated 1,450 CMS
Energy and Consumers Energy employees. The relocation will ultimately
reduce corporate operating expenses.
o Implementing changes to CMS Energy's 401(K) savings program which
provided additional savings for CMS Energy and enhanced investment
options for employee participants.
o Implementing changes to CMS Energy's health care plan in order to keep
benefits and costs competitive.
o Terminating five officers, 18 CMS Field Services employees and 41 CMS
MST trading group employees. Prior to December 31, 2002, 31
Dearborn-based employees and 92 Houston employees elected severance
arrangements. Of these 187 officers and employees, 65 had been
terminated as of December 31, 2002. The remaining terminations will be
completed in 2003.
The following table shows the amount charged to expense for restructuring costs,
the payments made, and the unpaid balance of accrued costs at March 31, 2003 and
2002.
In Millions
- ------------------------------------------------------------------------------------------
March 31, 2003
- ------------------------------------------------------------------------------------------
Involuntary Lease
Termination Termination Total
- ------------------------------------------------------------------------------------------
Beginning accrual balance, January 1, 2003 $ 12 $ 8 $ 20
Expense 1 - 1
Payments (5) - (5)
- ------------------------------------------------------------------------------------------
Ending accrual balance $ 8 $ 8 $ 16
==========================================================================================
Restructuring costs for the three months ended March 31, 2003, which are
included in operating expenses, include $1 million of involuntary employee
termination benefits.
In addition, in the first half of 2003, restructuring costs related to
relocating employees and other headquarters expenses are expected to be $2
million. The relocation will occur between March and July 2003, and such costs
will be expensed as incurred.
CMS-43
CMS Energy Corporation
3: DISCONTINUED OPERATIONS
In accordance with SFAS No. 144, discontinued operations include components of
entities or entire entities that, through disposal transactions, will be
eliminated from the ongoing operations of CMS Energy. The assets and liabilities
of these entities were measured at the lower of the carrying value or the fair
value less cost to sell as required by SFAS No. 144. A description of the
entities included in discontinued operations is as follows:
In September 2001, CMS Energy discontinued the operations of the International
Energy Distribution segment. CMS Energy is actively seeking a buyer for the
assets of CMS Electric and Gas, and although the timing of this sale is
difficult to predict, nor can it be assured, management expects the sale to
occur in 2003.
In January 2002, CMS Energy completed the sale of its ownership interests in
Equatorial Guinea to Marathon Oil Company for approximately $993 million.
Included in the sale were all of CMS Oil and Gas' oil and gas reserves in
Equatorial Guinea and CMS Gas Transmission's ownership interest in the related
methanol plant. The gain on the CMS Oil & Gas Equatorial Guinea properties of
$497 million ($310 million, net of tax) is included in discontinued operations.
In the first quarter of 2003, CMS Energy settled a liability with the purchaser
of Equatorial Guinea and reversed the remaining excess reserve. This transaction
resulted in a gain of $6 million, net of tax, which is included in discontinued
operations in 2003.
In May 2002, CMS closed on the sale of CMS Oil and Gas' coalbed methane holdings
in the Powder River Basin to XTO Energy. The Powder River properties were
included in discontinued operations for the first four months of 2002, including
a gain on the sale of $20 million ($11 million net of tax).
In June 2002, CMS Energy abandoned the Zirconium Recovery Project, which was
initiated in January 2000. The purpose of the project was to extract and sell
uranium and zirconium from a pile of caldesite ore held by the Defense Logistic
Agency of the U.S. Department of Defense. After evaluating future cost and risk,
CMS Energy decided to abandon this project and recorded a $31 million after-tax
loss in discontinued operations.
In June 2002, CMS Energy announced its plan to sell CMS MST's energy performance
contracting subsidiary, CMS Viron. CMS Viron enables building owners to improve
their facilities with equipment upgrades and retrofits and finance the work with
guaranteed energy and operational savings. At December 31, 2002, after
evaluating all of the relevant facts and circumstances including third-party bid
data and liquidation analysis, an impairment charge of $6 million, net of tax,
was reflected as an estimated loss on discontinued operations in accordance with
the provisions of SFAS No. 144. The provisions limited the impairment charge to
the book value of the noncurrent assets of CMS Viron at that time and there have
not been any additional impairment charges recorded during the first quarter of
2003. Although the timing of this sale is difficult to predict, nor can it be
assured, management expects the sale to occur in the second quarter of 2003.
In December 2002, CMS Energy reached a definitive agreement to sell the
Panhandle companies to Southern Union Panhandle Corp. The agreement called for
Southern Union Panhandle Corp, a newly formed entity owned by Southern Union
Company and AIG Highstar Capital L.P. to pay $662 million in cash and assume
$1.166 billion in debt. On March 13, 2003, CMS Energy and Southern Union Company
received requests for additional information ("second requests") from the FTC
related to Southern Union's acquisition of Panhandle. CMS Energy and Southern
Union are in the process of responding to the second requests.
On May 12, 2003, the parties entered into an amendment to the original stock
purchase agreement that was executed in December 2002. Under the amendment, AIG
Highstar Capital, L.P. and AIG Highstar II Funding Corp. will no longer be
parties to the transaction. The Amended and Restated Stock Purchase Agreement
calls for Southern Union Panhandle Corp. to purchase all of Panhandle's
outstanding capital stock. Southern Union Panhandle Corp. agreed to pay
approximately $584 million in cash and 3 million shares of Southern Union
Company common stock, and to assume approximately $1.166 billion in debt. The
total value of the transaction to CMS Energy will depend on the price of
Southern Union Company common stock at the closing. At May 12, 2003, the closing
price of Southern Union common stock on the New York Stock Exchange was $12.79.
The boards of directors of all applicable companies have approved the amended
agreement. The sale of Panhandle is subject to customary closing conditions and
action by the Federal Trade Commission under the Hart-Scott-Rodino Act. All
necessary state regulatory approvals for the sale pursuant to the original stock
purchase agreement have been received. The parties expect the amendment will
expedite the regulatory approval of the transaction and anticipate that state
regulatory authorities will not object to the changed terms provided for in the
amended agreement. The closing is expected to occur by June 30, 2003. AIG
Highstar Capital's withdrawal from the transaction should help resolve
regulatory issues that arose as a result of AIG Highstar Capital's ownership of
Southern Star Central Gas Pipeline's Inc. CMS Gas Transmission and Southern
Union also entered into a shareholder agreement, relating to CMS Gas
Transmission's ownership of the Southern Union shares of common stock. Pursuant
to this shareholder agreement, CMS Gas Transmission generally will be prohibited
from disposing of the Southern Union common stock for a period ending 90 - 105
days following the closing of the transaction.
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CMS Energy Corporation
In December 2002, CMS Energy discontinued the operations of Field Services, a
subsidiary of CMS Gas Transmission. In May 2003, CMS Energy signed a definitive
agreement to sell CMS Field Services to Cantera Resources Inc. for $115.5
million cash and a $50 million face value note. The note is payable to CMS
Energy for up to $50 million subject to the financial performance of the Fort
Union and Bighorn natural gas gathering systems, from 2004 through 2008.
The summary of balance sheet information below represents those entities that
are still in the disposal process, including Panhandle, CMS Viron, Field
Services, International Energy Distribution, and the Zirconium Recovery Project.
The assets and liabilities of the discontinued operations are shown as separate
components in the consolidated balance sheets of CMS Energy.
- --------------------------------------------------------------------------------
In Millions
March 31 2003 2002
- --------------------------------------------------------------------------------
Assets
Cash $ 65 $ 32
Accounts receivable, net 188 237
Materials and supplies 38 84
Other 64 32
--------------------------------------------------------------------------
Total current assets held for sale $ 355 $ 385
Property, plant and equipment, net $1,819 $2,378
Unconsolidated investments 20 90
Goodwill 140 152
Other 63 77
--------------------------------------------------------------------------
Total non current assets held for sale $2,042 $2,697
- -------------------------------------------------------------------------------
Liabilities
Accounts payable $ 112 $ 211
Current portion of long-term debt 2 5
Accrued taxes - 198
Other current liabilities 185 189
--------------------------------------------------------------------------
Total current liabilities held for sale $ 299 $ 603
Long-term debt $1,152 $1,286
Minority interest 64 93
Other non current liabilities 82 96
---------------------------------------------------------------------------
Total non current liabilities held for sale $1,298 $1,475
- --------------------------------------------------------------------------------
Revenues from such operations were $314 million and $276 million for the three
months ended March 31, 2003 and 2002, respectively. In accordance with SFAS No.
144, the net income (loss) of the operations is included in the consolidated
statements of income under "discontinued operations". The income (loss) related
to discontinued operations includes a reduction in asset values, a provision for
anticipated closing costs, and a portion of CMS Energy's interest expense.
Interest expense of $11 million and $20 million for three months ended March 31,
2003 and 2002, respectively, has been allocated to discontinued operations based
on the ratio of total capital of each discontinued operation to that of CMS
Energy. See the table below for income statement components of the discontinued
operations.
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In Millions
- --------------------------------------------------------------------------------
Three months ended March 31 2003 2002
- --------------------------------------------------------------------------------
Discontinued operations:
Income (loss) from discontinued operations, net of tax $ 25 $(51)
of $15 and tax benefit of $33
Gain on disposal of discontinued operations, net of tax
of $1 and tax of $0.4 2 -
- --------------------------------------------------------------------------------
Total $ 27 $(51)
================================================================================
4: UNCERTAINTIES
Several business trends or uncertainties may affect CMS Energy's financial
results. These trends or uncertainties have, or CMS Energy reasonably expects
could have, a material impact on net sales, revenues, or income from continuing
operations. Such trends and uncertainties are discussed in detail below.
SEC AND OTHER INVESTIGATIONS: As a result of round-trip trading transactions at
CMS MST, CMS Energy's Board of Directors established a Special Committee of
independent directors to investigate matters surrounding the transactions and
retained outside counsel to assist in the investigation. The Special Committee
completed its investigation and reported its findings to the Board of Directors
in October 2002. The Special Committee concluded, based on an extensive
investigation, that the round-trip trades were undertaken to raise CMS MST's
profile as an energy marketer with the goal of enhancing its ability to promote
its services to new customers. The Special Committee found no effort to
manipulate the price of CMS Energy Common Stock or affect energy prices. The
Special Committee also made recommendations designed to prevent any reoccurrence
of this practice, most of which have already been implemented. Previously, CMS
Energy terminated its speculative trading business and revised its risk
management policy. The Board of Directors adopted, and CMS Energy has begun
implementing, the remaining recommendations of the Special Committee.
CMS Energy is cooperating with other investigations concerning round-trip
trading, including an investigation by the SEC regarding round-trip trades and
CMS Energy's financial statements, accounting policies and controls, and
investigations by the United States Department of Justice, the Commodity Futures
Trading Commission and the FERC. The FERC issued an order on April 30, 2003
directing eight companies, including CMS MST, to submit written demonstrations
within forty-five days that they have taken certain specified remedial measures
with respect to the reporting of natural gas trading data to publications that
compile and publish price indices. CMS MST intends to make a written submission
within the specified time period demonstrating compliance with the FERC's
directives. Other than the FERC investigation, CMS Energy is unable to predict
the outcome of these matters, and what effect, if any these investigations will
have on its business.
SECURITIES CLASS ACTION LAWSUITS: Beginning on May 17, 2002, a number of
securities class action complaints were filed against CMS Energy, Consumers, and
certain officers and directors of CMS Energy and its affiliates. The complaints
were filed as purported class actions in the United States District Court for
the Eastern District of Michigan. The cases were consolidated into a single
lawsuit and an amended and consolidated class action complaint was filed on May
1, 2003. The defendants named in the amended and consolidated class action
complaint consist of CMS Energy, Consumers, certain officers and directors of
CMS
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Energy and its affiliates, and certain underwriters of CMS Energy securities.
The purported class period is from May 1, 2000 through and including March 31,
2003. The amended and consolidated class action complaint seeks unspecified
damages based on allegations that the defendants violated United States
securities laws and regulations by making allegedly false and misleading
statements about CMS Energy's business and financial conditions. The companies
intend to vigorously defend against this action but cannot predict the outcome
of this litigation.
DEMAND FOR ACTIONS AGAINST OFFICERS AND DIRECTORS: The Board of Directors
received a demand, on behalf of a shareholder of CMS Energy Common Stock, that
it commence civil actions (i) to remedy alleged breaches of fiduciary duties by
CMS Energy officers and directors in connection with round-trip trading at CMS
MST, and (ii) to recover damages sustained by CMS Energy as a result of alleged
insider trades alleged to have been made by certain current and former officers
of CMS Energy and its subsidiaries. If the Board elects not to commence such
actions, the shareholder has stated that he will initiate a derivative suit,
bringing such claims on behalf of CMS Energy. CMS Energy has elected two new
members to its Board of Directors who will serve as an independent litigation
committee to determine whether it is in the best interest of CMS Energy to bring
the action demanded by the shareholder. Counsel for the shareholder has agreed
to extend the time for CMS Energy to respond to the demand. CMS Energy cannot
predict the outcome of this litigation.
ERISA CLAIMS: CMS Energy is a named defendant, along with Consumers, CMS MST and
certain named and unnamed officers and directors, in two lawsuits brought as
purported class actions on behalf of participants and beneficiaries of the
401(k) Plan. The two cases, filed in July 2002 in the United States District
Court for the Eastern District of Michigan, were consolidated by the trial judge
and an amended and consolidated complaint has been filed. Plaintiffs allege
breaches of fiduciary duties under ERISA and seek restitution on behalf of the
Plan with respect to a decline in value of the shares of CMS Energy Common Stock
held in the Plan. Plaintiffs also seek other equitable relief and legal fees.
These cases will be vigorously defended. CMS Energy cannot predict the outcome
of this litigation.
GAS INDEX PRICING REPORTING: CMS Energy has notified appropriate regulatory and
governmental agencies that some employees at CMS MST and CMS Field Services
appeared to have provided inaccurate information regarding natural gas trades to
various energy industry publications which compile and report index prices. CMS
Energy is cooperating with investigations by the Commodity Futures Trading
Commission, Department of Justice and FERC regarding this matter. CMS Energy is
unable to predict the outcome of these matters and what effect, if any, these
investigations will have on its business.
FEES AND EXPENSES: CMS Energy has accrued $15 million for attorney's fees and
costs associated with responding to and/or defending against investigations and
lawsuits related to round-trip trading and the reporting of gas prices to trade
publications. These expenses could total as much as $37 million. CMS Energy
expects to recover a significant portion of these expenses from insurers.
CONSUMERS' ELECTRIC UTILITY CONTINGENCIES
ELECTRIC ENVIRONMENTAL MATTERS: Consumers is subject to costly and increasingly
stringent environmental regulations. Consumers expects that the cost of future
environmental compliance, especially compliance with clean air laws, will be
significant.
Clean Air - In 1998, the EPA issued regulations requiring the state of Michigan
to further limit nitrogen oxide emissions. The Michigan Department of
Environmental Quality finalized rules to comply with the EPA regulations in
December 2002 and submitted these rules for approval to the EPA in the first
quarter of 2003. In addition, the EPA has also issued additional regulations
regarding nitrogen oxide emissions that require certain generators, including
some of Consumers' electric generating facilities, to achieve the same emissions
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CMS Energy Corporation
rate as that required by the 1998 regulations. The EPA and the state regulations
require Consumers to make significant capital expenditures estimated to be $770
million. As of March 31, 2003, Consumers has incurred $420 million in capital
expenditures to comply with the EPA regulations and anticipates that the
remaining capital expenditures will be incurred between 2003 and 2009.
Additionally, Consumers currently expects to supplement its compliance plan with
the purchase of nitrogen oxide emissions credits for years 2005 through 2008.
The cost of these credits based on the current market is estimated to average $6
million per year; however, the market for nitrogen oxide emissions credits and
their price could change significantly. Based on the Customer Choice Act,
beginning January 2004, an annual return of and on these types of capital
expenditures, to the extent they are above depreciation levels, is expected to
be recoverable from customers, subject to an MPSC prudency hearing.
Cleanup and Solid Waste - Under the Michigan Natural Resources and Environmental
Protection Act, Consumers expects that it will ultimately incur investigation
and remedial action costs at a number of sites. Consumers believes that these
costs will be recoverable in rates under current ratemaking policies.
Consumers is a potentially responsible party at several contaminated sites
administered under Superfund. Superfund liability is joint and several. Along
with Consumers, many other creditworthy, potentially responsible parties with
substantial assets cooperate with respect to the individual sites. Based upon
past negotiations, Consumers estimates that its share of the total liability for
the known Superfund sites will be between $1 million and $9 million. As of March
31, 2003, Consumers had accrued the minimum amount of the range for its
estimated Superfund liability.
During routine maintenance activities, Consumers identified PCB as a component
in certain paint, grout and sealant materials at the Ludington Pumped Storage
facility. Consumers removed and replaced part of the PCB material. Consumers has
proposed a plan to deal with the remaining materials and is awaiting a response
from the EPA.
CONSUMERS' ELECTRIC UTILITY RATE MATTERS
ELECTRIC RESTRUCTURING: In June 2000, the Michigan legislature passed electric
utility restructuring legislation known as the Customer Choice Act. This act: 1)
permits all customers to choose their electric generation supplier beginning
January 1, 2002; 2) cut residential electric rates by five percent; 3) freezes
all electric rates through December 31, 2003, and establishes a rate cap for
residential customers through at least December 31, 2005, and a rate cap for
small commercial and industrial customers through at least December 31, 2004; 4)
allows for the use of low-cost Securitization bonds to refinance qualified
costs, as defined by the act; 5) establishes a market power supply test that may
require transferring control of generation resources in excess of that required
to serve firm retail sales requirements (On March 31, 2003, Consumers filed an
application with the MPSC that seeks confirmation that Consumers is in
compliance with the market power test set forth in the Customer Choice Act); 6)
requires Michigan utilities to join a FERC-approved RTO or divest their interest
in transmission facilities to an independent transmission owner (Consumers has
sold its interest in its transmission facilities to an independent transmission
owner, see "Transmission" below); 7) requires Consumers, Detroit Edison and
American Electric Power to jointly expand their available transmission
capability by at least 2,000 MW; 8) allows deferred recovery of an annual return
of and on capital expenditures in excess of depreciation levels incurred during
and before the rate freeze/cap period; and 9) allows recovery of "net" Stranded
Costs and implementation costs incurred as a result of the passage of the act.
In July 2002, the MPSC issued an order approving the plan to achieve the
increased transmission capacity. Consumers has completed the transmission
capacity projects identified in the plan and has submitted verification of this
fact to the MPSC. Consumers believes it is in full compliance with item 7 above.
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CMS Energy Corporation
In 1998, Consumers submitted a plan for electric retail open access to the MPSC.
In March 1999, the MPSC issued orders generally supporting the plan. The
Customer Choice Act states that the MPSC orders issued before June 2000 are in
compliance with this act and enforceable by the MPSC. Those MPSC orders: 1)
allow electric customers to choose their supplier; 2) authorize recovery of
"net" Stranded Costs and implementation costs; and 3) confirm any voluntary
commitments of electric utilities. In September 2000, as required by the MPSC,
Consumers once again filed tariffs governing its retail open access program and
made revisions to comply with the Customer Choice Act. In December 2001, the
MPSC approved revised retail open access tariffs. The revised tariffs establish
the rates, terms, and conditions under which retail customers will be permitted
to choose an alternative electric supplier. The tariffs, effective January 1,
2002, did not require significant modifications in the existing retail open
access program. The tariff terms allow retail open access customers, upon as
little as 30 days notice to Consumers, to return to Consumers' generation
service at current tariff rates. If any class of customers' (residential,
commercial, or industrial) retail open access load reaches 10 percent of
Consumers' total load for that class of customers, then returning retail open
access customers for that class must give 60 days notice to return to Consumers'
generation service at current tariff rates. However, Consumers may not have
sufficient, reasonably priced, capacity to meet the additional demand of
returning retail open access customers, and may be forced to purchase
electricity on the spot market at higher prices than it could recover from its
customers. Consumers cannot predict the total amount of electric supply load
that may be lost to competitor suppliers, nor whether the stranded cost recovery
method adopted by the MPSC will be applied in a manner that will fully offset
any associated margin loss.
SECURITIZATION: The Customer Choice Act allows for the use of low-cost
Securitization bonds to refinance certain qualified costs, as defined by the
act. Securitization typically involves issuing asset-backed bonds with a higher
credit rating than conventional utility corporate financing. In 2000 and 2001,
the MPSC issued orders authorizing Consumers to issue Securitization bonds.
Consumers issued its first Securitization bonds in 2001. Securitization resulted
in lower interest costs and a longer amortization period for the securitized
assets, and offset the majority of the impact of the required residential rate
reduction. The Securitization orders directed Consumers to apply any cost
savings in excess of the five percent residential rate reduction to rate
reductions for non-residential customers and reductions in Stranded Costs for
retail open access customers after the bonds are sold. Excess savings are
approximately $12 million annually.
Consumers and Consumers Funding will recover the repayment of principal,
interest and other expenses relating to the bond issuance through a
securitization charge and a tax charge that began in December 2001. These
charges are subject to an annual true-up until one year prior to the last
expected bond maturity date, and no more than quarterly thereafter. The first
true-up occurred in November 2002, and prospectively modified the total
securitization and related tax charges from 1.677 mills per kWh to 1.746 mills
per kWh. Current electric rate design covers these charges, and there will be no
rate impact for most Consumers electric customers until the Customer Choice Act
rate freeze expires. Securitization charge collections, $13 million for the
three months ended March 31, 2003, and $12 million for the three months ended
March 31, 2002, are remitted to a trustee for the Securitization bonds.
Securitization charge collections are dedicated for the repayment of the
principal and interest on the Securitization bonds and payment of the ongoing
expenses of Consumers Funding and can only be used for those purposes. Consumers
Funding is legally separate from Consumers. The assets and income of Consumers
Funding, including without limitation, the securitized property, are not
available to creditors of Consumers or CMS Energy.
In March 2003, Consumers filed an application with the MPSC seeking approval to
issue Securitization bonds in the amount of approximately $1.084 billion. If
approved, this would allow the recovery of costs and reduce interest rates
associated with financing Clean Air Act expenditures, post-2000 Palisades
expenditures, and retail open access implementation costs through December 31,
2003, and certain pension fund expenses, and expenses associated with the
issuance of the bonds.
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CMS Energy Corporation
TRANSMISSION: In 2002, Consumers sold its electric transmission system (METC) to
MTH, a non-affiliated limited partnership whose general partner is a subsidiary
of Trans-Elect Inc.
As a result of the sale, Consumers anticipates its after-tax earnings will be
decreased by $15 million in 2003, and decrease by approximately $14 million
annually for the next three years due to a loss of revenue from wholesale and
retail open access customers who will buy services directly from MTH and the
loss of a return on the sold electric transmission system.
Under an agreement with MTH, and subject to certain additional RTO surcharges,
transmission rates charged to Consumers are fixed by contract at current levels
through December 31, 2005, and subject to FERC ratemaking thereafter. MTH has
completed the capital program to expand the transmission system's capability to
import electricity into Michigan, as required by the Customer Choice Act, and
Consumers will continue to maintain the system under a five-year contract with
MTH.
When IPPs connect to transmission systems, they pay transmission companies the
capital costs incurred to connect the IPP to the transmission system and make
system upgrades needed for the interconnection. It is the FERC's policy that the
system upgrade portion of these IPP payments be credited against transmission
service charges over time as transmission service is taken. METC recorded a $35
million liability for IPP credits. Subsequently, MTH assumed this liability as
part of its purchase of the electric transmission system. Several months after
METC started operation, the FERC changed its policy to provide for interest on
IPP payments that are to be credited. The $35 million liability for IPP credits
did not include interest since the associated interconnection agreements did not
at that time provide for interest. MTH had asserted that Consumers might be
liable for interest on the IPP payments to be credited if interest provisions
were added to these agreements. However, in January 2003, the FERC changed and
clarified its approach to contracts that were entered into before the FERC
started allowing the crediting of interest, and as a result, Consumers believes
that there is no longer any such potential liability under the current FERC
policy.
POWER SUPPLY COSTS: During periods when electric demand is high, the cost of
purchasing electricity on the spot market can be substantial. To reduce
Consumers' exposure to the fluctuating cost of electricity, and to ensure
adequate supply to meet demand, Consumers intends to maintain sufficient
generation and to purchase electricity from others to create a power supply
reserve, also called a reserve margin. The reserve margin provides additional
power supply capability above Consumers' anticipated peak power supply demands.
It also allows Consumers to provide reliable service to its electric service
customers and to protect itself against unscheduled plant outages and
unanticipated demand. In recent years, Consumers has planned for a reserve
margin of approximately 15 percent from a combination of its owned electric
generating plants and electricity purchase contracts or options, as well as
other arrangements. However, in light of various factors, including the addition
of new generating capacity in Michigan and throughout the Midwest region and
additional transmission import capability, Consumers is continuing to evaluate
the appropriate reserve margin for 2003 and beyond. Currently, Consumers has an
estimated reserve margin of approximately 11 percent for summer 2003 or supply
resources equal to 111 percent of projected summer peak load. Of the 111
percent, approximately 101 percent is met from owned electric generating plants
and long-term power purchase contracts and 10 percent from short-term contracts
and options for physical deliveries and other agreements. The ultimate use of
the reserve margin will depend primarily on summer weather conditions, the level
of retail open access requirements being served by others during the summer, and
any unscheduled plant outages. As of early May 2003, alternative electric
suppliers are providing 571 MW of generation supply to ROA customers. Consumers'
reserve margin does not include generation being supplied by other alternative
electric suppliers under the ROA program.
To reduce the risk of high electric prices during peak demand periods and to
achieve its reserve margin target, Consumers employs a strategy of purchasing
electric call option and capacity and energy contracts for the
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physical delivery of electricity primarily in the summer months and to a lesser
degree in the winter months. As of March 31, 2003, Consumers had purchased or
had commitments to purchase electric call option and capacity and energy
contracts partially covering the estimated reserve margin requirements for 2003
through 2007. As a result, Consumers has a recognized asset of $28 million for
unexpired call options and capacity and energy contracts. The total cost of
electricity call option and capacity and energy contracts for 2003 is expected
to be approximately $9 million.
Prior to 1998, the PSCR process provided for the reconciliation of actual power
supply costs with power supply revenues. This process assured recovery of all
reasonable and prudent power supply costs actually incurred by Consumers,
including the actual cost for fuel, and purchased and interchange power. In
1998, as part of the electric restructuring efforts, the MPSC suspended the PSCR
process, and would not grant adjustment of customer rates through 2001. As a
result of the rate freeze imposed by the Customer Choice Act, the current rates
will remain in effect until at least December 31, 2003 and, therefore, the PSCR
process remains suspended. Therefore, changes in power supply costs as a result
of fluctuating electricity prices will not be reflected in rates charged to
Consumers' customers during the rate freeze period.
ELECTRIC PROCEEDINGS: The Customer Choice Act allows electric utilities to
recover the act's implementation costs and "net" Stranded Costs (without
defining the term). The act directs the MPSC to establish a method of
calculating "net" Stranded Costs and of conducting related true-up adjustments.
In December 2001, the MPSC adopted a methodology which calculated "net" Stranded
Costs as the shortfall between: (a) the revenue required to cover the costs
associated with fixed generation assets, generation-related regulatory assets,
and capacity payments associated with purchase power agreements, and (b) the
revenues received from customers under existing rates available to cover the
revenue requirement. The MPSC authorized Consumers to use deferred accounting to
recognize the future recovery of costs determined to be stranded. Consumers has
initiated an appeal at the Michigan Court of Appeals related to the MPSC's
December 2001 "net" Stranded Cost order.
According to the MPSC, "net" Stranded Costs were to be recovered from retail
open access customers through a Stranded Cost transition charge. In April 2002,
Consumers made "net" Stranded Cost filings with the MPSC for $22 million for
2000 and $43 million for 2001. In the same filing, Consumers estimated that it
would experience "net" Stranded Costs of $126 million for 2002. Consumers in its
hearing brief, filed in August 2002, revised its request for Stranded Costs to
$7 million and $4 million for 2000 and 2001, respectively, and an estimated $73
million for 2002. The single largest reason for the difference in the filing was
the exclusion, as ordered by the MPSC, of all costs associated with expenditures
required by the Clean Air Act.
In December 2002, the MPSC issued an order finding that Consumers experienced
zero "net" Stranded Costs in 2000 and 2001, but declined to establish a defined
methodology that would allow a reliable prediction of the level of Stranded
Costs for 2002 and future years. In January 2003, Consumers filed a petition for
rehearing of the December 2002 Stranded Cost order in which it asked the MPSC to
grant a rehearing and revise certain features of the order. Several other
parties also filed rehearing petitions with the MPSC. As noted above, Consumers
has filed a request with the MPSC for authority to issue securitization bonds
that would allow recovery of the Clean Air Act expenditures that were excluded
from the Stranded Cost calculation and post-2000 Palisades expenditures.
On March 4, 2003, Consumers filed an application with the MPSC seeking approval
of "net" Stranded Costs incurred in 2002, and for approval of a "net" Stranded
Cost recovery charge. In the application, Consumers indicated that if Consumers'
proposal to securitize Clean Air Act expenditures and post-2000 Palisades'
expenditures were approved as proposed in its securitization case as discussed
above, then Consumers' "net" Stranded Costs incurred in 2002 are approximately
$35 million. If the proposal to securitize those costs is not
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approved, then Consumers indicated that the costs would be properly included in
the 2002 "net" Stranded Cost calculation, which would increase Consumers' 2002
"net" Stranded Costs to approximately $103 million. Consumers cannot predict the
recoverability of Stranded Costs, and therefore has not recorded any regulatory
assets to recognize the future recovery of such costs.
The MPSC staff has scheduled a collaborative process to discuss Stranded Costs
and related issues and to identify and make recommendations to the MPSC.
Consumers is participating in this collaborative process.
Since 1997, Consumers has incurred significant electric utility restructuring
implementation costs. The following table outlines the applications filed by
Consumers with the MPSC and the status of recovery for these costs.
In Millions
- -------------------------------------------------------------------------------
Year Filed Year Incurred Requested Pending Allowed Disallowed
- -------------------------------------------------------------------------------
1999 1997 & 1998 $ 20 $ - $ 15 $ 5
2000 1999 30 - 25 5
2001 2000 25 - 20 5
2002 2001 8 8 Pending Pending
2003 2002 2 2 Pending Pending
================================================================================
The MPSC disallowed certain costs based upon a conclusion that these amounts did
not represent costs incremental to costs already reflected in electric rates. In
the orders received for the years 1997 through 2000, the MPSC also reserved the
right to review again the total implementation costs depending upon the progress
and success of the retail open access program, and ruled that due to the rate
freeze imposed by the Customer Choice Act, it was premature to establish a cost
recovery method for the allowable implementation costs. In addition to the
amounts shown above, as of March 31, 2003, Consumers incurred and deferred as a
regulatory asset, $2 million of additional implementation costs and has also
recorded as a regulatory asset $14 million for the cost of money associated with
total implementation costs. Consumers believes the implementation costs and the
associated cost of money are fully recoverable in accordance with the Customer
Choice Act. Cash recovery from customers will probably begin after the rate
freeze or rate cap period has expired. As discussed above, Consumers has asked
to include implementation costs through December 31, 2003 in the pending
securitization case. If approved, the sale of Securitization bonds will allow
for the recovery of these costs. Consumers cannot predict the amounts the MPSC
will approve as allowable costs.
Consumers is also pursuing authorization at the FERC for MISO to reimburse
Consumers for approximately $8 million in certain electric utility restructuring
implementation costs related to its former participation in the development of
the Alliance RTO, a portion of which has been expensed. However, Consumers
cannot predict the amount the FERC will ultimately order to be reimbursed by the
MISO.
In 1996, Consumers filed new OATT transmission rates with the FERC for approval.
Interveners contested these rates, and hearings were held before an ALJ in 1998.
In 1999, the ALJ made an initial decision that was largely upheld by the FERC in
March 2002, which requires Consumers to refund, with interest, over-collections
for past services as measured by the FERC's finally approved OATT rates. Since
the initial decision, Consumers has been reserving a portion of revenues billed
to customers under the filed 1996 OATT rates. Consumers submitted revised rates
to comply with the FERC final order in June 2002. Those revised rates were
accepted by the FERC in August 2002 and Consumers is in the process of computing
refund amounts for individual customers. Consumers believes its reserve is
sufficient to satisfy its refund obligation. As of April 2003, Consumers had
paid $19 million in refunds.
In November 2002, the MPSC, upon its own motion, commenced a contested
proceeding requiring each utility to give reason as to why its rates should not
be reduced to reflect new personal property multiplier
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tables, and why it should not refund any amounts that it receives as refunds
from local governments as they implement the new multiplier tables. Consumers
responded to the MPSC that it believes that refunds would be inconsistent with
the electric rate freeze that is currently in effect, and may otherwise be
unlawful. Consumers is unable to predict the outcome of this matter.
OTHER CONSUMERS' ELECTRIC UTILITY UNCERTAINTIES
THE MIDLAND COGENERATION VENTURE: The MCV Partnership, which leases and operates
the MCV Facility, contracted to sell electricity to Consumers for a 35-year
period beginning in 1990 and to supply electricity and steam to Dow. Consumers,
through two wholly owned subsidiaries, holds the following assets related to the
MCV Partnership and MCV Facility: 1) CMS Midland owns a 49 percent general
partnership interest in the MCV Partnership; and 2) CMS Holdings holds, through
FMLP, a 35 percent lessor interest in the MCV Facility.
Consumers' consolidated retained earnings includes undistributed earnings from
the MCV Partnership, which at March 31, 2003 and 2002 are $233 million and $187
million, respectively.
Summarized Statements of Income for CMS Midland and CMS Holdings
In Millions
- -------------------------------------------------------------------------------
March 31 2003 2002
- -------------------------------------------------------------------------------
Operating income $16 $9
Income taxes and other 5 3
- -------------------------------------------------------------------------------
Net income $11 $6
===============================================================================
Power Supply Purchases from the MCV Partnership - Consumers' annual obligation
to purchase capacity from the MCV Partnership is 1,240 MW through the term of
the PPA ending in 2025. The PPA requires Consumers to pay, based on the MCV
Facility's availability, a levelized average capacity charge of 3.77 cents per
kWh and a fixed energy charge, and also to pay a variable energy charge based
primarily on Consumers' average cost of coal consumed for all kWh delivered.
Since January 1, 1993, the MPSC has permitted Consumers to recover capacity
charges averaging 3.62 cents per kWh for 915 MW, plus a substantial portion of
the fixed and variable energy charges. Since January 1, 1996, the MPSC has also
permitted Consumers to recover capacity charges for the remaining 325 MW of
contract capacity with an initial average charge of 2.86 cents per kWh
increasing periodically to an eventual 3.62 cents per kWh by 2004 and
thereafter. However, due to the current freeze of Consumers' retail rates that
the Customer Choice Act requires, the capacity charge for the 325 MW is now
frozen at 3.17 cents per kWh. Recovery of both the 915 MW and 325 MW portions of
the PPA are subject to certain limitations discussed below. After September
2007, the PPA's regulatory out terms obligate Consumers to pay the MCV
Partnership only those capacity and energy charges that the MPSC has authorized
for recovery from electric customers.
In 1992, Consumers recognized a loss and established a PPA liability for the
present value of the estimated future underrecoveries of power supply costs
under the PPA based on MPSC cost recovery orders. Primarily as a result of the
MCV Facility's actual availability being greater than management's original
estimates, the PPA liability has been reduced at a faster rate than originally
anticipated. At March 31, 2003 and 2002, the remaining after-tax present value
of the estimated future PPA liability associated with the loss totaled $30
million and $46 million, respectively. The PPA liability is expected to be
depleted in late 2004. For further discussion on the impact of the frozen PSCR,
see "Electric Rate Matters" in this Note.
In March 1999, Consumers and the MCV Partnership reached a settlement agreement
effective January 1,
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1999, that addressed, among other things, the ability of the MCV Partnership to
count modifications increasing the capacity of the existing MCV Facility for
purposes of computing the availability of contract capacity under the PPA for
billing purposes. That settlement agreement capped payments made on the basis of
availability that may be billed by the MCV Partnership at a maximum 98.5 percent
availability level. When Consumers returns, as expected, to unfrozen rates
beginning in 2004, Consumers will recover from customers capacity and fixed
energy charges on the basis of availability, to the extent that availability
does not exceed 88.7 percent availability established in previous MPSC orders.
For capacity and energy payments billed by the MCV Partnership after September
15, 2007, and not recovered from customers, Consumers would expect to claim a
regulatory out under the PPA. The regulatory out provision relieves Consumers of
the obligation to pay more for capacity and energy payments than the MPSC allows
Consumers to collect from its customers. Consumers estimates that 51 percent of
the actual cash underrecoveries for the years 2003 and 2004 will be charged to
the PPA liability, with the remaining portion charged to operating expense as a
result of Consumers' 49 percent ownership in the MCV Partnership. All cash
underrecoveries will be expensed directly to income once the PPA liability is
depleted. If the MCV Facility's generating availability remains at the maximum
98.5 percent level during the next five years, Consumers' after-tax cash
underrecoveries associated with the PPA could be as follows:
In Millions
- ----------------------------------------------------------------------------------------------
2003 2004 2005 2006 2007
- ----------------------------------------------------------------------------------------------
Estimated cash underrecoveries at 98.5%, net of tax $37 $36 $36 $36 $25
Amount to be charged to operating expense, net of tax $18 $18 $36 $36 $25
Amount to be charged to PPA liability, net of tax $19 $18 $ - $ - $ -
==============================================================================================
In February 1998, the MCV Partnership appealed the January 1998 and February
1998 MPSC orders related to electric utility restructuring. At the same time,
MCV Partnership filed suit in the United States District Court in Grand Rapids
seeking a declaration that the MPSC's failure to provide Consumers and MCV
Partnership a certain source of recovery of capacity payments after 2007
deprived MCV Partnership of its rights under the Public Utilities Regulatory
Policies Act of 1978. In July 1999, the District Court granted MCV Partnership's
motion for summary judgment. The Court permanently prohibited enforcement of the
restructuring orders in any manner that denies any utility the ability to
recover amounts paid to qualifying facilities such as the MCV Facility or that
precludes the MCV Partnership from recovering the avoided cost rate. The MPSC
appealed the Court's order to the 6th Circuit Court of Appeals in Cincinnati. In
June 2001, the 6th Circuit overturned the lower court's order and dismissed the
case against the MPSC. The appellate court determined that the case was
premature and concluded that the qualifying facilities needed to wait until 2008
for an actual factual record to develop before bringing claims against the MPSC
in federal court.
NUCLEAR MATTERS: Throughout 2002, Big Rock, currently in decommissioning,
progressed on plan with building and equipment dismantlement to return the site
to a natural setting free for any future use. Periodic NRC inspection reports
continued to reflect positively on Big Rock project performance. The NRC found
all decommissioning activities were performed in accordance with applicable
regulatory and license conditions.
In February 2003, the NRC completed its end-of-cycle plant performance
assessment of Palisades. The end-of-cycle review for Palisades covered the 2002
calendar year. The NRC determined that Palisades was operated in a manner that
preserved public health and safety and fully met all cornerstone objectives.
Based on the plant's performance, only regularly scheduled inspections are
planned through March 2004. The NRC noted that they are planning inspections of
the new independent spent fuel storage facility as needed during
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construction activities along with routine inspections for the new security
requirements.
Spent Nuclear Fuel Storage: During the fourth quarter of 2002, equipment
fabrication, assembly and testing was completed at Big Rock on NRC approved
transportable steel and concrete canisters or vaults, commonly known as
"dry-casks," for temporary onsite storage of spent fuel and movement of fuel
from the fuel pool to dry casks began. As of March 31, 2003, all of the seven
dry casks had been loaded with spent fuel. These transportable dry casks will
remain onsite until the DOE moves the material to a permanent national fuel
repository.
At Palisades, the amount of spent nuclear fuel discharged from the reactor to
date exceeds Palisades' temporary on-site storage pool capacity. Consequently,
Consumers is using NRC-approved steel and concrete vaults, "dry casks", for
temporary on-site storage. As of March 31, 2003, Consumers had loaded 18 dry
casks with spent nuclear fuel at Palisades. Palisades will need to load
additional dry casks by the fall of 2004 in order to continue operation.
Palisades currently has three empty storage-only dry casks on-site, with storage
pad capacity for up to seven additional loaded dry casks. Consumers anticipates
that licensed transportable dry casks for additional storage, along with more
storage pad capacity, will be available prior to 2004.
In 1997, a U.S. Court of Appeals decision confirmed that the DOE was to begin
accepting deliveries of spent nuclear fuel for disposal by January 31, 1998.
Subsequent U.S. Court of Appeals litigation in which Consumers and certain other
utilities participated has not been successful in producing more specific relief
for the DOE's failure to comply.
In July 2000, the DOE reached a settlement agreement with one utility to address
the DOE's delay in accepting spent fuel. The DOE may use that settlement
agreement as a framework that it could apply to other nuclear power plants.
However, certain other utilities challenged the validity of the mechanism for
funding the settlement in an appeal, and the reviewing court sustained their
challenge. Additionally, there are two court decisions that support the right of
utilities to pursue damage claims in the United States Court of Claims against
the DOE for failure to take delivery of spent fuel. A number of utilities have
commenced litigation in the Court of Claims, including Consumers, which filed
its complaint in December 2002. The Chief Judge of the Court of Claims
identified six lead cases to be used as vehicles for resolving dispositive
motions. Consumers' case is not a lead case. It is unclear what impact this
decision by the Chief Judge will have on the outcome of Consumers' litigation.
If the litigation that was commenced in the fourth quarter of 2002, against the
DOE is successful, Consumers anticipates future recoveries from the DOE to
defray the significant costs it will incur for the storage of spent fuel until
the DOE takes possession as required by law.
As of March 31, 2003, Consumers has a recorded liability to the DOE of $138
million, including interest, which is payable upon the first delivery of spent
nuclear fuel to the DOE. Consumers recovered through electric rates the amount
of this liability, excluding a portion of interest.
On March 26, 2003, the Michigan Environmental Council, the Public Interest
Research Group in Michigan, and the Michigan Consumer Federation submitted a
complaint which was served on Consumers by the MPSC on April 18, 2003, that asks
the MPSC to commence a generic investigation and contested case to review all
facts and issues concerning costs associated with spent nuclear fuel storage and
disposal. The complaint seeks a variety of relief with respect to Consumers
Energy, The Detroit Edison Company, Indiana & Michigan Electric Company,
Wisconsin Electric Power Company and Wisconsin Public Service Corporation,
including establishing external trusts to which amounts collected in electric
rates for spent nuclear fuel storage and disposal should be transferred, and the
adoption of additional measures related to the storage and disposal of spent
nuclear fuel. Consumers is reviewing the complaint and, at this time, is unable
to predict the outcome of this matter.
In July 2002, Congress approved and the President signed a bill designating the
site at Yucca Mountain,
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Nevada, for the development of a repository for the disposal of high-level
radioactive waste and spent nuclear fuel. The next step will be for the DOE to
submit an application to the NRC for a license to begin construction of the
repository. The application and review process is estimated to take several
years.
Palisades Plant Operations: In March 2002, corrosion problems were discovered in
the reactor head at an unaffiliated nuclear power plant in Ohio. As a result,
the NRC requested that all United States nuclear plants utilizing pressurized
water reactors to provide reports detailing their reactor head inspection
histories, design capabilities and future inspection plans. In response to the
issues identified at this and other nuclear plants worldwide, a bare metal
visual inspection was completed on the Palisades reactor vessel head during the
spring 2003 refueling outage. No indication of leakage was detected on any of
the 54 penetrations.
Insurance: Consumers maintains primary and excess nuclear property insurance
from NEIL, totaling $2.7 billion in recoverable limits for the Palisades nuclear
plant. Consumers also procures coverage from NEIL that would partially cover the
cost of replacement power during certain prolonged accidental outages at
Palisades. NEIL's policies include coverage for acts of terrorism.
Consumers retains the risk of loss to the extent of the insurance deductibles
and to the extent that its loss exceeds its policy limits. Because NEIL is a
mutual insurance company, Consumers could be subject to assessments from NEIL up
to $25.8 million in any policy year if insured losses in excess of NEIL's
maximum policyholders surplus occur at its, or any other member's nuclear
facility.
Consumers maintains nuclear liability insurance for injuries and off-site
property damage resulting from the nuclear hazard at Palisades for up to
approximately $9.5 billion, the maximum insurance liability limits established
by the Price-Anderson Act. Congress enacted the Price-Anderson Act to provide
financial protection for persons who may be liable for a nuclear accident or
incident and persons who may be injured by a nuclear incident. The
Price-Anderson Act was recently extended to December 31, 2003. Part of the
Price-Anderson Act's financial protection consists of a mandatory industry-wide
program under which owners of nuclear generating facilities could be assessed if
a nuclear incident occurs at any of such facilities. The maximum assessment
against Consumers could be $88 million per occurrence, limited to maximum annual
installment payments of $10 million. Consumers also maintains insurance under a
master worker program that covers tort claims for bodily injury to workers
caused by nuclear hazards. The policy contains a $300 million nuclear industry
aggregate limit. Under a previous insurance program providing coverage for
claims brought by nuclear workers, Consumers remains responsible for a maximum
assessment of up to $6.3 million. The Big Rock plant remains insured for nuclear
liability by a combination of insurance and United States government indemnity
totaling $544 million.
Insurance policy terms, limits and conditions are subject to change during the
year as Consumers renews its policies.
CONSUMERS' GAS UTILITY CONTINGENCIES
GAS ENVIRONMENTAL MATTERS: Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will ultimately incur
investigation and remedial action costs at a number of sites. These include 23
former manufactured gas plant facilities, which were operated by Consumers for
some part of their operating lives, including sites in which it has a partial or
no current ownership interest. Consumers has completed initial investigations at
the 23 sites. For sites where Consumers has received site-wide study plan
approvals, it will continue to implement these plans. It will also work toward
closure of environmental issues at sites as studies are completed. Consumers has
estimated its costs related to investigation and remedial action for all 23
sites using the Gas Research Institute-Manufactured Gas Plant Probabilistic Cost
Model. The estimated total costs are between $82 million and $113 million; these
estimates are based on
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discounted 2001 costs and follow EPA recommended use of discount rates between
three and seven percent for this type of activity. Consumers expects to fund a
significant portion of these costs through insurance proceeds and through MPSC
approved rates charged to its customers. As of March 31, 2003, Consumers has an
accrued liability of $49 million, net of $33 million of expenditures incurred to
date, and a regulatory asset of $69 million. Any significant change in
assumptions, such as an increase in the number of sites, different remediation
techniques, nature and extent of contamination, and legal and regulatory
requirements, could affect Consumers' estimate of remedial action costs.
The MPSC, in its November 7, 2002, gas distribution rate order, authorized
Consumers to continue to recover approximately $1 million of manufactured gas
plant facilities environmental clean-up costs annually. Consumers defers and
amortizes, over a period of 10 years, manufactured gas plant facilities
environmental clean-up costs above the amount currently being recovered in
rates. Additional rate recognition of amortization expense cannot begin until
after a prudency review in a gas rate case. The annual amount that the MPSC
authorized Consumers to recover in rates will continue to be offset by $2
million to reflect amounts recovered from all other sources.
CONSUMERS' GAS UTILITY RATE MATTERS
GAS COST RECOVERY: As part of the on-going GCR process, which includes an annual
reconciliation process with the MPSC, Consumers expects to collect all of its
incurred gas costs. Under an order issued by the MPSC on March 12, 2003,
Consumers increased its maximum GCR factor in May 2003, based on a formula that
tracks increases in NYMEX prices.
2003 GAS RATE CASE: On March 14, 2003, Consumers filed an application with the
MPSC seeking a $156 million increase in its gas delivery and transportation
rates, which include a 13.5 percent authorized return on equity, based on a 2004
test year. If approved, the request would add about $6.40 per month, or about 9
percent, to the typical residential customer's average monthly bill.
Contemporaneously with this filing, Consumers has requested interim rate relief
in the same amount.
In September 2002, the FERC issued an order rejecting a filing by Consumers to
assess certain rates for non-physical gas title tracking services offered by
Consumers. Despite Consumers' arguments to the contrary, the FERC asserted
jurisdiction over such activities and allowed Consumers to refile and justify a
title transfer fee not based on volumes as Consumers proposed. Because the order
was issued six years after Consumers made its original filing initiating the
proceeding, over $3 million in non-title transfer tracking fees had been
collected. No refunds have been ordered, and Consumers sought rehearing of the
September order. If refunds were ordered they may include interest which would
increase the refund liability to more than the $3 million collected. In December
2002, Consumers established a $3.6 million reserve related to this matter.
Consumers is unable to say with certainty what the final outcome of this
proceeding might be.
In November 2002, the MPSC upon its own motion commenced a contested proceeding
requiring each utility to give reason as to why its rates should not be reduced
to reflect new personal property multiplier tables, and why it should not refund
any amounts that it receives as refunds from local governments as they implement
the new multiplier tables. Consumers responded to the MPSC that it believes that
refunds would be inconsistent with the November 7, 2002 gas rate order in case
U-13000, with the Customer Choice Act, and may otherwise be unlawful. Consumers
is unable to predict the outcome of this matter.
OTHER CONSUMERS' UNCERTAINTIES
SECURITY COSTS: Since the September 11, 2001 terrorist attacks in the United
States, Consumers has increased security at all critical facilities and over its
critical infrastructure, and will continue to evaluate security on an
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ongoing basis. Consumers may be required to comply with federal and state
regulatory security measures promulgated in the future. Through December 31,
2002, Consumers has incurred approximately $4 million in incremental security
costs, including operating, capital, and decommissioning and removal costs.
Consumers estimates it may incur additional incremental security costs in 2003
of approximately $6 million. Consumers will attempt to seek recovery of these
costs from its customers. In December 2002, the Michigan legislature passed, and
the governor signed, a bill that would allow Consumers to seek recovery of
additional nuclear electric division security costs incurred during the rate
freeze and cap periods imposed by the Customer Choice Act. Of the $4 million in
incremental security costs incurred through December 31, 2002, approximately $3
million related to nuclear security costs. Of the estimated $6 million for
incremental security costs expected to be incurred in 2003, $4 million relates
to nuclear security costs. On February 5, 2003, the MPSC adopted filing
requirements for the recovery of enhanced security costs.
OTHER UNCERTAINTIES
CMS GENERATION-OXFORD TIRE RECYCLING: In 1999, the California Regional Water
Control Board of the State of California named CMS Generation as a potentially
responsible party for the cleanup of the waste from a fire that occurred in
September 1999 at the Filbin tire pile. The tire pile was maintained as fuel for
an adjacent power plant owned by Modesto Energy Limited Partnership. Oxford Tire
Recycling of Northern California, Inc., a subsidiary of CMS Generation until
1995, owned the Filbin tire pile. CMS Generation has not owned an interest in
Oxford Tire Recycling of Northern California, Inc. or Modesto Energy Limited
Partnership since 1995. In 2000, the California Attorney General filed a
complaint against the potentially responsible parties for cleanup of the site
and assessed penalties for violation of the California Regional Water Control
Board order. The parties have reached a settlement with the state, which the
court approved, pursuant to which CMS Energy had to pay $6 million. At the
request of the U.S. Department of Justice in San Francisco (DOJ), CMS Energy and
other parties contacted by the DOJ entered into separate tolling agreements with
the DOJ in September 2002 that stopped the running of any statute of limitations
until March 14, 2003 (later extended to June 30, 2003) to facilitate the
settlement discussions between all the parties in connection with federal claims
arising from the fire at the Filbin tire pile. On September 23, 2002, CMS Energy
received a written demand from the U.S. Coast Guard for reimbursement of
approximately $3.5 million in costs incurred by the U.S. Coast Guard in fighting
the fire.
In connection with this fire, several class action lawsuits were filed claiming
that the fire resulted in damage to the class and that management of the site
caused the fire. CMS Generation has reached a settlement in principle with the
plaintiffs in the amount of $9 million. The primary insurance carrier will cover
100 percent of the settlement once the agreement is finalized.
DEARBORN INDUSTRIAL GENERATION: In October 2001, Duke/Fluor Daniel (DFD)
presented DIG with a change order to their construction contract and filed an
action in Michigan state court claiming damages in the amount of $110 million,
plus interest and costs, which DFD states represents the cumulative amount owed
by DIG for delays DFD believes DIG caused and for prior change orders that DIG
previously rejected. DFD also filed a construction lien for the $110 million.
DIG, in addition to drawing down on three letters of credit totaling $30 million
that it obtained from DFD, has filed an arbitration claim against DFD asserting
in excess of an additional $75 million in claims against DFD. The judge in the
Michigan State Court case entered an order staying DFD's prosecution of its
claims in the court case and permitting the arbitration to proceed. DFD has
appealed the decision by the judge in the Michigan state court case to stay the
arbitration. DIG will continue to vigorously defend itself and pursue its
claims. DIG cannot predict the outcome of this matter.
DIG CUSTOMER DISPUTES: As a result of the continued delays in the DIG project
becoming fully operational, DIG's customers, Ford Motor Company and Rouge
Industries, have asserted claims that the continued delays relieve them of
certain contractual obligations totaling $43 million. In addition, Ford and/or
Rouge have
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asserted several other commercial claims against DIG relating to
operation of the DIG plant. In February 2003, Rouge filed an Arbitration Demand
against DIG and CMS MST Michigan, LLC with the American Arbitration Association.
Rouge is seeking a total of $27 million plus additional accrued damages at the
time of any award, plus interest. More specifically, Rouge is seeking at least
$20 million under a Blast Furnace Gas Delivery Agreement in connection with
DIG's purported failure to declare a Blast Furnace Gas Delivery Date within a
reasonable time period, plus $7 million for assorted damage claims under several
legal theories. DIG and CMS MST Michigan, LLC intend to vigorously defend
themselves, and DIG has filed claims against Rouge and Ford as part of this
arbitration. DIG cannot predict the outcome of this matter.
DIG NOISE ABATEMENT LAWSUIT: In February 2003, DIG was served with a three-count
first amended complaint in the matter of Ahmed, et al. v. Dearborn Industrial
Generation, LLC, Wayne County Circuit Court Case No. 02-241296-CZ. The complaint
seeks damages "in excess of $25,000" and injunctive relief based upon
allegations of excessive noise and vibration created by operation of the power
plant. The first amended complaint was filed on behalf of six named plaintiffs,
all alleged to be adjacent or nearby residents or property owners. The damages
alleged are injury to persons and property of the landowners. Certification of a
class of "potentially thousands" who have been similarly affected is requested.
DIG intends to aggressively defend this action. DIG cannot predict the outcome
of this matter.
MCV EXPANSION, LLC: Under an agreement entered into with General Electric
Company ("GE") in October 2002, as of December 31, 2002 MCV Expansion, LLC has a
remaining contingent obligation to GE in the amount of $3.5 million that may
become payable on July 1, 2003. The agreement provides that this contingent
obligation is subject to a pro rata reduction under a formula based upon certain
purchase orders being entered into with GE by June 30, 2003. MCV Expansion
anticipates but cannot assure that purchase orders will be executed with GE by
June 30, 2003 sufficient to eliminate the contingent obligation of $3.5 million.
CMS OIL AND GAS: In 1999, a former subsidiary of CMS Oil and Gas, Terra Energy
Ltd., was sued by Star Energy, Inc. and White Pine Enterprises LLC in the 13th
Judicial Circuit Court in Antrim County, Michigan, on grounds, among others,
that Terra violated oil and gas lease and other agreements by failing to drill
wells. Among the defenses asserted by Terra were that the wells were not
required to be drilled and the claimant's sole remedy was termination of the oil
and gas lease. During the trial, the judge declared the lease terminated in
favor of White Pine. The jury then awarded Star Energy and White Pine $7.6
million in damages. Terra appealed this matter to the Michigan Court of Appeals.
The Court of Appeals reversed the trial court judgment with respect to the
appropriate measure of damages and remanded the case for a new trial on damages.
Terra has taken an appeal to the Michigan Supreme Court. A reserve has been
established for this matter.
ARGENTINA ECONOMIC SITUATION: In January 2002, the Republic of Argentina enacted
the Public Emergency and Foreign Exchange System Reform Act. This law repealed
the fixed exchange rate of one U.S. dollar to one Argentina peso, converted all
dollar-denominated utility tariffs and energy contract obligations into pesos at
the same one-to-one exchange rate, and directed the President of Argentina to
renegotiate such tariffs.
Effective April 30, 2002, CMS Energy adopted the Argentine peso as the
functional currency for most of its Argentine investments. CMS had previously
used the U.S. dollar as the functional currency for its Argentine investments.
As a result, on April 30, 2002, CMS Energy translated the assets and liabilities
of its Argentine entities into U.S. dollars, in accordance with SFAS No. 52,
using an exchange rate of 3.45 pesos per U.S. dollar, and recorded an initial
charge to the Foreign Currency Translation component of Common Stockholders'
Equity of approximately $400 million.
While CMS Energy's management cannot predict the most likely future, or average
peso to U.S. dollar
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exchange rates, it does expect that these non-cash charges substantially reduce
the risk of further material balance sheet impacts when combined with
anticipated proceeds from international arbitration currently in progress,
political risk insurance, and the eventual sale of these assets. At March 31,
2003, the net foreign currency loss due to the unfavorable exchange rate of the
Argentine peso recorded in the Foreign Currency Translation component of Common
Stockholder's Equity using an exchange rate of 2.973 pesos per U.S. dollar was
$258 million. This amount also reflects the effect of recording U.S. income
taxes with respect to temporary differences between the book and tax basis of
foreign investments, including the foreign currency translation associated with
CMS Energy's Argentine investments, that were determined to no longer be
essentially permanent in duration.
OTHER: Certain CMS Gas Transmission and CMS Generation affiliates in Argentina
received notice from various Argentine provinces claiming stamp taxes and
associated penalties and interest arising from various gas transportation
transactions. Although these claims total approximately $75 million, the
affiliates and CMS Energy believe the claims are without merit and will continue
to vigorously contest them.
CMS Generation does not currently expect to incur significant capital costs at
its power facilities for compliance with current U.S. environmental regulatory
standards.
In addition to the matters disclosed in this Note, Consumers, Panhandle and
certain other subsidiaries of CMS Energy are parties to certain lawsuits and
administrative proceedings before various courts and governmental agencies
arising from the ordinary course of business. These lawsuits and proceedings may
involve personal injury, property damage, contractual matters, environmental
issues, federal and state taxes, rates, licensing and other matters.
CMS Energy has accrued estimated losses for certain contingencies discussed in
this Note. Resolution of these contingencies is not expected to have a material
adverse impact on CMS Energy's financial position, liquidity, or results of
operations.
5: SHORT-TERM AND LONG-TERM FINANCINGS AND CAPITALIZATION
LONG-TERM DEBT SUMMARY
In Millions
- ----------------------------------------------------------------------------------------------------------------------
March 31 Interest Rate (%) Maturity 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
CMS ENERGY
Senior Notes 8.125 2002 $ - $ 350
7.625 2004 176 178
6.750 2004 287 297
9.875 2007 468 497
8.900 2008 260 266
7.500 2009 409 464
8.500 2011 300 339
8.375 2013 150 150
---------------------------------
2,050 2,541
General Term Notes
Series D 6.932(a) 2003-2008 80 110
Series E 7.828(a) 2003-2009 216 318
Series F 7.580(a) 2003-2016 297 300
---------------------------------
593 728
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Extendible Tenor Rate Adjusted Securities 7.000 2005 180 180
Senior Credit Facilities 2003 248 -
Other 13 9
---------------------------------
441 189
CONSUMERS ENERGY
Senior Notes Floating 2002 - 100
6.000 2005 300 300
6.250 2006 332 332
6.375 2008 159 159
6.200(b) 2008 250 250
6.875 2018 180 180
6.500(c) 2018 141 141
6.500 2028 142 143
---------------------------------
1,504 1,605
Securitization Bonds 2003-2016 446 469
First Mortgage Bonds 7.375 2023 208 208
Long-Term Bank Debt 2004-2006 590 141
Nuclear Fuel Disposal (d) 138 136
Pollution Control Revenue Bonds 5.100 2010-2018 126 126
Other 7 6
---------------------------------
1,515 1,086
OTHER SUBSIDIARIES 53 81
Principal Amount Outstanding 6,156 6,230
Current Amounts (915) (723)
Net Unamortized Discount (29) (32)
---------------------------------
Total Long-Term Debt $ 5,212 $ 5,475
======================================================================================================================
a. Represents the weighted average interest rate at March 31, 2003.
b. These notes are subject to a Call Option by the Callholder or a Mandatory Put
on May 1, 2003.
c. Includes $141 million Senior Remarketed Notes subject to optional redemption
by Consumers after June 15, 2005.
d. Maturity date uncertain.
CMS ENERGY
On March 30, 2003, CMS Energy entered into an amendment and restatement of its
existing $300 million and $295.8 million revolving credit facilities. The Second
Amended and Restated Senior Credit Agreement includes a $159 million tranche
with a maturity date of April 30, 2004 and a $250 million tranche with a
maturity date of September 30, 2004. The facility was underwritten by several
banks at a total annual cost to CMS Energy of approximately ten percent, which
includes the initial commitment fee. Any proceeds of debt or equity issuances by
CMS Energy and its subsidiaries or any asset sales by CMS Energy or its
subsidiaries, other than Consumers, are required to be used to prepay this
facility. This facility primarily collateralized by the stock of Consumers,
Enterprises and certain Enterprises subsidiaries.
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GENERAL TERM NOTES: At March 31, 2003, CMS Energy had issued and outstanding
$593 million GTNs, comprised of $80 million Series D GTNs, $216 million Series E
GTNs and $297 million of Series F GTNs with weighted average interest rates of
6.9 percent, 7.8 percent and 7.6 percent, respectively. No Series G GTNs have
been issued since their registration in May 2002.
ENTERPRISES
On March 30, 2003, Enterprises entered into a revolving credit facility in an
aggregate amount of $441 million. The maturity date of this facility is April
30, 2004. Subsequently, on April 21, 2003, Enterprises entered into a $75
million revolving credit facility with a maturity date of April 30, 2004. These
facilities were underwritten by several banks at a total annual cost to CMS
Energy of approximately ten percent, which includes the initial commitment fee.
Proceeds from these loans will be used for general corporate purposes, to retire
debt and to collateralize $160 million of letters of credit. Any proceeds of
debt or equity issuances by CMS Energy and its subsidiaries or any asset sales
by CMS Energy or its subsidiaries, other than Consumers, are required to be used
to prepay these facilities. It is expected that proceeds from the Panhandle sale
will be used to pay off these facilities in full. These facilities are
guaranteed by CMS Energy, whose guaranty is primarily secured by the stock of
Consumers and Enterprises.
CONSUMERS
REGULATORY AUTHORIZATION FOR FINANCINGS: At March 31, 2003, Consumers had FERC
authorization to issue or guarantee through June 2004, up to $1.1 billion of
short-term securities outstanding at any one time. Consumers also had remaining
FERC authorization to issue through June 2004 up to $500 million of long-term
securities for refinancing or refunding purposes, $381 million for general
corporate purposes, and $610 million of first mortgage bonds to be issued solely
as collateral for the long-term securities. On April 30, 2003, Consumers sold
$625 million principal amount of first mortgage bonds, described below. Its
remaining FERC authorization after this issue is (1) $250 million of long-term
securities for refinancing or refunding purposes, (2) $6 million for general
corporate purposes, and (3) $610 million remaining first mortgage bonds
available to be issued solely as collateral for the long-term securities. On
October 10, 2002, FERC granted a waiver of its competitive bid/negotiated
placement requirements applicable to the remaining long-term securities
authorization indicated above.
LONG-TERM FINANCINGS: In March 2003, Consumers entered into a $140 million term
loan secured by first mortgage bonds with a private investor bank. This loan has
a term of six years at a cost of LIBOR plus 475 basis points. Proceeds from this
loan were used for general corporate purposes.
In March 2003, Consumers entered into a $150 million term loan secured by first
mortgage bonds. This term loan has a three-year maturity expiring in March 2006;
the loan has a cost of LIBOR plus 450 basis points. Proceeds from this loan were
used for general corporate purposes.
FIRST MORTGAGE BONDS: In April 2003, Consumers sold $625 million principal
amount of first mortgage bonds in a private offering to institutional investors;
$250 million were issued at 4.25 percent, maturing on April 15, 2008, and net
proceeds were approximately $248 million, $375 million were issued at 5.38
percent, maturing on April 15, 2013, and net proceeds were approximately $371
million. Consumers used the net proceeds to replace a $250 million senior reset
put bond that matured in May 2003, to pay an associated $32 million option call
payment, and for general corporate purposes that may include paying down
additional debt. Consumers has agreed to file a registration statement with the
SEC to permit holders of these first mortgage bonds to exchange the bonds for
new bonds that will be registered under the Securities Act of 1933. Consumers
has agreed to file this registration statement by December 31, 2003.
Consumers secures its first mortgage bonds by a mortgage and lien on
substantially all of its property.
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CMS Energy Corporation
Consumers' ability to issue and sell securities is restricted by certain
provisions in its first mortgage bond Indenture, its articles of incorporation
and the need for regulatory approvals to meet appropriate federal law.
SHORT-TERM FINANCINGS: In March 2003, Consumers obtained a replacement revolving
credit facility in the amount of $250 million secured by first mortgage bonds.
The cost of the facility is LIBOR plus 350 basis points. The new credit facility
matures in March 2004 with two annual extensions at Consumers' option, which
would extend the maturity to March 2006. The prior facility was due to expire in
July 2003. At March 31, 2003, a total of $252 million was outstanding on all
short-term financing at a weighted average interest rate of 6.22 percent,
compared with $150 million outstanding at March 31, 2002 at a weighed average
interest rate of 2.6 percent.
RESTRICTED PAYMENTS: Under the provisions of its articles of incorporation,
Consumers had $423 million of unrestricted retained earnings available to pay
common dividends at March 31, 2003. However, pursuant to restrictive covenants
in its debt facilities, Consumers is limited to common stock dividend payments
that will not exceed $300 million in any calendar year. In January 2003,
Consumers declared and paid a $78 million common dividend. In March 2003,
Consumers declared a $31 million common dividend payable in May 2003.
OTHER: At March 31, 2003, Consumers had, through its wholly owned subsidiary
Consumers Receivables Funding, a $325 million trade receivable sale program in
place as an anticipated source of funds for general corporate purposes. At March
31, 2003 and 2002, the receivables sold totaled $325 million for each year; the
average annual discount rate was 1.57 percent and 2.15 percent, respectively.
Accounts receivable and accrued revenue in the Consolidated Balance Sheets have
been reduced to reflect receivables sold. On April 30, 2003, Consumers ended its
trade receivable sale program with its then existing purchaser and anticipates
that a new trade receivable program will be in place with a new purchaser in May
2003.
Under the program discussed above, Consumers sold accounts receivable but
retained servicing responsibility. Consumers is responsible for the
collectability of the accounts receivable sold, however, the purchaser of sale
of accounts receivable have no recourse to Consumers' other assets for failure
of debtors to pay when due and there are no restrictions on accounts receivables
not sold. No gain or loss has been recorded on the sale of accounts receivable
and Consumers retains no interest in the receivables sold.
REQUIRED RATIOS
CMS Energy's credit facilities have contractual restrictions that require CMS
Energy to maintain certain ratios as of the last day of each fiscal quarter.
Violation of these ratios would constitute an event of default under the
facility which provides the lender, among other remedies, the right to declare
the principal and interest immediately due and payable. At March 31, 2003, CMS
Energy is in compliance with required ratios.
Required Ratio Limitation Ratio at March 31, 2003
- -------------------------------------------------------------------------------------------------------
Consolidated Leverage Ratio not more than 7.00 to 1.00 5.84 to 1.00
Cash Dividend Coverage Ratio not less than 1.20 to 1.00 1.73 to 1.00
- -------------------------------------------------------------------------------------------------------
In 1994, CMS Energy executed an indenture with J.P. Morgan Chase Bank pursuant
to CMS Energy's general term notes program. The indenture, through supplements,
contains certain provisions that can trigger a limitation on CMS Energy's
consolidated indebtedness. The limitation can be activated when CMS Energy's
consolidated leverage ratio, as defined in the indenture (essentially the ratio
of consolidated debt to consolidated capital), exceeds 0.75 to 1.0. At March 31,
2003, CMS Energy's consolidated leverage ratio was 0.79 to 1.0. As a result, CMS
Energy will not and will not permit certain material subsidiaries, excluding
Consumers and its subsidiaries, to become liable for new indebtedness. However,
CMS Energy and the material subsidiaries may incur revolving indebtedness to
banks of up to $1 billion in the aggregate and refinance existing debt
outstanding of CMS Energy and of its material subsidiaries. This leverage ratio
may be significantly reduced with the proceeds of CMS Energy's sale of
Panhandle, its sale of CMS Field Services, or other asset sales.
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CMS Energy Corporation
Effective January 1, 2003, CMS Energy adopted the provisions of FASB
Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others. This
interpretation requires additional disclosures by a guarantor about its
obligations under certain guarantees that it has issued. It also requires that a
guarantor recognize, at the inception of a guarantee, a liability for the fair
value of the obligation undertaken in issuing the guarantee. The initial
recognition and measurement provision of this Interpretation does not apply to
certain guarantee contracts, such as warranties, derivatives, or guarantees
between either parent and subsidiaries or corporations under common control,
although disclosure of such guarantees is required. For contracts that are
within the initial recognition and measurement provision of this Interpretation,
the provisions are to be applied to guarantees issued or modified after December
31, 2002.
The following table is a summary of CMS Energy's guarantees as required by FASB
Interpretation No. 45:
March 31, 2003 In Millions
- -------------------------------------------------------------------------------------------------------------------
Issue Expiration Maximum Carrying Recourse
Guarantee Description Date Date Obligation Amount(b) Provision(c)
- -------------------------------------------------------------------------------------------------------------------
Indemnifications from asset sales and
other agreements(a) Various Various $1,694 $0.1 $ -
Letters of credit Various Various 283 - -
Surety bonds and other indemnifications Various Various 241 - -
Other guarantees Various Various 469 - -
Nuclear insurance retrospective premiums Various Various 120 - -
- -------------------------------------------------------------------------------------------------------------------
(a) The majority of this amount arises from routine provisions in
stock and asset sales agreements under which the purchaser is
indemnified by CMS Energy or a subsidiary for losses resulting
from events such as failure of title to the assets or stock sold
by CMS Energy or a subsidiary to the purchaser. CMS Energy
believes the likelihood of a loss arising from such events to be
remote.
(b) The carrying amount represents the fair market value of
guarantees and indemnities on CMS Energy's balance sheet that are
entered into subsequent to January 1, 2003.
(c) Recourse provision indicates the approximate recovery from third
parties including assets held as collateral.
CMS Energy has entered into typical tax indemnity agreements in connection with
a variety of transactions including transactions for the sale of subsidiaries
and assets, equipment leasing and financing agreements. These indemnity
agreements generally are not limited in amount and, while a maximum amount of
exposure cannot be identified, the amount and probability of liability is
considered remote.
The off-balance sheet commitments at March 31, 2003 are as follows:
Commercial Commitments In Millions
- ---------------------------------------------------------------------------------------------------------------
Commitment Expiration
- ---------------------------------------------------------------------------------------------------------------
March 31 Total 2003 2004 2005 2006 2007 Beyond
- ---------------------------------------------------------------------------------------------------------------
Off-balance sheet:
Guarantees $ 469 $ 20 $ - $ - $ 4 $ - $445
Indemnities 241 5 - 36 - - 200
Letters of Credit 283 247 32 - - - 4
- ---------------------------------------------------------------------------------------------------------------
Total $ 993 $ 272 $ 32 $ 36 $ 4 $ - $649
===============================================================================================================
CMS Energy and Enterprises, including subsidiaries, have guaranteed payment of
obligations, through letters
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of credit and surety bonds, of unconsolidated affiliates and related parties
approximating $2.6 billion as of March 31, 2003. Included in this amount,
Enterprises, in the ordinary course of business, has guarantees in place for
contracts of CMS MST that contain certain schedule and performance requirements.
As of March 31, 2003, the actual amount of financial exposure covered by these
guarantees was $297 million. This amount excludes the guarantees associated with
CMS MST's natural gas supply contract obligations totaling $252 million, which
are recorded as liabilities on the Consolidated Balance Sheet at March 31, 2003.
Management monitors and approves these obligations and believes it is unlikely
that CMS Energy or Enterprises would be required to perform or otherwise incur
any material losses associated with the above obligations.
CAPITALIZATION: The authorized capital stock of CMS Energy consists of 250
million shares of CMS Energy Common Stock and 10 million shares of CMS Energy
Preferred Stock, $.01 par value.
COMPANY-OBLIGATED PREFERRED SECURITIES: CMS Energy and Consumers each have
wholly-owned statutory business trusts that are consolidated with the respective
parent company. CMS Energy and Consumers created their respective trusts for the
sole purpose of issuing trust preferred securities. In each case, the primary
asset of the trust is a note or debenture of the parent company. The terms of
the trust preferred security parallel the terms of the related parent company
note or debenture. The terms, rights and obligations of the trust preferred
security and related note or debenture are also defined in the related indenture
through which the note or debenture was issued, the parent guarantee of the
related trust preferred security and the declaration of trust for the particular
trust. All of these documents together with their related note or debenture and
trust preferred security constitute a full and unconditional guarantee by the
parent company of the trust's obligations under the trust preferred security. In
addition to the similar provisions previously discussed, specific terms of the
securities follow:
CMS Energy In Millions
- --------------------------------------------------------------------------------------------------------------------
Amount Earliest
Trust and Securities Rate (%) Outstanding Maturity Redemption
- --------------------------------------------------------------------------------------------------------------------
March 31 2003 2002
- --------------------------------------------------------------------------------------------------------------------
CMS Energy Trust I (a) 7.75 $173 $173 2027 2001
CMS Energy Trust II (b) 8.75 - 301 2004 -
CMS Energy Trust III (c) 7.25 220 220 2004 -
- --------------------------------------------------------------------------------------------------------------------
Total Amount Outstanding $393 $694
======================================================================================
(a) Represents Quarterly Income Preferred Securities that are
convertible into 1.2255 shares of CMS Energy Common Stock
(equivalent to a conversion price of $40.80). Effective July
2001, CMS Energy can revoke the conversion rights if certain
conditions are met.
(b) On July 1, 2002, the 7,250,000 units of Adjustable Convertible
Preferred Securities were converted to 8,787,725 newly issued
shares of CMS Energy Common Stock.
(c) Represents Premium Equity Participating Security Units in which
holders are obligated to purchase a variable number of shares of
CMS Energy Common Stock by the August 2003 conversion date.
Consumers Energy Company In Millions
- ---------------------------------------------------------------------------------------------------------------
Amount Earliest
Trust and Securities Rate (%) Outstanding Maturity Redemption
- ---------------------------------------------------------------------------------------------------------------
March 31 2003 2002
- ---------------------------------------------------------------------------------------------------------------
Consumers Power Company Financing I,
Trust Originated Preferred Securities 8.36 $ 70 $ 70 2015 2000
Consumers Energy Company Financing II,
Trust Originated Preferred Securities 8.20 120 120 2027 2002
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CMS Energy Corporation
Consumers Energy Company Financing III,
Trust Originated Preferred Securities 9.25 175 175 2029 2004
Consumers Energy Company Financing IV,
Trust Preferred Securities 9.00 125 125 2031 2006
- --------------------------------------------------------------------------------------------------------------
Total Amount Outstanding $490 $ 490
=====================================================================================
6: EARNINGS PER SHARE
The following table presents a reconciliation of the numerators and denominators
of the basic and diluted earnings per share computations.
In Millions, Except Per Share Amounts
- ------------------------------------------------------------------------
Three Months Ended March 31 2003 2002
- ------------------------------------------------------------------------
Net Income Attributable to Common Stock:
CMS Energy - Basic $ 79 $ 42
Add conversion of Trust Preferred
Securities (net of tax) 5 2
------------------------
CMS Energy - Diluted $ 84 $ 44
========================
Average Common Shares Outstanding
Applicable to Basic and Diluted EPS
CMS Energy:
Average Shares - Basic 144.1 133.3
Add conversion of Trust Preferred
Securities 20.9 4.2
------------------------
Average Shares - Diluted 165.0 137.5
========================
Earnings Per Average Common Share
Basic $ 0.55 $ 0.32
Diluted $ 0.51 $ 0.32
========================================================================
7: RISK MANAGEMENT ACTIVITIES AND FINANCIAL INSTRUMENTS
The objective of the CMS Energy risk management policy is to analyze, manage and
coordinate the identified risk exposures of the individual business segments and
to exploit the presence of internal hedge opportunities that exist among its
diversified business segments. CMS Energy, on behalf of its regulated and
non-regulated subsidiaries, utilizes a variety of derivative instruments for
both trading and non-trading purposes and executes these transactions with
external parties through either CMS Enterprises or its marketing subsidiary, CMS
MST. These derivative instruments include futures contracts, swaps, options and
forward contracts to manage exposure to fluctuations in commodity prices,
interest rates and foreign exchange rates. In order for derivative instruments
to qualify for hedge accounting under SFAS No. 133, the hedging relationship
must be formally documented at inception and be highly effective in achieving
offsetting cash flows or offsetting changes in fair value attributable to the
risk being hedged.
Derivative instruments contain credit risk if the counterparties, including
financial institutions and energy marketers, fail to perform under the
agreements. CMS Energy minimizes such risk by performing financial
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CMS Energy Corporation
credit mitigation programs including, among other things, using publicly
available credit ratings of such counterparties, internally developed
statistical models for credit scoring and use of internal hedging programs to
minimize exposure to external counterparties. No material nonperformance is
expected.
COMMODITY DERIVATIVES: Commodity contracts have been accounted for in accordance
with the requirements of SFAS No. 133, as amended and interpreted, and may or
may not qualify for hedge accounting treatment depending on the characteristics
of each contract.
DERIVATIVE INSTRUMENTS: CMS Energy adopted SFAS No. 133 on January 1, 2001. This
standard requires CMS Energy to recognize at fair value on the balance sheet, as
assets or liabilities, all contracts that meet the definition of a derivative
instrument. The standard also requires CMS Energy to record all changes in fair
value directly in earnings unless the derivative instrument meets certain
qualifying cash flow hedge criteria, in which case the changes in fair value
would be reflected in other comprehensive income. CMS Energy determines fair
value based upon quoted market prices and mathematical models using current and
historical pricing data. The ineffective portion, if any, of all hedges is
recognized in earnings.
CMS Energy believes that the majority of its contracts, power purchase
agreements and gas transportation contracts qualify for the normal purchases and
sales exception of SFAS No. 133 and are not subject to the accounting rules for
derivative instruments. CMS Energy uses derivative instruments that require
derivative accounting, to limit its exposures to electricity and gas commodity
price risk. The interest rate and foreign currency exchange contracts met the
requirements for hedge accounting under SFAS No. 133 and CMS Energy recorded the
changes in the fair value of these contracts in other comprehensive income.
ELECTRIC CONTRACTS: Consumers' electric business uses purchased electric call
option contracts to meet, in part, its regulatory obligation to serve. This
obligation requires Consumers to provide a physical supply of electricity to
customers, to manage electric costs and to ensure a reliable source of capacity
during peak demand periods. As of March 31, 2003, Consumers recorded on the
balance sheet all of its unexpired purchased electric call option contracts
subject to derivative accounting at a fair value of $1 million. These contracts
will expire in the third quarter of 2003.
Consumers believes that certain of its electric capacity and energy contracts
are not derivatives due to the lack of an active energy market in the state of
Michigan, as defined by SFAS No. 133, and the transportation cost to deliver the
power under the contracts to the closest active energy market at the Cinergy hub
in Ohio. If a market develops in the future, Consumers may be required to
account for these contracts as derivatives. The mark-to-market impact in
earnings related to these contracts, particularly related to the PPA could be
material to the financial statements.
During 2002, Consumers' electric business also used gas swap contracts to
protect against price risk due to the fluctuations in the market price of gas
used as fuel for generation of electricity. These gas swaps were financial
contracts that were used to offset increases in the price of probable forecasted
gas purchases. These contracts did not qualify for hedge accounting. Therefore,
Consumers recorded any change in the fair value of these contracts directly in
earnings as part of power supply costs. As of March 31, 2002, these contracts
had a fair value of $1 million. These contracts expired in December 2002.
As of March 31, 2003, Consumers recorded a total of $11 million, net of tax, as
an unrealized gain in other comprehensive income related to its proportionate
share of the effects of derivative accounting related to its equity investment
in the MCV Partnership. Consumers expects to reclassify this gain, if this value
remains, as an increase to other operating revenue during the next 12 months.
GAS CONTRACTS: Consumers' gas business uses fixed price gas supply contracts,
and fixed price weather-
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CMS Energy Corporation
based gas supply call options and fixed price gas supply put options, and other
types of contracts, to meet its regulatory obligation to provide gas to its
customers at a reasonable and prudent cost. During 2002, some of the fixed price
gas supply contracts and the weather-based gas call options and gas put options
required derivative accounting. The fixed price gas supply contracts expired in
October 2002, and the weather-based gas call options and gas put options expired
in February 2003. As of March 31, 2003, Consumers did not have any gas supply
related contracts that required derivative accounting.
INTEREST RATE RISK CONTRACTS: Consumers uses interest rate swaps to hedge the
risk associated with forecasted interest payments on variable-rate debt. These
interest rate swaps are designated as cash flow hedges. As such, Consumers will
record any change in the fair value of these contracts in other comprehensive
income unless the swaps are sold. As of March 31, 2003 and March 31, 2002,
Consumers had entered into a swap to fix the interest rate on $75 million of
variable-rate debt. This swap will expire in June 2003. As of March 31, 2003,
this interest rate swap had a negative fair value of $1 million. This amount, if
sustained, will be reclassified to earnings, increasing interest expense when
the swap is settled on a monthly basis. As of March 31, 2002, this interest rate
swap had a negative fair value of $2 million.
Consumers also uses interest rate swaps to hedge the risk associated with the
fair value of its debt. These interest rate swaps are designated as fair value
hedges. In March 2002, Consumers entered into a fair value hedge to hedge the
risk associated with the fair value of $300 million of fixed-rate debt, issued
in March 2002. As of March 31, 2002, the swap had a negative fair value of less
than $1 million. In June 2002, this swap was terminated and resulted in a $7
million gain that is deferred and recorded as part of the debt. It is
anticipated that this gain will be recognized over the remaining life of the
debt.
Consumers was able to apply the shortcut method to all interest rate hedges,
therefore there was no ineffectiveness associated with these hedges.
ENERGY TRADING ACTIVITIES: CMS Energy, through its subsidiary CMS MST, engages
in trading activities. CMS MST manages any open positions within certain
guidelines that limit its exposure to market risk and requires timely reporting
to management of potential financial exposure. These guidelines include
statistical risk tolerance limits using historical price movements to calculate
daily value at risk measurements. Through December 31, 2002, CMS MST's wholesale
power and gas trading activities were accounted for under the mark-to-market
method of accounting. Effective, January 1, 2003, EITF Issue No. 98-10 was
rescinded by EITF Issue No. 02-03 and as a result, only energy contracts that
meet the definition of a derivative in SFAS No. 133 can be carried at fair
value. The impact of this change for CMS MST was recognized as a cumulative
effect of a change in accounting principle of $(23) million, net of tax. See
Note 10, Adoption of New Accounting Standards. Under mark-to-market accounting,
energy-trading contracts are reflected at fair market value, net of reserves,
with unrealized gains and losses recorded as an asset or liability in the
consolidated balance sheets. These assets and liabilities are affected by the
timing of settlements related to these contracts, current-period changes from
newly originated transactions and the impact of price movements. Changes in fair
value are recognized as revenues in the consolidated statements of income in the
period in which the changes occur. Market prices used to value outstanding
financial instruments reflect management's consideration of, among other things,
closing exchange and over-the-counter quotations. In certain contracts,
long-term commitments may extend beyond the period in which market quotations
for such contracts are available and volumetric obligations may not be defined.
Mathematical models are developed to determine various inputs into the fair
value calculation including price, anticipated volumetric obligations and other
inputs that may be required to adequately address the determination of fair
value of the contracts. Realized cash returns on these commitments may vary,
either positively or negatively, from the results estimated through application
of the mathematical model. CMS Energy believes that its mathematical models
utilize state-of-the-art technology, pertinent industry data and prudent
discounting in order to forecast certain elongated pricing curves. Market prices
are adjusted to reflect the impact of liquidating the company's position in an
orderly manner over a reasonable period of time under present market conditions.
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CMS Energy Corporation
In connection with the market valuation of its energy commodity contracts, CMS
Energy maintains reserves for credit risks based on the financial condition of
counterparties. The creditworthiness of these counterparties will impact overall
exposure to credit risk; however, CMS Energy maintains credit policies that
management believes minimize overall credit risk with regard to its
counterparties. Determination of its counterparties' credit quality is based
upon a number of factors, including credit ratings, financial condition, and
collateral requirements. When trading terms permit, CMS Energy employs standard
agreements that allow for netting of positive and negative exposures associated
with a single counterparty. Based on these policies, its current exposures and
its credit reserves, CMS Energy does not anticipate a material adverse effect on
its financial position or results of operations as a result of counterparty
nonperformance.
At March 31 2003 and 2002, CMS Energy has recorded a net price risk management
asset of $7 million and $103 million respectively, net of reserves, related to
the unrealized mark-to-market gains on existing wholesale power contracts, gas
contracts, and hedges for retail activities that are marked as derivatives.
FLOATING TO FIXED INTEREST RATE SWAPS: CMS Energy and its subsidiaries enter
into floating to fixed interest rate swap agreements to reduce the impact of
interest rate fluctuations. These swaps are designated as cash flow hedges and
the difference between the amounts paid and received under the swaps is accrued
and recorded as an adjustment to interest expense over the term of the
agreement. Changes in the fair value of these swaps are recorded in accumulated
other comprehensive income until the swaps are terminated. As of March 31, 2003,
these swaps had a negative fair value of $4 million that if sustained, will be
reclassified to earnings as the swaps are settled on a quarterly basis.
Notional amounts reflect the volume of transactions but do not represent the
amount exchanged by the parties to the financial instruments. Accordingly,
notional amounts do not necessarily reflect CMS Energy's exposure to credit or
market risks. As of March 31, 2003 and 2002, the weighted average interest rate
associated with outstanding swaps was approximately 5.2 percent.
In Millions
- --------------------------------------------------------------------------------------------------------------------------
Floating to Fixed Notional Maturity Fair Unrealized
Interest Rate Swaps Amount Date Value Gain (Loss)
- --------------------------------------------------------------------------------------------------------------------------
March 31, 2003 $ 294 2003-2006 $(4) $ 3
March 31, 2002 $ 295 2003-2006 $(7) $ 4
FIXED TO FLOATING INTEREST RATE SWAPS: CMS Energy monitors its debt portfolio
mix of fixed and variable rate instruments and from time to time enters into
fixed to floating rate swaps to maintain the optimum mix of fixed and floating
rate debt. These swaps are designated as fair value hedges and any realized
gains or losses in the fair value are amortized to earnings after the
termination of the hedge instrument over the remaining life of the hedged item.
There were no outstanding fixed to floating interest rate swaps as of March 31,
2003.
In Millions
- --------------------------------------------------------------------------------------------------------------------------
Fixed to Floating Notional Maturity Fair Unrealized
Interest Rate Swaps Amount Date Value Gain (Loss)
- --------------------------------------------------------------------------------------------------------------------------
March 31, 2003 $ - -- $ - $ -
March 31, 2002 $ 822 2004-2005 $(3) $ (2)
FOREIGN EXCHANGE DERIVATIVES: CMS Energy uses forward exchange and option
contracts to hedge certain receivables, payables, long-term debt and equity
value relating to foreign investments. The purpose of CMS Energy's foreign
currency hedging activities is to protect the company from the risk that U.S.
dollar net cash flows resulting from sales to foreign customers and purchases
from foreign suppliers and the repayment of
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CMS Energy Corporation
non-U.S. dollar borrowings as well as equity reported on the company's balance
sheet, may be adversely affected by changes in exchange rates. These contracts
do not subject CMS Energy to risk from exchange rate movements because gains and
losses on such contracts offset losses and gains, respectively, on assets and
liabilities being hedged. The estimated fair value of the foreign exchange and
option contracts at March 31, 2003 and 2002 2002 was zero 2003 and $(6) million,
respectively; representing the amount CMS Energy would receive or (pay) upon
settlement.
There were no outstanding foreign exchange contracts at March 31, 2003. Foreign
exchange contracts outstanding as of March 31, 2002 had a total notional amount
of $152 million. Of this amount, $100 million is related to CMS Energy's
investments in Brazil, $25 million is related to CMS Energy's investments in
Australia, and $27 million in Euro hedges.
FINANCIAL INSTRUMENTS: The carrying amounts of cash, short-term investments and
current liabilities approximate their fair values due to their short-term
nature. The estimated fair values of long-term investments are based on quoted
market prices or, in the absence of specific market prices, on quoted market
prices of similar investments or other valuation techniques. Judgment may also
be required to interpret market data to develop certain estimates of fair value.
Accordingly, the estimates determined as of March 31, 2003 and 2002 are not
necessarily indicative of the amounts that may be realized in current market
exchanges. The carrying amounts of all long-term investments in financial
instruments, except for those as shown below, approximate fair value.
In Millions
- -------------------------------------------------------------------------------------------------------------------
As of March 31 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Carrying Fair Unrealized Carrying Fair Unrealized
Cost Value Gain(Loss) Cost Value Gain(Loss)
-----------------------------------------------------------------------------
Long-Term Debt (a) $5,212 $5,112 $(100) $5,475 $5,422 $(53)
Preferred Stock and
Trust Preferred Securities 927 664 (263) 1,228 1,125 (103)
- -------------------------------------------------------------------------------------------------------------------
(a) Settlement of long-term debt is generally not expected until maturity.
8: EQUITY METHOD INVESTMENTS
Certain of CMS Energy's investments in companies, partnerships and joint
ventures, where ownership is more than 20 percent but less than a majority, are
accounted for by the equity method of accounting in accordance with APB Opinion
No. 18. For the three months ended March 31, 2003 and 2002, net income included
undistributed earnings of $31 million and $34 million, respectively, from these
investments. The most significant of these investments is CMS Energy's 50
percent interest in Jorf Lasfar and its 49 percent interest in the MCV
Partnership. Summarized income statement information of CMS Energy's most
significant equity method investments follows.
Income Statement Data
In Millions
- ----------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2003 Jorf Lasfar MCV Total
- ----------------------------------------------------------------------------------------------------
Operating revenue $ 90 $153 $243
Operating expenses 43 100 143
-----------------------------
Operating income 47 53 100
Other expense, net 19 28 47
-----------------------------
Net income $ 28 $ 25 $ 53
====================================================================================================
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CMS Energy Corporation
In Millions
- ----------------------------------------------------------------------------------------------------
Three Months Ended March 31, 2002 Jorf Lasfar MCV Total
- ----------------------------------------------------------------------------------------------------
Operating revenue $ 96 $149 $245
Operating expenses 48 109 157
-----------------------------
Operating income 48 40 88
Other expense, net 11 29 40
-----------------------------
Net income $ 37 $ 11 $ 48
====================================================================================================
9: REPORTABLE SEGMENTS
CMS Energy's reportable segments are strategic business units organized and
managed by the nature of the products and services each provides. Management
evaluates performance based upon the net income of each segment. Previously, CMS
Energy operated in five reportable segments: electric utility, gas utility,
natural gas transmission, independent power production and marketing, services
and trading. As a result of recent changes in its business strategy, including
the sale of non-strategic and under-performing assets, and management
reorganization, CMS Energy now operates principally in the following three
reportable segments: electric utility, gas utility, and enterprises.
The electric utility segment consists of regulated activities associated with
the generation, transmission and distribution of electricity in the state of
Michigan through its subsidiary, Consumers. The gas utility segment consists of
regulated activities associated with the transportation, storage and
distribution of natural gas in the state of Michigan through its subsidiary,
Consumers. The enterprises segment consists of investing in, acquiring,
developing, constructing, managing and operating non-utility power generation
plants and natural gas facilities in the United States and abroad; and providing
gas, oil, and electric marketing services to energy users.
The Consolidated Statements of Income reflect operating revenue and operating
income by reportable segment. Intersegment sales and transfers are accounted for
at current market prices and are eliminated in consolidated operating income by
segment. The table below shows net income by reportable segment. The "Other"
segment includes corporate interest and other, discontinued operations and the
cumulative effect of accounting changes. The 2002 information has been restated
to reflect the management reorganization and the change in CMS Energy's business
strategy from five to three operating segments.
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CMS Energy Corporation
Reportable Segments In Millions
- ------------------------------------------------------------------------------------------------------------------
Restated
- ------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31 2003 2002
- ------------------------------------------------------------------------------------------------------------------
Net Income
Electric utility $ 51 $ 50
Gas utility 54 28
Enterprises 23 66
Other (49) (102)
--------------------------------------
$ 79 $ 42
==================================================================================================================
10. ADOPTION OF NEW ACCOUNTING STANDARDS
SFAS NO. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS: Effective January 1,
2003, CMS Energy adopted SFAS No. 143. The new standard requires companies to
record the fair value of the legal obligation related to asset retirements in
the period in which the obligation is incurred. CMS Energy has determined that
it has legal asset retirement obligations, particularly in regard to Consumers'
nuclear plants.
Prior to adoption of SFAS No. 143, Consumers classified the removal cost
liability of assets included in the scope of SFAS No. 143 as part of the reserve
for accumulated depreciation. For these assets, the removal cost of $448 million
which was classified as part of the reserve at December 31, 2002, was
reclassified in January 2003, in part, as 1) a $364 million ARO liability, 2) a
$136 million regulatory liability, 3) A $45 million regulatory asset, and 4) a
$7 million net increase to property, plant, and equipment, as prescribed by SFAS
No. 143. As required by SFAS No. 71 for regulated entities, Consumers is
reflecting a regulatory asset and liability instead of a cumulative effect of a
change in accounting principle.
The fair value of ARO liabilities has been calculated using an expected present
value technique. This technique reflects assumptions, such as costs, inflation,
and profit margin that third parties would consider in order to take on the
settlement of the obligation. Fair value, to the extent possible, should include
a market risk premium for unforeseeable circumstances. No market risk premium
was included in Consumers' ARO fair value estimate since a reasonable estimate
could not be made. If a five percent market risk premium was assumed, Consumers'
ARO liability would be $381 million.
If a reasonable estimate of fair value cannot be made in the period the asset
retirement obligation is incurred, such as assets with an indeterminate life,
the liability will be recognized when a reasonable estimate of fair value can be
made. Generally, mass property such as transmission and distribution assets have
an indeterminate life, retirement cash flows cannot be determined and there is a
low probability of a retirement date, therefore no liability has been recorded
for these assets. No liability has been recorded for assets that have an
immaterial cumulative disposal cost, such as substation batteries. The initial
measurement of the ARO liability for Consumers' Palisades Nuclear Plant and Big
Rock Nuclear Plant is based on decommissioning studies, which are based largely
on third party cost estimates.
In addition, at March 31, 2003, CMS Energy recorded an ARO liability for certain
pipelines and non-utility generating plants and a $1 million, net of tax,
cumulative effect of change in accounting for accretion and depreciation expense
for ARO liabilities incurred prior to 2003. The pro forma effect on results of
operations would not be material for the three months ended March 31, 2002.
The following table is a general description of the AROs and their associated
long-lived assets.
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CMS Energy Corporation
March 31, 2003 In Millions
- ------------------------------------------------------------------------------------------------------------------
In Service Trust
ARO Description Date Long Lived Assets Fund
- ------------------------------------------------------------------------------------------------------------------
Palisades - decommission plant site 1972 Palisades nuclear plant $ 426
Big Rock - decommission plant site 1962 Big Rock nuclear plant 103
JHCampbell intake/discharge water line 1980 Plant intake/discharge water line -
Closure of coal ash disposal areas Various Generating plants coal ash areas -
Closure of wells at gas storage fields Various Gas storage fields -
Indoor gas services equipment relocations Various Gas meters located inside structures -
Closure of gas pipelines Various Gas transmission pipelines -
Dismantle natural gas-fired power plant 1997 Gas fueled power plant -
- ------------------------------------------------------------------------------------------------------------------
The following table is a reconciliation of the carrying amount of the AROs:
March 31, 2003 In Millions
- -------------------------------------------------------------------------------------------------------------------
Pro Forma
ARO liability ARO Liability Cash flow
ARO 1/1/02 1/1/03 Incurred Settled Accretion Revisions 3/31/03
- -------------------------------------------------------------------------------------------------------------------
Palisades - decommission $232 $249 $ - $ - $ 4 $ - $ 253
Big Rock - decommission 94 61 - (7) 3 - 57
JHCampbell intake line - - - - - - -
Coal ash disposal areas 46 51 - - 1 - 52
Wells at gas storage fields 2 2 - - - - 2
Indoor gas services
relocations 1 1 - - - - 1
Closure of gas pipelines (a) 7 8 - - - - 8
Dismantle natural gas-fired
power plant 1 1 - - - - 1
- -------------------------------------------------------------------------------------------------------------------
Total $383 $373 $ - $ (7) $ 8 $ - $ 374
===================================================================================================================
(a) Amounts are included in discontinued operations.
SFAS NO. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES:
Issued by the FASB in July 2002, this standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. This standard is
effective for exit or disposal activities initiated after December 31, 2002.
EITF ISSUE NO. 02-03, "RECOGNITION AND REPORTING OF GAINS AND LOSSES ON ENERGY
TRADING CONTRACTS UNDER EITF ISSUES NO. 98-10 AND 00-17": At the October 25,2002
meeting, the EITF reached a consensus to rescind EITF Issue No. 98-10,
Accounting for Contracts Involved in Energy Trading and Risk Management
Activities. As a result, only energy contracts that meet the definition of a
derivative in SFAS No. 133 will be carried at fair value. Energy trading
contracts that do not meet the definition of a derivative must be accounted for
as an executory contract (i.e., on an accrual basis). The consensus rescinding
EITF Issue No. 98-10 was required to be applied to all contracts that existed as
of October 25, 2002 and was required to be recognized as a cumulative effect of
a change in accounting principle in accordance with APB Opinion No. 20,
Accounting Changes, effective the first day of the first interim or annual
period beginning after December 15, 2002. The consensus also was required to be
applied immediately to all new contracts entered into after October 25, 2002.
The full adoption of EITF Issue No. 02-03 effective January 1, 2003, resulted in
CMS Energy recognizing a cumulative effect of change in accounting principle
loss of ($23) million, net of tax, for the three months ended March 31, 2003.
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Consumers Energy Company
CONSUMERS ENERGY COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
Consumers, a subsidiary of CMS Energy, a holding company, is an electric and gas
utility company that provides service to customers in Michigan's Lower
Peninsula. Consumers' customer base includes a mix of residential, commercial
and diversified industrial customers, the largest segment of which is the
automotive industry.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
This MD&A refers to, and in some sections specifically incorporates by
reference, Consumers' Notes to Consolidated Financial Statements and should be
read in conjunction with such Consolidated Financial Statements and Notes. This
Form 10-Q and other written and oral statements that Consumers may make contain
forward-looking statements as defined by the Private Securities Litigation
Reform Act of 1995. Consumers' intentions with the use of the words,
"anticipates," "believes," "estimates," "expects," "intends," and "plans," and
variations of such words and similar expressions, are solely to identify
forward-looking statements that involve risk and uncertainty. These
forward-looking statements are subject to various factors that could cause
Consumers' actual results to differ materially from the results anticipated in
such statements. Consumers has no obligation to update or revise forward-looking
statements regardless of whether new information, future events or any other
factors affect the information contained in such statements. Consumers does,
however, discuss certain risk factors, uncertainties and assumptions in this
MD&A and in Item 1 of the 2002 Form 10-K in the section entitled
"Forward-Looking Statements Cautionary Factors" and in various public filings it
periodically makes with the SEC. Consumers designed this discussion of potential
risks and uncertainties, which is by no means comprehensive, to highlight
important factors that may impact Consumers' business and financial outlook.
This Form 10-Q also describes material contingencies in Consumers' Condensed
Notes to Consolidated Financial Statements, and Consumers encourages its readers
to review these Notes. All note references within this MD&A refer to Consumers'
Notes to Consolidated Financial Statements.
CRITICAL ACCOUNTING POLICIES
Presenting financial statements in accordance with accounting principles
generally accepted in the United States requires using estimates, assumptions,
and accounting methods that are often subject to judgment. Presented below, are
the accounting policies and assumptions that Consumers believes are most
critical to both the presentation and understanding of its financial statements.
Applying these accounting policies to financial statements can involve very
complex judgments. Accordingly, applying different judgments, estimates or
assumptions could result in a different financial presentation.
USE OF ESTIMATES IN ACCOUNTING FOR CONTINGENCIES
The principles in SFAS No. 5 guide the recording of estimated liabilities for
contingencies within the financial statements. SFAS No. 5 requires a company to
record estimated liabilities in the financial statements when a current event
has caused a probable future loss payment of an amount that can be reasonably
estimated. Consumers has used this accounting principle to record estimated
liabilities for the following significant events.
ELECTRIC ENVIRONMENTAL ESTIMATES: Consumers is subject to costly and
increasingly stringent environmental regulations. Consumers expects to incur
significant costs for future environmental compliance, especially compliance
with clean air laws.
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Consumers Energy Company
The EPA has issued regulations regarding nitrogen oxide emissions from certain
generators, including some of Consumers' electric generating facilities. These
regulations require Consumers to make significant capital expenditures estimated
to be $770 million. As of March 31, 2003, Consumers has incurred $420 million in
capital expenditures to comply with these regulations and anticipates that the
remaining capital expenditures will be incurred between 2003 and 2009.
Additionally, Consumers expects to supplement its compliance plan with the
purchase of nitrogen oxide emissions credits in the years 2005 through 2008. The
cost of these credits based on the current market is estimated to average $6
million per year; however, the market for nitrogen oxide emissions credits and
their cost can change significantly. At some point, if new environmental
standards become effective, Consumers may need additional capital expenditures
to comply with the standards. For further information see Note 2, Uncertainties,
"Electric Contingencies - Electric Environmental Matters."
GAS ENVIRONMENTAL ESTIMATES: Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will incur investigation
and remedial action costs at a number of sites. Consumers estimates the costs
for 23 former manufactured gas plant sites will be between $82 million and $113
million, using the Gas Research Institute-Manufactured Gas Plant Probabilistic
Cost Model. These estimates are based on discounted 2001 costs and follow EPA
recommended use of discount rates between three and seven percent. Consumers
expects to recover a significant portion of these costs through MPSC-approved
rates charged to its customers. Any significant change in assumptions, such as
remediation techniques, nature and extent of contamination, and legal and
regulatory requirements, could change the remedial action costs for the sites.
For further information see Note 2, Uncertainties, "Gas Contingencies - Gas
Environmental Matters."
MCV UNDERRECOVERIES: The MCV Partnership, which leases and operates the MCV
Facility, contracted to sell electricity to Consumers for a 35-year period
beginning in 1990 and to supply electricity and steam to Dow. Consumers, through
two wholly owned subsidiaries, holds a 49 percent partnership interest in the
MCV Partnership, and a 35 percent lessor interest in the MCV Facility.
Consumers' annual obligation to purchase capacity from the MCV Partnership is
1,240 MW through the term of the PPA ending in 2025. The PPA requires Consumers
to pay, based on the MCV Facility's availability, a levelized average capacity
charge of 3.77 cents per kWh and a fixed energy charge, and also to pay a
variable energy charge based primarily on Consumers' average cost of coal
consumed for all kWh delivered. Consumers has not been allowed full recovery of
the capacity and fixed energy charges in rates. After September 2007, the PPA's
regulatory out terms obligate Consumers to pay the MCV Partnership only those
capacity and energy charges that the MPSC has authorized for recovery from
electric customers.
In 1992, Consumers recognized a loss and established a PPA liability for the
present value of the estimated future underrecoveries of power supply costs
under the PPA based on MPSC cost recovery orders. Primarily as a result of the
MCV Facility's actual availability being greater than management's original
estimates, the PPA liability has been reduced at a faster rate than originally
anticipated. At March 31, 2003 and 2002, the remaining after-tax present value
of the estimated future PPA liability associated with the loss totaled $30
million and $46 million, respectively. The PPA liability is expected to be
depleted in late 2004.
In March 1999, Consumers and the MCV Partnership reached a settlement agreement
effective January 1, 1999, that addressed, among other things, the ability of
the MCV Partnership to count modifications increasing the capacity of the
existing MCV Facility for purposes of computing the availability of contract
capacity under the PPA for billing purposes. That settlement agreement capped
payments made on the basis of availability that may be billed by the MCV
Partnership at a maximum 98.5 percent availability level.
When Consumers returns, as expected, to unfrozen rates beginning in 2004,
Consumers will recover from customers capacity and fixed energy charges on the
basis of availability, to the extent that availability does
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Consumers Energy Company
not exceed 88.7 percent availability established in previous MPSC orders. For
capacity and energy payments billed by the MCV Partnership after September 15,
2007, and not recovered from customers, Consumers would expect to claim a
regulatory out under the PPA. The regulatory out provision relieves Consumers of
the obligation to pay more for capacity and energy payments than the MPSC allows
Consumers to collect from its customers. Consumers estimates that 51 percent of
the actual cash underrecoveries for the years 2003 and 2004 will be charged to
the PPA liability, with the remaining portion charged to operating expense as a
result of Consumers' 49 percent ownership in the MCV Partnership. All cash
underrecoveries will be expensed directly to income once the PPA liability is
depleted. If the MCV Facility's generating availability remains at the maximum
98.5 percent level during the next five years, Consumers' after-tax cash
underrecoveries associated with the PPA could be as follows:
In Millions
- ------------------------------------------------------------------------------------------------------------
2003 2004 2005 2006 2007
- ------------------------------------------------------------------------------------------------------------
Estimated cash underrecoveries at 98.5%, net of tax $37 $36 $36 $36 $25
Amount to be charged to operating expense, net of tax $18 $18 36 $36 $25
Amount to be charged to PPA liability, net of tax $19 $18 $-- $-- $--
============================================================================================================
In February 1998, the MCV Partnership appealed the January 1998 and February
1998 MPSC orders related to electric utility restructuring. At the same time,
MCV Partnership filed suit in the United States District Court in Grand Rapids
seeking a declaration that the MPSC's failure to provide Consumers and MCV
Partnership a certain source of recovery of capacity payments after 2007
deprived MCV Partnership of its rights under the Public Utilities Regulatory
Policies Act of 1978. In July 1999, the District Court granted MCV Partnership's
motion for summary judgment. The Court permanently prohibited enforcement of the
restructuring orders in any manner that denies any utility the ability to
recover amounts paid to qualifying facilities such as the MCV Facility or that
precludes the MCV Partnership from recovering the avoided cost rate. The MPSC
appealed the Court's order to the 6th Circuit Court of Appeals in Cincinnati. In
June 2001, the 6th Circuit overturned the lower court's order and dismissed the
case against the MPSC. The appellate court determined that the case was
premature and concluded that the qualifying facilities needed to wait until 2008
for an actual factual record to develop before bringing claims against the MPSC
in federal court.
For further information see Note 2, Uncertainties, "Other Electric Uncertainties
- - The Midland Cogeneration Venture."
ACCOUNTING FOR DERIVATIVE AND FINANCIAL INSTRUMENTS AND MARKET RISK INFORMATION
DERIVATIVE INSTRUMENTS: Consumers uses the criteria in SFAS No. 133, as amended
and interpreted, to determine if certain contracts must be accounted for as
derivative instruments. The rules for determining whether a contract meets the
criteria for derivative accounting are numerous and complex. As a result,
significant judgment is required to determine whether a contract requires
derivative accounting, and similar contracts can sometimes be accounted for
differently.
Consumers currently accounts for the following contracts as derivative
instruments: interest rate swaps, certain electric call options, fixed priced
weather-based gas supply call options and fixed price gas supply put options.
Consumers does not account for the following contracts as derivative
instruments: electric capacity and energy contracts, gas supply contracts
without embedded options, coal and nuclear fuel supply contracts, and purchase
orders for numerous supply items.
Consumers believes that certain of its electric capacity and energy contracts
are not derivatives due to the lack of an active energy market in the state of
Michigan, as defined by SFAS No. 133, and the transportation cost
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Consumers Energy Company
to deliver the power under the contracts to the closest active energy market at
the Cinergy hub in Ohio. If a market develops in the future, Consumers may be
required to account for these contracts as derivatives. The mark-to-market
impact on earnings related to these contracts, particularly related to the PPA,
could be material to the financial statements.
If a contract is accounted for as a derivative instrument, it is recorded in the
financial statements as an asset or a liability, at the fair value of the
contract. Any difference between the recorded book value and the fair value is
reported either in earnings or other comprehensive income, depending on certain
qualifying criteria. The recorded fair value of the contract is then adjusted
quarterly to reflect any change in the market value of the contract.
In order to determine the fair value of contracts that are accounted for as
derivative instruments, Consumers uses a combination of quoted market prices and
mathematical models. Option models require various inputs, including forward
prices, volatilities, interest rates and exercise periods. Changes in forward
prices or volatilities could significantly change the calculated fair value of
the call option contracts. At March 31, 2003, Consumers assumed a market-based
interest rate of 4.5 percent and a volatility rate of 107.5 percent in
calculating the fair value of its electric call options.
In order for derivative instruments to qualify for hedge accounting under SFAS
No. 133, the hedging relationship must be formally documented at inception and
be highly effective in achieving offsetting cash flows or offsetting changes in
fair value, attributable to the risk being hedged. If hedging a forecasted
transaction, the forecasted transaction must be probable. If a derivative
instrument, used as a cash flow hedge, is terminated early because it is
probable that a forecasted transaction will not occur, any gain or loss as of
such date is immediately recognized in earnings. If a derivative instrument,
used as a cash flow hedge, is terminated early for other economic reasons, any
gain or loss as of the termination date is deferred and recorded when the
forecasted transaction affects earnings.
FINANCIAL INSTRUMENTS: Consumers accounts for its debt and equity investment
securities in accordance with SFAS No. 115. As such, debt and equity securities
can be classified into one of three categories: held-to-maturity, trading, or
available-for-sale securities. Consumers' investments in equity securities,
including its investment in CMS Energy Common Stock, are classified as
available-for-sale securities. They are reported at fair value, with any
unrealized gains or losses from changes in fair value reported in equity as part
of other comprehensive income and excluded from earnings unless such changes in
fair value are other than temporary. In 2002, Consumers determined that the
decline in value related to its investment in CMS Energy Common Stock was other
than temporary as the fair value was below the cost basis for a period greater
than six months. As a result, Consumers recognized a loss on its investment in
CMS Energy Common Stock through earnings of $12 million in the fourth quarter of
2002, and an additional $12 million in the first quarter of 2003. As of March
31, 2003, Consumers held 2.4 million shares of CMS Energy Common Stock with a
fair value of $10 million. Unrealized gains or losses from changes in the fair
value of Consumers' nuclear decommissioning investments are reported as
regulatory liabilities. The fair value of these investments is determined from
quoted market prices.
MARKET RISK INFORMATION: Consumers is exposed to market risks including, but not
limited to, changes in interest rates, commodity prices, and equity security
prices. Consumers' market risk, and activities designed to minimize this risk,
are subject to the direction of an executive oversight committee consisting of
designated members of senior management and a risk committee, consisting of
certain business unit managers. The role of the risk committee is to review the
corporate commodity position and ensure that net corporate exposures are within
the economic risk tolerance levels established by Consumers' Board of Directors.
Established policies and procedures are used to manage the risks associated with
market fluctuations.
Consumers uses various contracts, including swaps, options, and forward
contracts to manage its risks
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Consumers Energy Company
associated with the variability in expected future cash flows attributable to
fluctuations in interest rates and commodity prices. When management uses these
instruments, it intends that an opposite movement in the value of the at-risk
item would offset any losses incurred on the contracts. Contracts used to manage
interest rate and commodity price risk may be considered derivative instruments
that are subject to derivative and hedge accounting pursuant to SFAS No. 133.
Consumers enters into all risk management contracts for purposes other than
trading.
These instruments contain credit risk if the counterparties, including financial
institutions and energy marketers, fail to perform under the agreements.
Consumers minimizes such risk by performing financial credit reviews using,
among other things, publicly available credit ratings of such counterparties.
In accordance with SEC disclosure requirements, Consumers performs sensitivity
analyses to assess the potential loss in fair value, cash flows and earnings
based upon a hypothetical 10 percent adverse change in market rates or prices.
Management does not believe that sensitivity analyses alone provide an accurate
or reliable method for monitoring and controlling risks. Therefore, Consumers
relies on the experience and judgment of its senior management to revise
strategies and adjust positions, as it deems necessary. Losses in excess of the
amounts determined in sensitivity analyses could occur if market rates or prices
exceed the 10 percent shift used for the analyses.
INTEREST RATE RISK: Consumers is exposed to interest rate risk resulting from
the issuance of fixed-rate financing and variable-rate financing, and from
interest rate swap agreements. Consumers uses a combination of these instruments
to manage and mitigate interest rate risk exposure when it deems it appropriate,
based upon market conditions. These strategies attempt to provide and maintain
the lowest cost of capital. As of March 31, 2003 and 2002, Consumers had
outstanding $1.324 billion and $1.329 billion of variable-rate financing,
respectively, including variable-rate swaps and fixed-rate swaps. At March 31,
2003 and 2002, assuming a hypothetical 10 percent adverse change in market
interest rates, Consumers' before tax earnings exposure on its variable-rate
financing would be $2 million and $3 million, respectively. As of March 31, 2003
and 2002, Consumers had entered into a floating-to-fixed interest rate swap
agreement for a notional amount of $75 million, and as of March 31, 2002 a
variable-to-fixed interest rate swap agreement for a notional of $300 million.
These swaps exchange variable-rate interest payment obligations for fixed-rate
interest payment obligations, or fixed-rate interest payment obligations for
variable-rate interest payment obligations in order to minimize the impact of
potential adverse interest rate changes. As of March 31, 2003 and 2002,
Consumers had outstanding fixed-rate financing, including fixed and
variable-rate swaps, of $2.756 billion and $2.477 billion, respectively, with a
fair value of $2.690 billion and $2.769 billion, respectively. As of March 31,
2003 and 2002, assuming a hypothetical 10 percent adverse change in market
rates, Consumers would have an exposure of $131 million and $144 million,
respectively, to the fair value of these instruments if it had to refinance all
of its fixed-rate financing. As discussed below in Electric Business Outlook -
Securitization, Consumers has filed an application with the MPSC to securitize
certain costs. If approved, Consumers will use the proceeds from the
securitization for refinancing or retirement of debt, which could include a
portion of its current fixed-rate debt. Consumers does not believe that any
adverse change in debt price and interest rates would have a material adverse
effect on either its consolidated financial position, results of operation or
cash flows.
COMMODITY MARKET RISK: For purposes other than trading, Consumers enters into
electric call options, fixed price gas supply contracts containing embedded put
options, fixed priced weather-based gas supply call options and fixed priced gas
supply put options. The electric call options are used to protect against risk
due to fluctuations in the market price of electricity and to ensure a reliable
source of capacity to meet customers' electric needs. The gas supply contracts
containing embedded put options, the weather-based gas supply call options, and
the gas supply put options are used to purchase reasonably priced gas supply.
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Consumers Energy Company
As of March 31, 2003 and 2002, the fair value based on quoted future market
prices of electricity-related call option and swap contracts was $10 million and
$19 million, respectively. At March 31, 2003 and 2002, assuming a hypothetical
10 percent adverse change in market prices, the potential reduction in fair
value associated with these contracts would be $2 million and $4 million
respectively. As of March 31, 2003 and 2002, Consumers had an asset of $28
million and $48 million, respectively, related to premiums incurred for electric
call option contracts. Consumers' maximum exposure associated with the call
option contracts is limited to the premiums incurred. As of March 31, 2003,
Consumers did not have any gas supply-related call or put option contracts. As
of March 31, 2002, the fair value based on quoted future market prices of gas
supply contracts containing embedded put options was $4 million. At March 31,
2002, a hypothetical 10 percent adverse change in market prices was immaterial.
EQUITY SECURITY PRICE RISK: Consumers owns less than 20 percent of the
outstanding shares of CMS Energy Common Stock. Consumers recognized a loss on
this investment through earnings of $12 million in the fourth quarter of 2002
and an additional $12 million loss in the first quarter of 2003, because the
loss was other than temporary as the fair value was below the cost basis for a
period greater than six months. As of March 31, 2003, Consumers held 2.4 million
shares of CMS Energy Common stock at a fair value of $10 million. Consumers
believes that any further adverse change in the market price of this investment
would not have a material effect on its consolidated financial position, results
of operation or cash flows.
For further information on market risk and derivative activities, see Note 4,
Financial and Derivative Instruments.
ACCOUNTING FOR THE EFFECTS OF INDUSTRY REGULATION
Because Consumers is involved in a regulated industry, regulatory decisions
affect the timing and recognition of revenues and expenses. Consumers uses SFAS
No. 71 to account for the effects of these regulatory decisions. As a result,
Consumers may defer or recognize revenues and expenses differently than a
non-regulated entity.
For example, items that a non-regulated entity would normally expense, Consumers
may capitalize as regulatory assets if the actions of the regulator indicate
such expenses will be recovered in future rates. Conversely, items that
non-regulated entities may normally recognize as revenues, Consumers may record
as regulatory liabilities if the actions of the regulator indicate they will
require such revenues to be refunded to customers. Judgment is required to
discern the recoverability of items recorded as regulatory assets and
liabilities. As of March 31, 2003, Consumers had $1.121 billion recorded as
regulatory assets and $463 million recorded as regulatory liabilities.
In March 1999, Consumers received MPSC electric restructuring orders, which,
among other things, identified the terms and timing for implementing electric
restructuring in Michigan. Consistent with these orders and EITF No. 97-4,
Consumers discontinued the application of SFAS No. 71 for the energy supply
portion of its business because Consumers expected to implement retail open
access at competitive market-based rates for its electric customers. Since 1999,
there has been a significant legislative and regulatory change in Michigan that
has resulted in: 1) electric supply customers of utilities remaining on
cost-based rates and 2) utilities being given the ability to recover Stranded
Costs associated with electric restructuring, from customers who choose an
alternative electric supplier. During 2002, Consumers re-evaluated the criteria
used to determine if an entity or a segment of an entity meets the requirements
to apply regulated utility accounting, and determined that the energy supply
portion of its business could meet the criteria if certain regulatory events
occurred. In December 2002, Consumers received a MPSC Stranded Cost order that
allowed Consumers to re-apply regulatory accounting standard SFAS No. 71 to the
energy supply portion of its business. Re-application of SFAS No. 71 had no
effect on the prior discontinuation accounting, but will allow Consumers to
apply regulatory accounting treatment to the energy supply portion of its
business
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Consumers Energy Company
beginning in the fourth quarter of 2002, including regulatory accounting
treatment of costs required to be recognized in accordance with SFAS No. 143.
ACCOUNTING FOR PENSION AND OPEB
Consumers provides postretirement benefits under its Pension Plan, and
postretirement health and life benefits under its OPEB plans to substantially
all its retired employees. Consumers uses SFAS No. 87 to account for pension
costs and uses SFAS No. 106 to account for other postretirement benefit costs.
These statements require liabilities to be recorded on the balance sheet at the
present value of these future obligations to employees net of any plan assets.
The calculation of these liabilities and associated expenses require the
expertise of actuaries and are subject to many assumptions including life
expectancies, present value discount rates, expected long-term rate of return on
plan assets, rate of compensation increase and anticipated health care costs.
Any change in these assumptions can significantly change the liability and
associated expenses recognized in any given year. The Pension Plan includes
amounts for employees of CMS Energy and non-utility affiliates, including
Panhandle, which were not distinguishable from the Pension Plan's total assets.
On December 21, 2002, a definitive agreement was executed to sell Panhandle. The
sale is expected to close in 2003. No portion of the Pension Plan will be
transferred with the sale of Panhandle. At the closing of the sale, none of the
employees of Panhandle will be eligible to accrue additional benefits. The
Pension Plan will retain pension payment obligations for Panhandle employees
that are vested under the Pension Plan. Consumers does not expect the impact to
be material.
Consumers estimates pension expense will approximate $36 million, $42 million
and $48 million in fiscal 2003, fiscal 2004 and fiscal 2005, respectively.
Future actual pension expense will depend on future investment performance,
changes in future discount rates and various other factors related to the
populations participating in the Pension Plan.
Consumers has announced changes to the Pension Plan. Employees hired on or after
July 1, 2003 will be covered by the cash balance plan section of the current
plan. Under the cash balance section, an employee's retirement account is
credited annually with a percentage of their salary and any amounts that are
vested are portable when an employee leaves the company. In addition, the method
used to convert an employee's benefit to a lump sum payment is being changed.
Employees who elect the lump sum payment option will not earn an additional
early retirement subsidy. As a result, employees who choose the lump sum payment
option, and retire before age 65, will receive lower lump sum payments.
In order to keep health care benefits and costs competitive, Consumers has
announced several changes to the Health Care Plan. These changes were effective
January 1, 2003. The most significant change is that Consumers' future increases
in health care costs will be shared with salaried employees. The salaried
retirees health care plan has also been amended. Pre-Medicare retirees now elect
coverage from four different levels of coverage, with the two best coverage
options requiring premium contributions. These plans also coordinate benefits
under a maintenance of benefits provision to reduce claim costs for Consumers.
Mail-order prescription copays have also been increased for all salaried
retirees.
ACCOUNTING FOR NUCLEAR DECOMMISSIONING COSTS
Consumers' decommissioning cost estimates for the Big Rock and Palisades plants
assume that each plant site will eventually be restored to conform to the
adjacent landscape with all contaminated equipment and material removed and
disposed of in a licensed burial facility and the site released for unrestricted
use. A March 1999 MPSC order provided for fully funding the decommissioning
trust funds for both sites. The order set the annual decommissioning surcharge
for the Palisades decommissioning at $6 million a year. Consumers estimates that
at the time of the decommissioning of Palisades, its decommissioning trust fund
will be fully funded. Earnings assumptions are that the trust funds are invested
in equities and fixed income investments,
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Consumers Energy Company
equities will be converted to fixed income investments during decommissioning
and fixed income investments are converted to cash as needed. Decommissioning
costs have been developed, in part, by independent contractors with expertise in
decommissioning. These costs estimates use various inflation rates for labor,
non-labor, and contaminated equipment disposal costs.
On December 31, 2000, the Big Rock trust fund was considered fully funded. A
portion of its current decommissioning cost is due to the failure of the DOE to
remove fuel from the site. These costs, and similar costs incurred at Palisades,
would not be necessary but for the failure of the DOE to take possession of the
spent fuel as required by the Nuclear Waste Policy Act of 1982. A number of
utilities have commenced litigation in the Court of Claims, including Consumers,
which filed its complaint in December 2002. The Chief Judge of the Court of
Claims identified six lead cases to be used as vehicles for resolving
dispositive motions. Consumers' case is not a lead case. It is unclear what
impact this decision by the Chief Judge will have on the outcome of Consumers'
litigation. If the litigation that was commenced in the fourth quarter of 2002,
against the DOE is successful, Consumers anticipates future recoveries from the
DOE to defray the significant costs it will incur for the storage of spent fuel
until the DOE takes possession as required by law.
On March 26, 2003, the Michigan Environmental Council, the Public Interest
Research Group in Michigan, and the Michigan Consumer Federation submitted a
complaint to the MPSC, which was served on Consumers by the MPSC on April 18,
2003. The complaint asks the MPSC to commence a generic investigation and
contested case to review all facts and issues concerning costs associated with
spent nuclear fuel storage and disposal. The complaint seeks a variety of relief
with respect to Consumers Energy, The Detroit Edison Company, Indiana & Michigan
Electric Company, Wisconsin Electric Power Company and Wisconsin Public Service
Corporation including establishing external trusts to which amounts collected in
electric rates for spent nuclear fuel storage and disposal should be
transferred, and the adoption of additional measures related to the storage and
disposal of spent nuclear fuel. Consumers is reviewing the complaint. Consumers
is unable to predict the outcome of this matter.
The funds provided by the trusts and additional funds from DOE litigation are
expected to fully fund the decommissioning costs. Variance from trust earnings,
a lesser recovery of costs from the DOE, changes in decommissioning technology,
regulations, estimates or assumptions could affect the cost of decommissioning
these sites and the adequacy of the decommissioning trust funds.
RELATED PARTY TRANSACTIONS
Consumers enters into a number of significant transactions with related parties.
These transactions include the purchase of capacity and energy from the MCV
Partnership and from affiliates of Enterprises, the purchase of electricity and
gas supply from CMS MST, the sale of electricity to CMS MST, the purchase of gas
transportation from CMS Bay Area Pipeline, L.L.C., the purchase of gas
transportation from Trunkline, a subsidiary of Panhandle, the payment of parent
company overhead costs to CMS Energy, the sale, storage and transportation of
natural gas and other services to the MCV Partnership, and an investment in CMS
Energy Common Stock.
Transactions involving CMS Energy and its affiliates and the sale, storage and
transportation of natural gas and other services to the MCV Partnership are
generally based on regulated prices, market prices or competitive bidding.
Transactions involving the power supply purchases from the MCV Partnership, and
certain affiliates of Enterprises, are based upon avoided costs under PURPA and
competitive bidding; and the payment of parent company overhead costs to CMS
Energy are based upon use or accepted industry allocation methodologies.
In 2002, Consumers also sold its transmission facilities to MTH, a
non-affiliated limited partnership whose general partner is a subsidiary of
Trans-Elect, Inc., an independent company, whose management includes former
executive employees of Consumers. The transaction was based on competitive
bidding. Additionally, Consumers continues to use the transmission facilities
now owned by MTH, and a director of Consumers is currently a stockholder of
Trans-Elect, Inc.
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Consumers Energy Company
For detailed information about related party transactions see Note 2,
Uncertainties, "Electric Rate Matters - Transmission", and "Other Electric
Uncertainties - The Midland Cogeneration Venture".
RESULTS OF OPERATIONS
CONSUMERS CONSOLIDATED EARNINGS
In Millions
- -------------------------------------------------------------------------------------------------------------------
March 31 2003 2002 Change
- -------------------------------------------------------------------------------------------------------------------
Three months ended $99 $81 $18
===================================================================================================================
2003 COMPARED TO 2002: For the three months ended March 31, 2003, Consumers' net
income available to the common stockholder totaled $99 million, an increase of
$18 million from the previous year. This increase in earnings reflects an
after-tax benefit of $30 million due to increased electric and gas deliveries.
Also contributing to the earnings increase is the after-tax benefit of $12
million due to the final gas rate order issued in 2002 authorizing Consumers to
increase its gas tariff rates. This increase in earnings also reflects an $8
million after-tax benefit primarily from increased intersystem revenues along
with a $5 million benefit from increased electric miscellaneous service
revenues. Offsetting these increases is a $12 million charge to non-utility
expense in order to recognize a decline in market value of CMS Energy Stock held
by Consumers and increased electric and gas operating expenses that reduced
earnings by $24 million after-tax.
For further information, see the Electric and Gas Utility Results of Operations
sections and Note 2, Uncertainties.
ELECTRIC UTILITY RESULTS OF OPERATIONS
In Millions
- -------------------------------------------------------------------------------------------------------------------
March 31 2003 2002 Change
- -------------------------------------------------------------------------------------------------------------------
Three months ended $51 $50 $1
===================================================================================================================
Reasons for the change:
Electric deliveries $13
Power supply costs and related revenue 13
Other operating expenses and non-commodity revenue (22)
Fixed charges (3)
-------
Total change $ 1
===================================================================================================================
ELECTRIC DELIVERIES: For the three months ended March 31, 2003, electric
delivery revenues increased by $13 million from the previous year. Electric
deliveries, including transactions with other wholesale market participants and
other electric utilities, were 9.7 billion kWh, an increase of 0.5 billion kWh
or 5.6 percent from 2002. This increase is primarily the result of increased
deliveries to the higher margin residential and commercial sectors, along with
the growth in retail deliveries.
POWER SUPPLY COSTS AND RELATED REVENUE: For the three months ended March 31,
2003, power supply costs and related revenues increased electric net income by
$13 million from 2002. This increase is primarily the result of increased
intersystem revenues.
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Consumers Energy Company
OTHER OPERATING EXPENSES AND NON-COMMODITY REVENUE: For the three months ended
March 31, 2003, operating expenses increased compared to 2002. This increase can
be attributed to a scheduled refueling outage at Palisades that began in March
and higher transmission costs due to the loss of a financial return on the sold
Consumers transmission system asset in May 2002. Slightly offsetting these
increased operating expenses are increased non-commodity revenues associated
with miscellaneous service revenues.
INCOME TAXES: For the three months ended March 31, 2003, income tax expense
remained relatively flat compared to 2002.
GAS UTILITY RESULTS OF OPERATIONS
In Millions
- -------------------------------------------------------------------------------------------------------------------
March 31 2003 2002 Change
- -------------------------------------------------------------------------------------------------------------------
Three months ended $54 $28 $26
===================================================================================================================
Reasons for the change:
Gas deliveries $33
Gas rate increase 19
Gas wholesales and retail services 3
Operation and maintenance (10)
General taxes, depreciation, and other income (5)
Fixed charges (1)
Income taxes (13)
----------
Total change $ 26
===================================================================================================================
GAS DELIVERIES: For the three months ended March 31, 2003, gas delivery revenues
increased by $33 million from the previous year. System deliveries, including
miscellaneous transportation, totaled 174 bcf, an increase of 25 bcf or 16.4
percent compared with 2002. This increase is primarily due to colder weather
that resulted in increased deliveries to the residential and commercial sectors
in 2003.
GAS RATE INCREASE: In November 2002, the MPSC issued a final gas rate order
authorizing a $56 million annual increase in Consumers gas tariff rates. As a
result of this order, Consumers recognized increased gas revenues of $19
million.
OPERATION AND MAINTENANCE: For the three months ended March 31, 2003, operation
and maintenance expenses increased $10 million compared to 2002. This increase
reflects the recognition of additional expenditures on safety, reliability and
customer service due to the colder temperatures for the quarter, compared to the
same period in 2002
INCOME TAXES: For the three months ended March 31, 2003, income tax expense
increased primarily due to improved earnings of the gas utility.
CAPITAL RESOURCES AND LIQUIDITY
CASH POSITION, INVESTING AND FINANCING
OPERATING ACTIVITIES: Consumers' principal source of liquidity is from cash
derived from operating activities involving the sale and transportation of
natural gas and the generation, delivery and sale of electricity. Cash
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Consumers Energy Company
from operations totaled $387 million and $270 million for the first three months
of 2003 and 2002, respectively. The $117 million increase resulted from an
increase in electric and gas deliveries, a gas rate increase and changes in
working capital items due to the timing of cash receipts and payments. Consumers
primarily uses cash derived from operating activities to operate, maintain,
expand and construct its electric and gas systems, to retire portions of
long-term debt, and to pay dividends. A decrease in cash from operations could
reduce the availability of funds and result in additional short-term financings,
see Note 3, Financings and Capitalization for additional details about this
source of funds.
INVESTING ACTIVITIES: Cash used for investing activities totaled $117 million
and $154 million for the first three months of 2003 and 2002, respectively. The
change of $37 million is primarily due to a $16 million decrease from the 2002
level of capital expenditures to comply with the Clean Air Act and a $12 million
decrease in gas supply system additions and improvements.
FINANCING ACTIVITIES: Cash used for financing activities totaled $51 million and
$105 million for the first three months of 2003 and 2002, respectively. The
change of $54 million is primarily due to a decrease of $309 million retirements
of bonds and other long-term debt, partially offset by $96 million additional
payments of notes payable and the absence of $150 million cash infusion from CMS
Energy.
CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS: The following schedule of
material contractual obligations and commercial commitments is provided to
aggregate information in a single location so that a picture of liquidity and
capital resources is readily available. For further information see Note 2,
Uncertainties, and Note 3, Financings and Capitalization.
Contractual Obligations In Millions
- --------------------------------------------------------------------------------------------------------------
Payments Due
------------------------------------------------------------
2008 and
March 31 Total 2003 2004 2005 2006 2007 beyond
- --------------------------------------------------------------------------------------------------------------
On-balance sheet:
Long-term debt $ 2,724 $ - $228 $470 $512 $ 31 $ 1,483
Current portion of long-
term debt 277 277 - - - - -
Notes payable 252 252 - - - - -
Capital lease obligations 153 14 19 18 17 16 69
Off-balance sheet:
Operating leases 79 10 12 8 8 6 35
Non-recourse debt of FMLP 208 8 54 41 26 13 66
Sale of accounts receivable 325 325 - - - - -
Unconditional purchase
obligations 18,888 1,843 1,386 1,119 874 742 12,924
==============================================================================================================
REGULATORY AUTHORIZATION FOR FINANCINGS: At March 31, 2003, Consumers had FERC
authorization to issue or guarantee through June 2004, up to $1.1 billion of
short-term securities outstanding at any one time. Consumers also had remaining
FERC authorization to issue through June 2004 up to $500 million of long-term
securities for refinancing or refunding purposes, $381 million for general
corporate purposes, and $610 million of first mortgage bonds to be issued solely
as collateral for the long-term securities. On April 30, 2003, Consumers sold
$625 million principal amount of first mortgage bonds, described below. Its
remaining FERC authorization after this issue is (1) $250 million of long-term
securities for refinancing or refunding purposes, (2) $6 million for general
corporate purposes, and (3) $610 million remaining first mortgage bonds
available to be issued solely as collateral for the long-term securities.
Consumers anticipates applying in the second quarter of 2003 for an increase in
FERC authorization to issue new long-term securities for
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Consumers Energy Company
refinancing or refunding and for general corporate purposes. On October 10,
2002, FERC granted a waiver of its competitive bid/negotiated placement
requirements applicable to the remaining long-term securities authorization
indicated above.
LONG TERM DEBT: In March 2003, Consumers entered into a $140 million term loan
secured by first mortgage bonds with a private investor bank. This loan has a
term of six years at a cost of LIBOR plus 475 basis points. Proceeds from this
loan were used for general corporate purposes.
In March 2003, Consumers entered into a $150 million term loan secured by first
mortgage bonds. This term loan has a three-year maturity expiring in March 2006;
the loan has a cost of LIBOR plus 450 basis points. Proceeds from this loan were
used for general corporate purposes.
In April 2003, Consumers sold $625 million principal amount of first mortgage
bonds in a private offering to institutional investors ; $250 million were
issued at 4.25 percent, maturing on April 15, 2008, and net proceeds were
approximately $248 million, $375 million were issued at 5.38 percent, maturing
on April 15, 2013, and net proceeds were approximately $371 million. Consumers
used the net proceeds to replace a $250 million senior reset put bond that
matured in May 2003, to pay an associated $32 million option call payment, and
for general corporate purposes that may include paying down additional debt.
Consumers has agreed to file a registration statement with the SEC to permit
holders of these first mortgage bonds to exchange the bonds for new bonds that
will be registered under the Securities Act of 1933. Consumers has agreed to
file this registration statement by December 31, 2003.
Consumers' current portion of long-term debt maturing in 2003 is $277 million.
Refer to Outlook, "Liquidity and Capital Resources" below for information about
Consumers strategic measures addressing its future liquidity and capital
requirements.
SHORT TERM FINANCINGS: In March 2003, Consumers obtained a replacement revolving
credit facility in the amount of $250 million secured by first mortgage bonds.
The cost of the facility is LIBOR plus 350 basis points. The new credit facility
matures in March 2004 with two annual extensions at Consumers' option, which
would extend the maturity to March 2006. The prior facility was due to expire in
July 2003.
Pursuant to restrictive covenants in debt facilities, Consumers is limited to
common stock dividend payments that will not exceed $300 million in any calendar
year. Consumers paid common stock dividends of $231 million in 2002 and $190
million in 2001 to CMS Energy. In January 2003, Consumers declared and paid a
$78 million common dividend. In March 2003, Consumers declared a $31 million
common dividend payable in May 2003.
LEASES: Consumers' capital leases are predominately for leased service vehicles
and the new headquarters building. Operating leases are predominately for
railroad coal cars.
OFF-BALANCE SHEET ARRANGEMENTS: Consumers' use of long-term contracts for the
purchase of commodities and services, the sale of its accounts receivable, and
operating leases are considered to be off-balance sheet arrangements. Consumers
has responsibility for the collectability of the accounts receivable sold, and
the full obligation of its leases become due in case of lease payment default.
Consumers uses these off-balance sheet arrangements in its normal business
operations.
SALE OF ACCOUNTS RECEIVABLE: At March 31, 2003, Consumers had, through its
wholly owned subsidiary Consumers Receivables Funding, a $325 million trade
receivable sale program in place as an anticipated source of funds for general
corporate purposes. At March 31, 2003 and 2002, the receivables sold totaled
$325 million for each year; the average annual discount rate was 1.57 percent
and 2.15 percent, respectively. Accounts receivable and accrued revenue in the
Consolidated Balance Sheets have been reduced to reflect receivables sold. On
April 30, 2003, Consumers ended its trade receivable sale program with its then
existing purchaser and anticipates that a new trade receivable program will be
in place with a new purchaser in May 2003.
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Consumers Energy Company
UNCONDITIONAL PURCHASE OBLIGATIONS: Unconditional purchase obligations include
natural gas, electricity, and coal purchase contracts and their associated cost
of transportation. These obligations represent normal business operating
contracts used to assure adequate supply and to minimize exposure to market
price fluctuations.
Included in unconditional purchase obligations are long-term power purchase
agreements with various generating plants including the MCV Facility. These
contracts require monthly capacity payments based on the plants' availability or
deliverability. These payments are approximately $47 million per month for the
remaining nine months of 2003, including $34 million related to the MCV
Facility. For the period that a plant is not available to deliver electricity to
Consumers, Consumers is not obligated to make the capacity payments to the
plant. See Electric Utility Results of Operations above and Note 2,
Uncertainties, "Electric Rate Matters - Power Supply Costs" and "Other Electric
Uncertainties - The Midland Cogeneration Venture" for further information
concerning power supply costs.
Commercial Commitments In Millions
- --------------------------------------------------------------------------------------------------------------
Commitment Expiration
-----------------------------------------------------------
2008 and
March 31 Total 2003 2004 2005 2006 2007 beyond
- --------------------------------------------------------------------------------------------------------------
Off-balance sheet:
Indemnities $8 $- - - - - $8
Letters of credit 7 7 - - - - -
==============================================================================================================
Indemnities are agreements by Consumers to reimburse other companies, such as an
insurance company, if those companies have to complete Consumers' performance
involving a third party contract. Letters of credit are issued by a bank on
behalf of Consumers, guaranteeing payment to a third party. Letters of credit
substitute the bank's credit for Consumers' and reduce credit risk for the third
party beneficiary. The amount and time period for drawing on a letter of credit
is limited.
OUTLOOK
LIQUIDITY AND CAPITAL RESOURCES
Consumers' liquidity and capital requirements generally are a function of its
results of operations, capital expenditures, contractual obligations, debt
maturities, working capital needs and collateral requirements. During the summer
months, Consumers purchases natural gas and stores it for resale primarily
during the winter heating season. Recently, the market price for natural gas has
increased. If continued, this price increase could impose liquidity needs beyond
what is anticipated for 2003. Although Consumers' natural gas purchases are
recoverable from its customers, the amount paid for natural gas stored as
inventory could require additional liquidity due to the timing of the cost
recoveries. In addition, certain commodity suppliers to Consumers have requested
advance payments or other forms of assurances in connection with maintenance of
ongoing deliveries of gas and electricity.
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Consumers Energy Company
Consumers has historically met its consolidated cash needs through its operating
and financing activities and access to bank financing and the capital markets.
In 2003, Consumers has contractual obligations and planned capital expenditures
that would require substantial amounts of cash. Consumers may also become
subject to liquidity demands pursuant to commercial commitments under
guarantees, indemnities and letters of credit as indicated above. Consumers
plans to meet its liquidity and capital requirements in 2003 through a
combination of approximately $290 million from operations, $1.290 billion from
borrowings, including $563 million of new debt and $727 million from refinancing
of existing debt, reduced capital expenditures, cost reductions and other
measures. The following table is a summary of Consumers' debt financing plan and
actual borrowings for 2003:
Debt Financing in 2003 In Millions
- ----------------------------------------------------------------------------------------------------------------
Financing Actual Retired or
Financing Plan Borrowing Type Issued Date Maturity Collateral
- ----------------------------------------------------------------------------------------------------------------
Anticipated Maturities:
Revolving credit
facility $ 250 $ 250 Refinanced March 2003 March 2004 (a) FMB
Senior note 250 250 Refunded (b) April 2003 April 2008 -
Gas Inventory
facility 227 - Retired (c) March 2003 - -
------ ------
Subtotal $ 727 $ 500
------ ------
New Financings:
Bank loan 140 140 New issue March 2003 March 2009 FMB (e)
Term loan 150 150 New issue March 2003 March 2006 FMB (e)
First mortgage bonds 250 375 New issue April 2003 April 2013 -
Additional gas
Inventory facility 23 - (d)- - - -
------- ------
Subtotal $ 563 $ 665
------- ------
Total $1,290 $1,165
================================================================================================================
(a) This facility has two annual extensions at Consumers' option, which would
extend the maturity to March 2006.
(b) Refunded and replaced with FMB.
(c) Includes a gas inventory facility of $207 million retired in March 2003 and
anticipated new gas inventory facility pay down of $20 million expected to
occur in December 2003. See footnote (d).
(d) Consumers will seek to arrange a $125 million gas inventory loan in the
third quarter 2003 and thus complete the $1.290 billion financing plan.
(e) Refer to Capital Resources and Liquidity, "Regulatory Authorization for
Financings" above for information about Consumers' remaining FERC debt
authorization.
Consumers believes that its current level of cash and borrowing capacity, along
with anticipated cash flows from operating and investing activities, will be
sufficient to meet its liquidity needs through 2003, including debt maturities
in 2003. In addition to executing the debt financing plan for 2003 as discussed
above, the following activities also have been initiated by Consumers to enhance
further its liquidity beyond 2003:
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Consumers Energy Company
o Consumers filed a general rate case for its gas utility business
on March 14, 2003. Consumers requested rate relief in the amount
of approximately $156 million. In its filing, Consumers requested
immediate interim relief. If interim relief of $156 million were
granted, Consumers expects that it will be in place by the fourth
quarter of 2003.
o Consumers filed an application in March 2003, with the MPSC
seeking authorization to issue $1.084 billion of Securitization
bonds. These bonds would provide liquidity to Consumers at
interest rates reflective of high quality credit. Consumers would
utilize these proceeds to retire higher cost debt and in turn
would realize significant interest expense savings over the life
of the bonds. If the MPSC approves a financing in the amount
requested, and there are no rehearing or court appeals and no
other delays in the offering process, Consumers anticipates that
bonds could be issued by year-end 2003.
There is no assurance that the pending Securitization bond issuance transaction
noted above will be completed, nor is there assurance that the MPSC will grant
either interim or final gas utility rate relief.
SEC AND OTHER INVESTIGATIONS
As a result of round-trip trading transactions at CMS MST, CMS Energy's Board of
Directors established a Special Committee of independent directors to
investigate matters surrounding the transactions and retained outside counsel to
assist in the investigation. The Special Committee completed its investigation
and reported its findings to the Board of Directors in October 2002. The Special
Committee concluded, based on an extensive investigation, that the round-trip
trades were undertaken to raise CMS MST's profile as an energy marketer with the
goal of enhancing its ability to promote its services to new customers. The
Special Committee found no apparent effort to manipulate the price of CMS Energy
Common Stock or affect energy prices. The Special Committee also made
recommendations designed to prevent any reoccurrence of this practice, most of
which have already been implemented. Previously, CMS Energy terminated its
speculative trading business and revised its risk management policy. The Board
of Directors adopted, and CMS Energy has begun implementing, the remaining
recommendations of the Special Committee.
CMS Energy is cooperating with other investigations concerning round-trip
trading, including an investigation by the SEC regarding round-trip trades and
CMS Energy's financial statements, accounting policies and controls, and
investigations by the United States Department of Justice, the Commodity Futures
Trading Commission and the FERC. The FERC issued an order on April 30, 2003
directing eight companies, including CMS MST, to submit written demonstrations
within forty-five days that they have taken certain specified remedial measures
with respect to the reporting of natural gas trading data to publications that
compile and publish price indices. CMS MST intends to make a written submission
within the specified time period demonstrating compliance with the FERC's
directives. Other than the FERC investigation, CMS Energy is unable to predict
the outcome of these matters, and Consumers is unable to predict what effect, if
any, these investigations will have on its business.
SECURITIES CLASS ACTION LAWSUITS: Beginning on May 17, 2002, a number of
securities class action complaints were filed against CMS Energy, Consumers, and
certain officers and directors of CMS Energy and its affiliates. The complaints
were filed as purported class actions in the United States District Court for
the Eastern District of Michigan. The cases were consolidated into a single
lawsuit and an amended and consolidated class action complaint was filed on May
1, 2003. The defendants named in the amended and consolidated class action
complaint consist of CMS Energy, Consumers, and certain officers and directors
of CMS Energy and its affiliates, and certain underwriters of CMS Energy
securities. The purported class period is from May 1, 2000 through and including
March 31, 2003. The amended and consolidated class action complaint seeks
unspecified damages based on allegations that the defendants violated United
States securities laws and regulations by making allegedly false and misleading
statements about CMS Energy's business and financial condition. CMS Energy and
Consumers intend to vigorously defend against this action, but cannot predict
the outcome of this litigation.
ERISA CASES: Consumers is a named defendant, along with CMS Energy, CMS MST and
certain named
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Consumers Energy Company
and unnamed officers and directors, in two lawsuits brought as purported class
actions on behalf of participants and beneficiaries of the 401(k) plan. The two
cases, filed in July 2002 in the United States District Court for the Eastern
District of Michigan, were consolidated by the trial judge and an amended and
consolidated complaint has been filed. Plaintiffs allege breaches of fiduciary
duties under ERISA and seek restitution on behalf of the plan with respect to a
decline in value of the shares of CMS Energy Common Stock held in the plan.
Plaintiffs also seek other equitable relief and legal fees. These cases will be
vigorously defended. Consumers cannot predict the outcome of this litigation.
ELECTRIC BUSINESS OUTLOOK
GROWTH: Over the next five years, Consumers expects electric deliveries
(including both full service sales and delivery service to customers who choose
to buy generation service from an alternative electric supplier, but excluding
transactions with other wholesale market participants including other electric
utilities) to grow at an average rate of approximately two percent per year
based primarily on a steadily growing customer base. This growth rate reflects a
long-range expected trend of growth. Growth from year to year may vary from this
trend due to customer response to abnormal weather conditions and changes in
economic conditions including, utilization and expansion of manufacturing
facilities. Consumers has experienced much stronger than expected growth in 2002
as a result of warmer than normal summer weather. Assuming that normal weather
conditions will occur in the remaining three quarters of 2003, electric
deliveries are expected to grow less than one percent over the strong 2002
electric deliveries.
COMPETITION AND REGULATORY RESTRUCTURING: The enactment in 2000 of Michigan's
Customer Choice Act and other developments will continue to result in increased
competition in the electric business. Generally, increased competition can
reduce profitability and threatens Consumers' market share for generation
services. The Customer Choice Act allowed all of the company's electric
customers to buy electric generation service from Consumers or from an
alternative electric supplier as of January 1, 2002. As a result, alternative
electric suppliers for generation services have entered Consumers' market. As of
early May 2003, alternative electric suppliers are providing 571 MW of
generation supply to customers. To the extent Consumers experiences "net"
Stranded Costs as determined by the MPSC, the Customer Choice Act allows for the
company to recover such "net" Stranded Costs by collecting a transition
surcharge from those customers who switch to an alternative electric supplier.
Consumers cannot predict the total amount of electric supply load that may be
lost to competitor suppliers, nor whether the stranded cost recovery method
adopted by the MPSC will be applied in a manner that will fully offset any
associated margin loss.
Stranded and Implementation Costs: The Customer Choice Act allows electric
utilities to recover the act's implementation costs and "net" Stranded Costs
(without defining the term). The act directs the MPSC to establish a method of
calculating "net" Stranded Costs and of conducting related true-up adjustments.
In December 2001, the MPSC adopted a methodology which calculated "net" Stranded
Costs as the shortfall between: (a) the revenue required to cover the costs
associated with fixed generation assets, generation-related regulatory assets,
and capacity payments associated with purchase power agreements, and (b) the
revenues received from customers under existing rates available to cover the
revenue requirement. The MPSC authorized Consumers to use deferred accounting to
recognize the future recovery of costs determined to be stranded. Consumers has
initiated an appeal at the Michigan Court of Appeals related to the MPSC's
December 2001 "net" Stranded Cost order.
According to the MPSC, "net" Stranded Costs were to be recovered from retail
open access customers through a Stranded Cost transition charge. In April 2002,
Consumers made "net" Stranded Cost filings with the MPSC for $22 million for
2000 and $43 million for 2001. In the same filing, Consumers estimated that it
would experience "net" Stranded Costs of $126 million for 2002. Consumers, in
its hearing brief, filed in August 2002, revised its request for "net" Stranded
Costs to $7 million and $4 million for 2000 and 2001, respectively, and an
estimated $73 million for 2002. The single largest reason for the difference was
the
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Consumers Energy Company
exclusion, as ordered by the MPSC, of all costs associated with expenditures
required by the Clean Air Act.
In December 2002, the MPSC issued an order finding that Consumers experienced
zero "net" Stranded Costs in 2000 and 2001, but declined to establish a defined
methodology that would allow a reliable prediction of the level of Stranded
Costs for 2002 and future years. In January 2003, Consumers filed a petition for
rehearing of the December 2002 Stranded Cost order in which it asked the MPSC to
grant rehearing and revise certain features of the order. Several other parties
also filed rehearing petitions with the MPSC. As discussed below, Consumers has
filed a request with the MPSC for authority to issue securitization bonds that
would allow recovery of the Clean Air Act expenditures that were excluded from
the Stranded Cost calculation and post-2000 Palisades expenditures.
On March 4, 2003, Consumers filed an application with the MPSC seeking approval
of "net" Stranded Costs incurred in 2002, and for approval of a "net" Stranded
Cost recovery charge. In the application, Consumers indicated that if Consumers'
proposal to securitize Clean Air Act expenditures and post-2000 Palisades
expenditures were approved as proposed in its securitization case as discussed
below, then Consumers' "net" Stranded Costs incurred in 2002 are approximately
$35 million. If the proposal to securitize those costs is not approved, then
Consumers indicated that the costs would be properly included in the 2002 "net"
Stranded Cost calculation, which would increase Consumers' 2002 "net" Stranded
Costs to approximately $103 million. Consumers cannot predict the recoverability
of Stranded Costs, and therefore has not recorded any regulatory assets to
recognize the future recovery of such costs.
The MPSC staff has scheduled a collaborative process to discuss Stranded Costs
and related issues and to identify and make recommendations to the MPSC.
Consumers is participating in this collaborative process.
Since 1997, Consumers has incurred significant electric utility restructuring
implementation costs. The following table outlines the applications filed by
Consumers with the MPSC and the status of recovery for these costs.
In Millions
- --------------------------------------------------------------------------------------------------------------
Year Filed Year Incurred Requested Pending Allowed Disallowed
- --------------------------------------------------------------------------------------------------------------
1999 1997 & 1998 $20 $ - $15 $5
2000 1999 30 - 25 5
2001 2000 25 - 20 5
2002 2001 8 8 Pending Pending
2003 2002 2 2 Pending Pending
==============================================================================================================
The MPSC disallowed certain costs based upon a conclusion that these amounts did
not represent costs incremental to costs already reflected in electric rates. In
the orders received for the years 1997 through 2000, the MPSC also reserved the
right to review again the total implementation costs depending upon the progress
and success of the retail open access program, and ruled that due to the rate
freeze imposed by the Customer Choice Act, it was premature to establish a cost
recovery method for the allowable implementation costs. In addition to the
amounts shown above, as of March 31, 2003, Consumers incurred and deferred as a
regulatory asset, $2 million of additional implementation costs and has also
recorded as a regulatory asset $14 million for the cost of money associated with
total implementation costs. Consumers believes the implementation costs and the
associated cost of money are fully recoverable in accordance with the Customer
Choice Act. Cash recovery from customers will probably begin after the rate
freeze or rate cap period has expired. As discussed below, Consumers has asked
to include implementation costs through December 31, 2003 in the pending
securitization case. If approved, the sale of Securitization bonds will allow
for the recovery of these costs. Consumers cannot predict the amounts the MPSC
will approve as allowable costs.
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Consumers Energy Company
Consumers is also pursuing authorization at the FERC for MISO to reimburse
Consumers for approximately $8 million in certain electric utility restructuring
implementation costs related to its former participation in the development of
the Alliance RTO, a portion of which has been expensed. However, Consumers
cannot predict the amount the FERC will ultimately order to be reimbursed by the
MISO.
Securitization: In March 2003, Consumers filed an application with the MPSC
seeking approval to issue Securitization bonds in the amount of approximately
$1.084 billion. If approved, this would allow the recovery of costs and reduce
interest rates associated with financing Clean Air Act expenditures, post-2000
Palisades expenditures, and retail open access implementation costs through
December 31, 2003, and certain pension fund expenses, and expenses associated
with the issuance of the bonds.
Rate Caps: The Customer Choice Act imposes certain limitations on electric rates
that could result in Consumers being unable to collect from electric customers
its full cost of conducting business. Some of these costs are beyond Consumers'
control. In particular, if Consumers needs to purchase power supply from
wholesale suppliers while retail rates are frozen or capped, the rate
restrictions may make it impossible for Consumers to fully recover purchased
power and associated transmission costs from its customers. As a result,
Consumers may be unable to maintain its profit margins in its electric utility
business during the rate freeze or rate cap periods. The rate freeze is in
effect through December 31, 2003. The rate caps are in effect through at least
December 31, 2004 for small commercial and industrial customers, and at least
through December 31, 2005 for residential customers.
Industrial Contracts: In response to industry restructuring efforts, in 1995 and
1996, Consumers entered into multi-year electric supply contracts with certain
large industrial customers to provide electricity at specially negotiated
prices, usually at a discount from tariff prices. The MPSC approved these
special contracts as part of its phased introduction to competition. Unless
terminated or restructured, the majority of these contracts are in effect
through 2005. As of March 31, 2003, outstanding contracts involve approximately
513 MW. Consumers cannot predict the ultimate financial impact of changes
related to these power supply contracts, or whether additional contracts will be
necessary or advisable. However, of the original special contracts that have
terminated, contracts for 52MW have gone to an alternative electric supplier
and contracts for 129MW have returned to bundled tariff rates.
Code of Conduct: In December 2000, as a result of the passage of the Customer
Choice Act, the MPSC issued a new code of conduct that applies to electric
utilities and alternative electric suppliers. The code of conduct seeks to
prevent cross-subsidization, information sharing, and preferential treatment
between a utility's regulated and unregulated services. The new code of conduct
is broadly written, and as a result, could affect Consumers' retail gas
business, the marketing of unregulated services and equipment to Michigan
customers, and internal transfer pricing between Consumers' departments and
affiliates. In October 2001, the new code of conduct was reaffirmed by the MPSC
without substantial modification. Consumers appealed the MPSC orders related to
the code of conduct and sought a stay of the orders until the appeal was
complete; however, the request for a stay was denied. Consumers filed a
compliance plan in accordance with the code of conduct. It also sought waivers
to the code of conduct in order to continue utility activities that provide
approximately $50 million in annual electric and gas revenues. In October 2002,
the MPSC denied waivers for three programs that provided approximately $32
million in gas revenues in 2001, of which $30 million relates to the appliance
service plan. The waivers denied included all waivers associated with the
appliance service plan program that has been offered by Consumers for many
years. Consumers filed a renewed motion for a stay of the effectiveness of the
code of conduct and an appeal of the waiver denials with the Michigan Court of
Appeals. On November 8, 2002, the Michigan Court of Appeals denied Consumers'
request for a stay. Consumers filed an application for leave to appeal with the
Michigan Supreme Court with respect to the Michigan Court of Appeals' November
ruling denying the stay. In February 2003, the Michigan Supreme Court denied the
application. In December 2002, Consumers filed a renewed request with the MPSC
for a temporary waiver until April 2004 for the appliance service plan, which
generated $33 million in gas revenues in 2002. In February 2003, the MPSC
granted an extension of the temporary waiver until December 31, 2003. The full
impact of the new code of conduct on Consumers' business will remain uncertain
until the
CE-18
Consumers Energy Company
appellate courts issue definitive rulings. Recently, in an appeal involving
affiliate pricing guidelines, the Michigan Court of Appeals struck the
guidelines down because of a procedurally defective manner of enactment by the
MPSC. A similar procedure was used by the MPSC in enacting the new code of
conduct. Consumers is also exploring seeking legislative clarification of the
scope of the code of conduct.
Energy Policy: Uncertainty exists regarding the enactment of a national
comprehensive energy policy, specifically federal electric industry
restructuring legislation. A variety of bills introduced in the United States
Congress in recent years aimed to change existing federal regulation of the
industry. If the federal government enacts a comprehensive energy policy or
electric restructuring legislation, then that legislation could potentially
affect company operations and financial requirements.
Transmission: In 2002, Consumers sold its electric transmission system to MTH, a
non-affiliated limited partnership whose general partner is a subsidiary of
Trans-Elect, Inc.
As a result of the sale, Consumers anticipates its after-tax earnings will be
decreased by $15 million in 2003, and decrease by approximately $14 million
annually for the next three years due to a loss of revenue from wholesale and
retail open access customers who will buy services directly from MTH and the
loss of a return on the sold electric transmission system.
Under an agreement with MTH, and subject to certain additional RTO surcharges,
transmission rates charged to Consumers are fixed by contract at current levels
through December 31, 2005, and subject to FERC ratemaking thereafter. MTH has
completed the capital program to expand the transmission system's capability to
import electricity into Michigan, as required by the Customer Choice Act, and
Consumers will continue to maintain the system under a five-year contract with
MTH.
Consumers is a customer of AEP, holding 300 MW of long-term transmission service
reservations through the AEP transmission system. Effective June 1, 2003,
Consumers will have an additional 100 MW of long-term transmission, resulting in
a total of 400 MW of long-term transmission for summer 2003, reserved through
the AEP transmission system. AEP has indicated its intent, and has received
preliminary FERC approval, to turn control of its transmission system over to
the PJM RTO. This will require current AEP wholesale transmission customers to
become members of, and resubmit reservation requests to, PJM. Due to legislation
recently enacted in Virginia, which precludes Virginia utilities (including AEP)
from joining an RTO until at least July 2004, as well as uncertainty associated
with state approvals AEP is seeking from various state regulatory bodies, the
timing of AEP's membership in PJM is currently in some doubt. Upon completion of
the steps necessary for the integration of AEP into PJM, Consumers will complete
the application process to join PJM as a transmission customer.
There are multiple proceedings and a proposed rulemaking pending before the FERC
regarding transmission pricing mechanisms and standard market design for
electric bulk power markets and transmission. The results of these proceedings
and proposed rulemaking could significantly affect the trend of transmission
costs and increase the delivered power costs to Consumers and the retail
electric customers it serves. The specific financial impact on Consumers of such
proceedings, rulemaking and trends are not currently quantifiable.
In addition, Consumers is evaluating whether or not there may be impacts on
electric reliability associated with the outcomes of these various transmission
related proceedings. Consumers cannot assure that all risks to reliability can
be avoided.
Consumers cannot predict the impact of these electric industry-restructuring
issues on its financial position, liquidity, or results of operations.
CE-19
Consumers Energy Company
PERFORMANCE STANDARDS: In July 2001, the MPSC proposed electric distribution
performance standards for Consumers and other Michigan electric distribution
utilities. The proposal would establish standards related to restoration after
an outage, safety, and customer relations. Failure to meet the standards would
result in customer bill credits. Consumers submitted comments to the MPSC. In
December 2001, the MPSC issued an order stating its intent to initiate a formal
rulemaking proceeding to develop and adopt performance standards. In November
2002, the MPSC issued an order initiating the formal rulemaking proceeding.
Consumers has filed comments on the proposed rules and will continue to
participate in this process. Consumers cannot predict the nature of the proposed
standards or the likely effect, if any, on Consumers.
For further information and material changes relating to the rate matters and
restructuring of the electric utility industry, see Note 1, Corporate Structure
and Summary of Significant Accounting Policies, and Note 2, Uncertainties,
"Electric Rate Matters - Electric Restructuring" and "Electric Rate Matters -
Electric Proceedings."
UNCERTAINTIES: Several electric business trends or uncertainties may affect
Consumers' financial results and condition. These trends or uncertainties have,
or Consumers reasonably expects could have, a material impact on net sales,
revenues, or income from continuing electric operations. Such trends and
uncertainties include: 1) pending litigation and government investigations; 2)
the need to make additional capital expenditures and increase operating expenses
for Clean Air Act compliance; 3) environmental liabilities arising from various
federal, state and local environmental laws and regulations, including potential
liability or expenses relating to the Michigan Natural Resources and
Environmental Protection Acts and Superfund; 4) uncertainties relating to the
storage and ultimate disposal of spent nuclear fuel; 5) electric industry
restructuring issues, including those described above; 6) Consumers' ability to
meet peak electric demand requirements at a reasonable cost, without market
disruption, and successfully implement initiatives to reduce exposure to
purchased power price increases; 7) the recovery of electric restructuring
implementation costs; 8) Consumers new status as an electric transmission
customer and not as an electric transmission owner/operator; 9) sufficient
reserves for OATT rate refunds; 10) the effects of derivative accounting and
potential earnings volatility; 11) increased costs for safety and homeland
security initiatives that are not recoverable on a timely basis from customers;
and 12) potentially rising pension costs due to market losses (as discussed
above in Accounting for Pension and OPEB). For further information about these
trends or uncertainties, see Note 2, Uncertainties.
GAS BUSINESS OUTLOOK
GROWTH: Over the next five years, Consumers expects gas deliveries, including
gas full service and customer choice deliveries (excluding transportation to the
MCV Facility and off-system deliveries), to grow at an average rate of less than
one percent per year based primarily on a steadily growing customer base. Actual
gas deliveries in future periods may be affected by abnormal weather, use of gas
by independent power producers, changes in competitive and economic conditions,
and the level of natural gas consumption per customer.
2001 GAS RATE CASE: In June 2001, Consumers filed an application with the MPSC
seeking a distribution service rate increase. On November 7, 2002, the MPSC
issued a final order approving a $56 million annual distribution service rate
increase, which includes the $15 million interim increase, with an 11.4 percent
authorized return on equity, for service effective November 8, 2002. As part of
this order, the MPSC approved Consumers' proposal to absorb the assets and
liabilities of Michigan Gas Storage Company into Consumers' rate base and rates.
This has occurred through a statutory merger of Michigan Gas Storage Company
into Consumers and this is not expected to have an impact on Consumers'
consolidated financial statements.
2003 GAS RATE CASE: On March 14, 2003, Consumers filed an application with the
MPSC seeking a $156 million increase in its gas delivery and transportation
rates, which includes a 13.5 percent authorized return on
CE-20
Consumers Energy Company
equity, based on a 2004 test year. If approved, the request would add about
$6.40 per month, or about 9 percent, to the typical residential customer's
average monthly bill. Contemporaneously with this filing, Consumers has
requested interim rate relief in the same amount.
In September 2002, the FERC issued an order rejecting a filing by Consumers to
assess certain rates for non-physical gas title tracking services offered by
Consumers. Despite Consumers' arguments to the contrary, the FERC asserted
jurisdiction over such activities and allowed Consumers to refile and justify a
title transfer fee not based on volumes as Consumers proposed. Because the order
was issued six years after Consumers made its original filing initiating the
proceeding, over $3 million in non-title transfer tracking fees had been
collected. No refunds have been ordered, and Consumers sought rehearing of the
September order. If refunds were ordered they may include interest which would
increase the refund liability to more than the $3 million collected. In December
2002, Consumers established a $3.6 million reserve related to this matter.
Consumers is unable to say with certainty what the final outcome of this
proceeding might be.
ENERGY-RELATED SERVICES: Consumers offers a variety of energy-related services
to retail customers that focus on appliance maintenance, home safety, commodity
choice, and assistance to customers purchasing heating, ventilation and air
conditioning equipment. Consumers continues to look for additional growth
opportunities in providing energy-related services to its customers. The ability
to offer all or some of these services and other utility related
revenue-generating services, which provide approximately $36 million in annual
gas revenues, may be restricted by the new code of conduct issued by the MPSC,
as discussed above in Electric Business Outlook, "Competition and Regulatory
Restructuring - Code of Conduct."
UNCERTAINTIES: Several gas business trends or uncertainties may affect
Consumers' financial results and conditions. These trends or uncertainties have,
or Consumers reasonably expects could have, a material impact on net sales,
revenues, or income from continuing gas operations. Such trends and
uncertainties include: 1) pending litigation and government investigations; 2)
potential environmental costs at a number of sites, including sites formerly
housing manufactured gas plant facilities; 3) future gas industry restructuring
initiatives; 4) any initiatives undertaken to protect customers against gas
price increases; 5) an inadequate regulatory response to applications for
requested rate increases; 6) market and regulatory responses to increases in gas
costs, including a reduced average use per residential customer; 7) increased
costs for pipeline integrity and safety and homeland security initiatives that
are not recoverable on a timely basis from customers; and 8) potentially rising
pension costs due to market losses (as discussed above in Accounting for Pension
and OPEB). For further information about these uncertainties, see Note 2,
Uncertainties.
OTHER OUTLOOK
See Outlook, "Liquidity and Capital Resources," "SEC and Other Investigations,"
"Securities Class Action Lawsuits," and "ERISA Cases" above.
SECURITY COSTS: Since the September 11, 2001 terrorist attacks in the United
States, Consumers has increased security at all critical facilities and over its
critical infrastructure, and will continue to evaluate security on an ongoing
basis. Consumers may be required to comply with federal and state regulatory
security measures promulgated in the future. Through December 31, 2002,
Consumers has incurred approximately $4 million in incremental security costs,
including operating, capital, and decommissioning and removal costs. Consumers
estimates it may incur additional incremental security costs in 2003 of
approximately $6 million. Consumers will attempt to seek recovery of these costs
from its customers. In December 2002, the Michigan legislature passed, and the
governor signed, a bill that would allow Consumers to seek recovery of
additional nuclear electric division security costs incurred during the rate
freeze and cap periods imposed by the Customer Choice Act. Of the $4 million in
incremental security costs incurred through December 31, 2002, approximately $3
million related to nuclear security costs. Of the estimated $6 million for
incremental
CE-21
Consumers Energy Company
security costs expected to be incurred in 2003, $4 million relates to nuclear
security costs. On February 5, 2003, the MPSC adopted filing requirements for
the recovery of enhanced security costs.
OTHER MATTERS
DISCLOSURE AND INTERNAL CONTROLS
Consumers' CEO and CFO are responsible for establishing and maintaining
Consumers' disclosure controls and procedures. Management, under the direction
of Consumers' principal executive and financial officers, has evaluated the
effectiveness of Consumers' disclosure controls and procedures as of a date
within 90 days prior to this filing. Based on this evaluation, Consumers' CEO
and CFO have concluded that Consumers' disclosure controls and procedures are
effective to ensure that material information was presented to them. There have
been no significant changes in Consumers' internal controls or in other factors
that could significantly affect internal controls subsequent to such evaluation.
NEW ACCOUNTING STANDARDS
FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES: Issued
by the FASB in January 2003, the interpretation expands upon and strengthens
existing accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another entity.
The consolidation requirements of the interpretation apply immediately to
variable interest entities created after January 31, 2003. For Consumers, the
consolidation requirements apply to pre-existing entities beginning July 1,
2003. Certain of the disclosure requirements apply to all financial statements
initially issued after January 31, 2003. Consumers will be required to
consolidate any entities that meet the requirements of the interpretation. Upon
adoption of the standard on January 31, 2003, there was no impact on Consumers'
consolidated financial statements, and Consumers does not anticipate any
additional impact to its consolidated financial statements upon adoption of
additional standard requirements on July 1, 2003.
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Consumers Energy Company
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CE-23
CONSUMERS ENERGY COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31 2003 2002
- ----------------------------------------------------------------------------------------------------------------
In Millions
OPERATING REVENUE
Electric $ 653 $ 609
Gas 789 616
Other 16 11
--------------------
1,458 1,236
- ----------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Operation
Fuel for electric generation 80 67
Purchased power - related parties 132 141
Purchased and interchange power 82 61
Cost of gas sold 519 396
Cost of gas sold - related parties 25 30
Other 160 139
-------------------
998 834
Maintenance 52 50
Depreciation, depletion and amortization 116 107
General taxes 59 57
--------------------
1,225 1,048
- ----------------------------------------------------------------------------------------------------------------
OPERATING INCOME
Electric 116 115
Gas 103 64
Other 14 9
--------------------
233 188
- ----------------------------------------------------------------------------------------------------------------
OTHER INCOME (DEDUCTIONS)
Dividends and interest from affiliates - 1
Accretion expense (2) (2)
Other, net (8) (1)
----------------------
(10) (2)
- -----------------------------------------------------------------------------------------------------------------
INTEREST CHARGES
Interest on long-term debt 42 33
Other interest 5 9
Capitalized interest (2) (2)
---------------------
45 40
- ----------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 178 146
INCOME TAXES 68 54
--------------------
NET INCOME 110 92
PREFERRED SECURITIES DISTRIBUTIONS 11 11
--------------------
NET INCOME AVAILABLE TO COMMON STOCKHOLDER $ 99 $ 81
================================================================================================================
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CE-24
CONSUMERS ENERGY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31 2003 2002
- ----------------------------------------------------------------------------------------------------------------
In Millions
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $110 $ 92
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, depletion and amortization (includes nuclear
decommissioning of $2 and $2, respectively) 116 107
Deferred income taxes and investment tax credit 28 31
Loss on CMS Energy stock 12 -
Capital lease and other amortization 4 3
Undistributed earnings of related parties (16) (10)
Changes in assets and liabilities
Decrease in inventories 238 193
Decrease in accounts payable (5) (32)
Increase in accounts receivable and accrued revenue (50) (54)
Changes in other assets and liabilities (50) (60)
-----------------------------
Net cash provided by operating activities 387 270
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (excludes assets placed under capital lease) (114) (142)
Cost to retire property, net (18) (15)
Investment in Electric Restructuring Implementation Plan (2) (3)
Investments in nuclear decommissioning trust funds (2) (2)
Proceeds from nuclear decommissioning trust funds 6 8
Cash receipts from asset sales 13 -
--------------------------
Net cash used in investing activities (117) (154)
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable, net (205) (109)
Payment of common stock dividends (78) (55)
Retirement of bonds and other long-term debt (35) (344)
Preferred securities distributions (11) (11)
Payment of capital lease obligations (3) (3)
Redemption of preferred securities - (30)
Payment of preferred stock dividends - (1)
Stockholder's contribution - 150
Proceeds from senior notes and bank loans 281 298
------------------------
Net cash used in financing activities (51) (105)
- -----------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND TEMPORARY CASH INVESTMENTS 219 11
CASH AND TEMPORARY CASH INVESTMENTS, BEGINNING OF PERIOD 271 17
--------------------------------
CASH AND TEMPORARY CASH INVESTMENTS, END OF PERIOD $ 490 $ 28
=================================================================================================================
OTHER CASH FLOW ACTIVITIES AND NON-CASH INVESTING AND FINANCING ACTIVITIES WERE:
CASH TRANSACTIONS
Interest paid (net of amounts capitalized) $ 61 $ 31
Income tax paid 5 -
Pension and OPEB cash contribution 18 61
NON-CASH TRANSACTIONS
Other assets placed under capital leases $ 8 $ 17
=================================================================================================================
All highly liquid investments with an original maturity of three months or less
are considered cash equivalents.
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
CE-25
CONSUMERS ENERGY COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS MARCH 31 MARCH 31
2003 DECEMBER 31 2002
(UNAUDITED) 2002 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
In Millions
PLANT (AT ORIGINAL COST)
Electric $7,356 $7,523 $7,733
Gas 2,787 2,719 2,625
Other 21 23 21
----------------------------------------
10,164 10,265 10,379
Less accumulated depreciation, depletion and amortization 5,267 5,900 6,022
---------------------------------------
4,897 4,365 4,357
Construction work-in-progress 487 548 532
---------------------------------------
5,384 4,913 4,889
- ----------------------------------------------------------------------------------------------------------------
INVESTMENTS
Stock of affiliates 10 22 54
First Midland Limited Partnership 259 255 257
Midland Cogeneration Venture Limited Partnership 405 388 316
Consumers Nuclear Services, LLC 2 2 2
---------------------------------------
676 667 629
- ----------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and temporary cash investments at cost, which approximates market 490 271 28
Accounts receivable and accrued revenue, less allowances
of $5, $4 and $3, respectively 279 236 183
Accounts receivable - related parties 15 13 15
Inventories at average cost
Gas in underground storage 256 486 378
Materials and supplies 74 71 69
Generating plant fuel stock 26 37 50
Deferred property taxes 117 142 120
Regulatory assets 19 19 19
Other 53 38 18
----------------------------------------
1,329 1,313 880
- ----------------------------------------------------------------------------------------------------------------
NON-CURRENT ASSETS
Regulatory assets
Securitized costs 678 689 714
Postretirement benefits 180 185 203
Abandoned Midland Project 11 11 11
Other 233 168 171
Nuclear decommissioning trust funds 529 536 576
Other 199 218 154
---------------------------------------
1,830 1,807 1,829
- ----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $9,219 $8,700 $8,227
================================================================================================================
CE-26
STOCKHOLDERS' INVESTMENT AND LIABILITIES MARCH 31 MARCH 31
2003 DECEMBER 31 2002
(UNAUDITED) 2002 (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
In Millions
CAPITALIZATION
Common stockholder's equity
Common stock $ 841 $ 841 $ 841
Paid-in capital 682 682 782
Other Comprehensive Income (175) (179) 9
Retained earnings since December 31, 1992 566 545 467
---------------------------------------
1,914 1,889 2,099
Preferred stock 44 44 44
Company-obligated mandatorily redeemable preferred securities
of subsidiaries (a) 490 490 490
Long-term debt 2,724 2,442 2,433
Non-current portion of capital leases 121 116 85
----------------------------------------
5,293 4,981 5,151
- ----------------------------------------------------------------------------------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt and capital leases 290 318 253
Notes payable 252 457 150
Notes payable- CMS Energy - - 157
Accounts payable 252 261 249
Accrued taxes 161 214 161
Accounts payable - related parties 88 84 97
Deferred income taxes 29 25 23
Current portion of purchased power contracts 26 26 24
Other 167 200 234
---------------------------------------
1,265 1,585 1,348
- ----------------------------------------------------------------------------------------------------------------
NON-CURRENT LIABILITIES
Deferred income taxes 961 949 808
Postretirement benefits 566 563 239
Regulatory liabilities for income taxes, net 311 297 276
Other Regulatory liabilities 152 4
Asset Retirement Obligation 364 - -
Power purchase agreement - MCV Partnership 21 27 47
Deferred investment tax credit 89 91 100
Other 197 203 258
---------------------------------------
2,661 2,134 1,728
- ----------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 1 and 2)
TOTAL STOCKHOLDERS' INVESTMENT AND LIABILITIES $9,219 $8,700 $8,227
================================================================================================================
(a) See Note 3, Financings and Capitalization
THE ACCOMPANYING CONDENSED NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
CE-27
CONSUMERS ENERGY COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31 2003 2002
- ----------------------------------------------------------------------------------------------------------------
In Millions
COMMON STOCK
At beginning and end of period (a) $ 841 $ 841
- ----------------------------------------------------------------------------------------------------------------
OTHER PAID-IN CAPITAL
At beginning of period 682 632
Stockholder's contribution - 150
-----------------
At end of period 682 782
- ----------------------------------------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME
Minimum Pension Liability
At beginning of period (185) -
Minimum liability pension adjustments - -
-----------------
At end of period (185) -
-----------------
Investments
At beginning of period 1 16
Unrealized loss on investments (b) - (3)
-----------------
At end of period 1 13
-----------------
Derivative Instruments (c)
At beginning of period 5 (12)
Unrealized gain on derivative instruments (b) 7 5
Reclassification adjustments included in net income (b) (3) 3
-----------------
At end of period 9 (4)
- ----------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
At beginning of period 545 441
Net income (b) 110 92
Cash dividends declared- Common Stock (78) (55)
Preferred securities distributions (11) (11)
-----------------
At end of period 566 467
- ----------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKHOLDER'S EQUITY $1,914 $2,099
================================================================================================================
CE-28
(a) Number of shares of common stock outstanding was 84,108,789 for all periods
presented
(b) Disclosure of Comprehensive Income:
Other Comprehensive Income
Investments
Unrealized loss on investments, net of tax of
$- and $2, respectively $ - $ (3)
Derivative Instruments (d)
Unrealized gain on derivative instruments,
net of tax of $4 and $3, respectively 7 5
Reclassification adjustments included in net income,
net of tax of ($2) and $1, respectively (3) 3
Net income 110 92
-------------------
Total Comprehensive Income $ 114 $ 97
===================
(c) Included in these amounts is Consumers' proportionate share of the
effects of derivative accounting related to its equity investment in
the MCV Partnership as follows:
At the beginning of the period $ 8 $ (8)
Unrealized gain on derivative instruments 7 5
Reclassification adjustments included in net income (4) 2
-------------------
At the end of period $ 11 $ (1)
===================
The accompanying notes are an integral part of these statements
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CE-30
Consumers Energy Company
CONSUMERS ENERGY COMPANY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
These interim Consolidated Financial Statements have been prepared by Consumers
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. As such, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States have been
condensed or omitted. Certain prior year amounts have been reclassified to
conform to the presentation in the current year. In management's opinion, the
unaudited information contained in this report reflects all adjustments
necessary to assure the fair presentation of financial position, results of
operations and cash flows for the periods presented. The Condensed Notes to
Consolidated Financial Statements and the related Consolidated Financial
Statements should be read in conjunction with the Consolidated Financial
Statements and Notes to Consolidated Financial Statements contained in the
Consumers Form 10-K for the year ended December 31, 2002, which includes the
Reports of Independent Auditors. Due to the seasonal nature of Consumers
operations, the results as presented for this interim period are not necessarily
indicative of results to be achieved for the fiscal year.
1: CORPORATE STRUCTURE AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CORPORATE STRUCTURE: Consumers, a subsidiary of CMS Energy, a holding company,
is an electric and gas utility company that provides service to customers in
Michigan's Lower Peninsula. Consumers' customer base includes a mix of
residential, commercial and diversified industrial customers, the largest
segment of which is the automotive industry.
COLLECTIVE BARGAINING AGREEMENT: As of December 31, 2002, 44 percent of
Consumers' workforce was represented by the Utility Workers Union of America.
Consumers and the Union negotiated a collective bargaining agreement that became
effective as of June 1, 2000, and will continue in full force and effect until
June 1, 2005. On March 26, 2003, Consumers reached a tentative agreement with
the Union for a collective bargaining agreement for its Call Center employees.
The agreement was effective April 1, 2003, and covers approximately 300
employees. The agreement will continue in full force and effect until August 1,
2005.
BASIS OF PRESENTATION: The consolidated financial statements include Consumers
and its wholly owned subsidiaries. Consumers uses the equity method of
accounting for investments in companies and partnerships where it has more than
a twenty percent but less than a majority ownership interest and includes these
results in operating income. Consumers prepared the financial statements in
conformity with accounting principles generally accepted in the United States
that include the use of management's estimates.
REPORTABLE SEGMENTS: Consumers has two reportable segments: electric and gas.
The electric segment consists of activities associated with the generation and
distribution of electricity. The gas segment consists of activities associated
with the transportation, storage and distribution of natural gas. Consumers'
reportable segments are domestic business units organized and managed by the
nature of the product and service each provides. The accounting policies of the
segments are the same as those described in Consumers' 2002 Form 10-K.
Consumers' management has changed its evaluation of the performance of the
electric and gas segments from operating income to net income available to
common stockholder. The Consolidated Statements of Income show operating revenue
and operating income by reportable segment. Intersegment sales and transfers are
accounted for at current market prices and are eliminated in consolidated net
income available to common stockholder by segment. Consumers' classifies its
equity investments as a part of the other business unit. The other business unit
also includes Consumers' consolidated statutory business trusts, which were
created to issue preferred securities and Consumers' consolidated special
purpose entity for the sale of trade receivables.
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The net income available to common stockholder by reportable segment is as
follows:
In Millions
- ------------------------------------------------------------------------------------------------------------------
Three Months Ended
March 31 2003 2002
- ------------------------------------------------------------------------------------------------------------------
Net income available to common stockholder
Electric $51 $50
Gas 54 28
Other (6) 3
- ------------------------------------------------------------------------------------------------------------------
Total Consolidated $99 $81
==================================================================================================================
FINANCIAL INSTRUMENTS: Consumers accounts for its debt and equity investment
securities in accordance with SFAS No. 115. As such, debt and equity securities
can be classified into one of three categories: held-to-maturity, trading, or
available-for-sale securities. Consumers' investments in equity securities,
including its investment in CMS Energy Common Stock, are classified as
available-for-sale securities. They are reported at fair value, with any
unrealized gains or losses from changes in fair value reported in equity as part
of other comprehensive income and excluded from earnings, unless such changes in
fair value are other than temporary. In 2002, Consumers determined that the
decline in value related to its investment in CMS Energy Common Stock was other
than temporary as the fair value was below the cost basis for a period greater
than six months. As a result, Consumers recognized a loss on its investment in
CMS Energy Common Stock through earnings of $12 million in the fourth quarter of
2002 and an additional $12 million loss in the first quarter of 2003. As of
March 31, 2003, Consumers held 2.4 million shares of CMS Energy Common Stock
with a fair value of $10 million. Unrealized gains or losses from changes in the
fair value of Consumers' nuclear decommissioning investments are reported as
regulatory liabilities. The fair value of these investments is determined from
quoted market prices.
UTILITY REGULATION: Consumers accounts for the effects of regulation based on
the regulated utility accounting standard SFAS No. 71. As a result, the actions
of regulators affect when Consumers recognizes revenues, expenses, assets and
liabilities.
In March 1999, Consumers received MPSC electric restructuring orders, which,
among other things, identified the terms and timing for implementing electric
restructuring in Michigan. Consistent with these orders and EITF No. 97-4,
Consumers discontinued the application of SFAS No. 71 for the energy supply
portion of its business because Consumers expected to implement retail open
access at competitive market based rates for its electric customers.
Discontinuation of SFAS No. 71 for the energy supply portion of Consumers'
business resulted in Consumers reducing the carrying value of its Palisades
plant-related assets, in 1999, by approximately $535 million and establishing a
regulatory asset for a corresponding amount. As of March 31, 2003, Consumers had
a net investment in energy supply facilities of $1.554 billion included in
electric plant and property.
Since 1999, there has been a significant legislative and regulatory change in
Michigan that has resulted in: 1) electric supply customers of utilities
remaining on cost-based rates and 2) utilities being given the ability to
recover Stranded Costs associated with electric restructuring, from customers
who choose an alternative electric supplier. During 2002, Consumers re-evaluated
the criteria used to determine if an entity or a segment of an entity meets the
requirements to apply regulated utility accounting, and determined that the
energy supply portion of its business could meet the criteria if certain
regulatory events occurred. In December 2002, Consumers received a MPSC Stranded
Cost order that allowed Consumers to re-apply regulatory accounting standard
SFAS No. 71 to the energy supply portion of its business. Re-application of
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SFAS No. 71 had no effect on the prior discontinuation accounting, but will
allow Consumers to apply regulatory accounting treatment to the energy supply
portion of its business beginning in the fourth quarter of 2002, including
regulatory accounting treatment of costs required to be recognized in accordance
with SFAS No. 143. See Note 2, Uncertainties, "Electric Rate Matters - Electric
Restructuring."
SFAS No. 144 imposes strict criteria for retention of regulatory-created assets
by requiring that such assets be probable of future recovery at each balance
sheet date. Management believes these assets are probable of future recovery.
SFAS NO. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND
DISCLOSURE: Issued by the FASB in December 2002, this standard provides for
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, the
statement amends the disclosure requirements of SFAS No. 123 to require more
prominent and more frequent disclosures in financial statements about the
effects of stock-based compensation. The transition guidance and annual
disclosure provisions of the statement were effective as of December 31, 2002
and interim disclosure provisions are effective for interim financial reports
starting in 2003. Consumers decided to voluntarily adopt the fair value based
method of accounting for stock-based employee compensation effective December
31, 2002, applying the prospective method of adoption which requires recognition
of all employee awards granted, modified, or settled after the beginning of the
year in which the recognition provisions are first applied. The following table
shows the amounts that would have been included in net income had the fair value
method been applied to all awards granted in the first quarter of 2002:
In Millions
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31 2002
- --------------------------------------------------------------------------------------------------------------------
Net income, as reported $92
Add: Stock-based employee compensation expense included in
reported net income, net of related taxes -
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards, net of
related taxes (1)
----------
Pro forma net income $91
====================================================================================================================
2: UNCERTAINTIES
Several business trends or uncertainties may affect Consumers' financial results
and condition. These trends or uncertainties have, or Consumers reasonably
expects could have, a material impact on net sales, revenues, or income from
continuing electric operations. Such trends and uncertainties are discussed in
detail below and include: 1) pending litigation and government investigations;
2) the need to make additional capital expenditures and increase operating
expenses for Clean Air Act compliance; 3) environmental liabilities arising from
various federal, state and local environmental laws and regulations, including
potential liability or expenses relating to the Michigan Natural Resources and
Environmental Protection Acts and Superfund; 4) electric industry restructuring
issues; 5) Consumers' ability to meet peak electric demand requirements at a
reasonable cost, without market disruption, and successfully implement
initiatives to reduce exposure to purchased power price increases; 6) the
recovery of electric restructuring implementation costs; 7) Consumers' new
status as an electric transmission customer and not as an electric transmission
owner/operator; 8) sufficient reserves for OATT rate refunds; 9) uncertainties
relating to the storage and ultimate disposal of spent nuclear fuel; 10) the
effects of derivative accounting and potential earnings volatility; 11)
potential environmental costs at a number of sites, including sites formerly
housing manufactured gas plant facilities; 12) future gas industry restructuring
initiatives; 13) any initiatives undertaken to protect customers against gas
price increases; 14) an inadequate regulatory response to applications for
requested rate increases; 15) market and regulatory responses to increases in
gas costs, including a reduced average use per residential customer; and 16)
increased costs for pipeline integrity and safety and homeland security
initiatives that are not recoverable on a timely basis from customers.
SEC AND OTHER INVESTIGATIONS: As a result of the round-trip trading transactions
at CMS MST, CMS Energy's Board of Directors established a Special Committee of
independent directors to investigate matters surrounding the transactions and
retained outside counsel to assist in the investigation. The Special Committee
completed its investigation and reported its findings to the Board of Directors
in October 2002. The Special Committee concluded, based on an extensive
investigation, that the round-trip trades were undertaken to raise CMS MST's
profile as an energy marketer with the goal of enhancing its ability to promote
its services to new customers. The Special Committee found no apparent effort to
manipulate the price of CMS Energy Common Stock or affect energy prices. The
Special Committee also made recommendations designed to prevent any reoccurrence
of this practice, most of which have already been implemented. Previously, CMS
Energy terminated its speculative trading business and revised its risk
management policy. The Board of Directors adopted, and CMS Energy has begun
implementing, the remaining recommendations of the Special Committee.
CMS Energy is cooperating with other investigations concerning round-trip
trading, including an investigation by the SEC regarding round-trip trades and
CMS Energy's financial statements, accounting policies and controls, and
investigations by the United States Department of Justice, the Commodity Futures
Trading Commission and the FERC. The FERC issued an order on April 30, 2003
directing eight companies, including CMS MST, to submit written demonstrations
within forty-five days that they have taken certain specified remedial measures
with respect to the reporting of natural gas trading data to publications that
compile and publish price indices. CMS MST intends to make a written submission
within the specified time period demonstrating compliance with the FERC's
directives. Other than the FERC investigation, CMS Energy is unable to predict
the outcome of these matters, and Consumers is unable to predict what effect, if
any, these investigations will have on its business.
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SECURITIES CLASS ACTION LAWSUITS: Beginning on May 17, 2002, a number of
securities class action complaints were filed against CMS Energy, Consumers, and
certain officers and directors of CMS Energy and its affiliates. The complaints
were filed as purported class actions in the United States District Court for
the Eastern District of Michigan. The cases were consolidated into a single
lawsuit and an amended and consolidated class action complaint was filed on May
1, 2003. The defendants named in the amended and consolidated class action
complaint consist of CMS Energy, Consumers, certain officers and directors of
CMS Energy and its affiliates, and certain underwriters of CMS Energy
securities. The purported class period is from May 1, 2000 through and including
March 31, 2003. The amended and consolidated class action complaint seeks
unspecified damages based on allegations that the defendants violated United
States securities laws and regulations by making allegedly false and misleading
statements about CMS Energy's business and financial condition. CMS Energy and
Consumers intend to vigorously defend against this action, but cannot predict
the outcome of this litigation.
ERISA CASES: Consumers is a named defendant, along with CMS Energy, CMS MST and
certain named and unnamed officers and directors in two lawsuits brought as
purported class actions on behalf of participants and beneficiaries of the
401(k) plan. The two cases, filed in July 2002 in the United States District
Court for the Eastern District of Michigan, were consolidated by the trial judge
and an amended and consolidated complaint has been filed. Plaintiffs allege
breaches of fiduciary duties under ERISA and seek restitution on behalf of the
plan with respect to a decline in value of the shares of CMS Energy Common Stock
held in the plan. Plaintiffs also seek other equitable relief and legal fees.
These cases will be vigorously defended. Consumers cannot predict the outcome of
this litigation.
ELECTRIC CONTINGENCIES
ELECTRIC ENVIRONMENTAL MATTERS: Consumers is subject to costly and increasingly
stringent environmental regulations. Consumers expects that the cost of future
environmental compliance, especially compliance with clean air laws, will be
significant.
Clean Air - In 1998, the EPA issued regulations requiring the state of Michigan
to further limit nitrogen oxide emissions. The Michigan Department of
Environmental Quality finalized rules to comply with the EPA regulations in
December 2002 and submitted these rules for approval to the EPA in the first
quarter of 2003. In addition, the EPA has also issued additional regulations
regarding nitrogen oxide emissions that require certain generators, including
some of Consumers' electric generating facilities, to achieve the same emissions
rate as that required by the 1998 regulations. The EPA and the state regulations
require Consumers to make significant capital expenditures estimated to be $770
million. As of March 31, 2003, Consumers has incurred $420 million in capital
expenditures to comply with the EPA regulations and anticipates that the
remaining capital expenditures will be incurred between 2003 and 2009.
Additionally, Consumers currently expects to supplement its compliance plan with
the purchase of nitrogen oxide emissions credits for years 2005 through 2008.
The cost of these credits based on the current market is estimated to average $6
million per year; however, the market for nitrogen oxide emissions credits and
their price could change significantly. Based on the Customer Choice Act,
beginning January 2004, an annual return of and on these types of capital
expenditures, to the extent they are above depreciation levels, is expected to
be recoverable from customers, subject to an MPSC prudency hearing.
Cleanup and Solid Waste - Under the Michigan Natural Resources and Environmental
Protection Act, Consumers expects that it will ultimately incur investigation
and remedial action costs at a number of sites. Consumers believes that these
costs will be recoverable in rates under current ratemaking policies.
Consumers is a potentially responsible party at several contaminated sites
administered under Superfund. Superfund liability is joint and several. Along
with Consumers, many other creditworthy, potentially responsible parties with
substantial assets cooperate with respect to the individual sites. Based upon
past
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negotiations, Consumers estimates that its share of the total liability for the
known Superfund sites will be between $1 million and $9 million. As of March 31,
2003, Consumers had accrued the minimum amount of the range for its estimated
Superfund liability.
During routine maintenance activities, Consumers identified PCB as a component
in certain paint, grout and sealant materials at the Ludington Pumped Storage
facility. Consumers removed and replaced part of the PCB material. Consumers has
proposed a plan to deal with the remaining materials and is awaiting a response
from the EPA.
ELECTRIC RATE MATTERS
ELECTRIC RESTRUCTURING: In June 2000, the Michigan legislature passed electric
utility restructuring legislation known as the Customer Choice Act. This act: 1)
permits all customers to choose their electric generation supplier beginning
January 1, 2002; 2) cut residential electric rates by five percent; 3) freezes
all electric rates through December 31, 2003, and establishes a rate cap for
residential customers through at least December 31, 2005, and a rate cap for
small commercial and industrial customers through at least December 31, 2004; 4)
allows for the use of low-cost Securitization bonds to refinance qualified
costs, as defined by the act; 5) establishes a market power supply test that may
require transferring control of generation resources in excess of that required
to serve firm retail sales requirements (On March 31, 2003, Consumers filed an
application with the MPSC that seeks confirmation that Consumers is in
compliance with the market power test set forth in the Customer Choice Act); 6)
requires Michigan utilities to join a FERC-approved RTO or divest their interest
in transmission facilities to an independent transmission owner (Consumers has
sold its interest in its transmission facilities to an independent transmission
owner, see "Transmission" below); 7) requires Consumers, Detroit Edison and
American Electric Power to jointly expand their available transmission
capability by at least 2,000 MW; 8) allows deferred recovery of an annual return
of and on capital expenditures in excess of depreciation levels incurred during
and before the rate freeze/cap period; and 9) allows recovery of "net" Stranded
Costs and implementation costs incurred as a result of the passage of the act.
In July 2002, the MPSC issued an order approving the plan to achieve the
increased transmission capacity. Consumers has completed the transmission
capacity projects identified in the plan and has submitted verification of this
fact to the MPSC. Consumers believes it is in full compliance with item 7 above.
In 1998, Consumers submitted a plan for electric retail open access to the MPSC.
In March 1999, the MPSC issued orders generally supporting the plan. The
Customer Choice Act states that the MPSC orders issued before June 2000 are in
compliance with this act and enforceable by the MPSC. Those MPSC orders: 1)
allow electric customers to choose their supplier; 2) authorize recovery of
"net" Stranded Costs and implementation costs; and 3) confirm any voluntary
commitments of electric utilities. In September 2000, as required by the MPSC,
Consumers once again filed tariffs governing its retail open access program and
made revisions to comply with the Customer Choice Act. In December 2001, the
MPSC approved revised retail open access tariffs. The revised tariffs establish
the rates, terms, and conditions under which retail customers will be permitted
to choose an alternative electric supplier. The tariffs, effective January 1,
2002, did not require significant modifications in the existing retail open
access program. The tariff terms allow retail open access customers, upon as
little as 30 days notice to Consumers, to return to Consumers' generation
service at current tariff rates. If any class of customers' (residential,
commercial, or industrial) retail open access load reaches 10 percent of
Consumers' total load for that class of customers, then returning retail open
access customers for that class must give 60 days notice to return to Consumers'
generation service at current tariff rates. However, Consumers may not have
sufficient, reasonably priced, capacity to meet the additional demand of
returning retail open access customers, and may be forced to purchase
electricity on the spot market at higher prices than it could recover from its
customers. Consumers cannot predict the total amount of electric supply load
that may be lost to competitor suppliers, nor whether the stranded cost recovery
method adopted by the MPSC will be applied in a manner that will fully offset
any associated margin loss.
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SECURITIZATION: The Customer Choice Act allows for the use of low-cost
Securitization bonds to refinance certain qualified costs, as defined by the
act. Securitization typically involves issuing asset-backed bonds with a higher
credit rating than conventional utility corporate financing. In 2000 and 2001,
the MPSC issued orders authorizing Consumers to issue Securitization bonds.
Consumers issued its first Securitization bonds in 2001. Securitization resulted
in lower interest costs and a longer amortization period for the securitized
assets, and offset the majority of the impact of the required residential rate
reduction. The Securitization orders directed Consumers to apply any cost
savings in excess of the five percent residential rate reduction to rate
reductions for non-residential customers and reductions in Stranded Costs for
retail open access customers after the bonds are sold. Excess savings are
approximately $12 million annually.
Consumers and Consumers Funding will recover the repayment of principal,
interest and other expenses relating to the bond issuance through a
securitization charge and a tax charge that began in December 2001. These
charges are subject to an annual true-up until one year prior to the last
expected bond maturity date, and no more than quarterly thereafter. The first
true-up occurred in November 2002, and prospectively modified the total
securitization and related tax charges from 1.677 mills per kWh to 1.746 mills
per kWh. Current electric rate design covers these charges, and there will be no
rate impact for most Consumers electric customers until the Customer Choice Act
rate freeze expires. Securitization charge collections, $13 million for the
three months ended March 31, 2003, and $12 million for the three months ended
March 31, 2002, are remitted to a trustee for the Securitization bonds.
Securitization charge collections are dedicated for the repayment of the
principal and interest on the Securitization bonds and payment of the ongoing
expenses of Consumers Funding and can only be used for those purposes. Consumers
Funding is legally separate from Consumers. The assets and income of Consumers
Funding, including without limitation, the securitized property, are not
available to creditors of Consumers or CMS Energy.
In March 2003, Consumers filed an application with the MPSC seeking approval to
issue Securitization bonds in the amount of approximately $1.084 billion. If
approved, this would allow the recovery of costs and reduce interest rates
associated with financing Clean Air Act expenditures, post-2000 Palisades
expenditures, and retail open access implementation costs through December 31,
2003, and certain pension fund expenses, and expenses associated with the
issuance of the bonds.
TRANSMISSION: In 2002, Consumers sold its electric transmission system (METC) to
MTH, a non-affiliated limited partnership whose general partner is a subsidiary
of Trans-Elect Inc.
As a result of the sale, Consumers anticipates its after-tax earnings will be
decreased by $15 million in 2003, and decrease by approximately $14 million
annually for the next three years due to a loss of revenue from wholesale and
retail open access customers who will buy services directly from MTH and the
loss of a return on the sold electric transmission system.
Under an agreement with MTH, and subject to certain additional RTO surcharges,
transmission rates charged to Consumers are fixed by contract at current levels
through December 31, 2005, and subject to FERC ratemaking thereafter. MTH has
completed the capital program to expand the transmission system's capability to
import electricity into Michigan, as required by the Customer Choice Act, and
Consumers will continue to maintain the system under a five-year contract with
MTH.
When IPPs connect to transmission systems, they pay transmission companies the
capital costs incurred to connect the IPP to the transmission system and make
system upgrades needed for the interconnection. It is the FERC's policy that the
system upgrade portion of these IPP payments be credited against transmission
service charges over time as transmission service is taken. METC recorded a $35
million liability for IPP credits. Subsequently, MTH assumed this liability as
part of its purchase of the electric transmission system. Several months after
METC started operation, the FERC changed its policy to provide for interest on
IPP
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payments that are to be credited. The $35 million liability for IPP credits did
not include interest since the associated interconnection agreements did not at
that time provide for interest. MTH had asserted that Consumers might be liable
for interest on the IPP payments to be credited if interest provisions were
added to these agreements. However, in January 2003, the FERC changed and
clarified its approach to contracts that were entered into before the FERC
started allowing the crediting of interest, and as a result, Consumers believes
that there is no longer any such potential liability under the current FERC
policy.
POWER SUPPLY COSTS: During periods when electric demand is high, the cost of
purchasing electricity on the spot market can be substantial. To reduce
Consumers' exposure to the fluctuating cost of electricity, and to ensure
adequate supply to meet demand, Consumers intends to maintain sufficient
generation and to purchase electricity from others to create a power supply
reserve, also called a reserve margin. The reserve margin provides additional
power supply capability above Consumers' anticipated peak power supply demands.
It also allows Consumers to provide reliable service to its electric service
customers and to protect itself against unscheduled plant outages and
unanticipated demand. In recent years, Consumers has planned for a reserve
margin of approximately 15 percent from a combination of its owned electric
generating plants and electricity purchase contracts or options, as well as
other arrangements. However, in light of various factors, including the addition
of new generating capacity in Michigan and throughout the Midwest region and
additional transmission import capability, Consumers is continuing to evaluate
the appropriate reserve margin for 2003 and beyond. Currently, Consumers has an
estimated reserve margin of approximately 11 percent for summer 2003 or supply
resources equal to 111 percent of projected summer peak load. Of the 111
percent, approximately 101 percent is met from owned electric generating plants
and long-term power purchase contracts and 10 percent from short-term contracts
and options for physical deliveries and other agreements. The ultimate use of
the reserve margin will depend primarily on summer weather conditions, the level
of retail open access requirements being served by others during the summer, and
any unscheduled plant outages. As of early May 2003, alternative electric
suppliers are providing 571 MW of generation supply to ROA customers. Consumers'
reserve margin does not include generation being supplied by other alternative
electric suppliers under the ROA program.
To reduce the risk of high electric prices during peak demand periods and to
achieve its reserve margin target, Consumers employs a strategy of purchasing
electric call option and capacity and energy contracts for the physical delivery
of electricity primarily in the summer months and to a lesser degree in the
winter months. As of March 31, 2003, Consumers had purchased or had commitments
to purchase electric call option and capacity and energy contracts partially
covering the estimated reserve margin requirements for 2003 through 2007. As a
result, Consumers has a recognized asset of $28 million for unexpired call
options and capacity and energy contracts. The total cost of electricity call
option and capacity and energy contracts for 2003 is expected to be
approximately $9 million.
Prior to 1998, the PSCR process provided for the reconciliation of actual power
supply costs with power supply revenues. This process assured recovery of all
reasonable and prudent power supply costs actually incurred by Consumers,
including the actual cost for fuel, and purchased and interchange power. In
1998, as part of the electric restructuring efforts, the MPSC suspended the PSCR
process, and would not grant adjustment of customer rates through 2001. As a
result of the rate freeze imposed by the Customer Choice Act, the current rates
will remain in effect until at least December 31, 2003 and, therefore, the PSCR
process remains suspended. Therefore, changes in power supply costs as a result
of fluctuating electricity prices will not be reflected in rates charged to
Consumers' customers during the rate freeze period.
ELECTRIC PROCEEDINGS: The Customer Choice Act allows electric utilities to
recover the act's implementation costs and "net" Stranded Costs (without
defining the term). The act directs the MPSC to establish a method of
calculating "net" Stranded Costs and of conducting related true-up adjustments.
In December 2001, the MPSC adopted a methodology which calculated "net" Stranded
Costs as the shortfall between: (a) the revenue required to cover the costs
associated with fixed generation assets, generation-related regulatory assets,
and
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capacity payments associated with purchase power agreements, and (b) the
revenues received from customers under existing rates available to cover the
revenue requirement. The MPSC authorized Consumers to use deferred accounting to
recognize the future recovery of costs determined to be stranded. Consumers has
initiated an appeal at the Michigan Court of Appeals related to the MPSC's
December 2001 "net" Stranded Cost order.
According to the MPSC, "net" Stranded Costs were to be recovered from retail
open access customers through a Stranded Cost transition charge. In April 2002,
Consumers made "net" Stranded Cost filings with the MPSC for $22 million for
2000 and $43 million for 2001. In the same filing, Consumers estimated that it
would experience "net" Stranded Costs of $126 million for 2002. Consumers in its
hearing brief, filed in August 2002, revised its request for Stranded Costs to
$7 million and $4 million for 2000 and 2001, respectively, and an estimated $73
million for 2002. The single largest reason for the difference in the filing was
the exclusion, as ordered by the MPSC, of all costs associated with expenditures
required by the Clean Air Act.
In December 2002, the MPSC issued an order finding that Consumers experienced
zero "net" Stranded Costs in 2000 and 2001, but declined to establish a defined
methodology that would allow a reliable prediction of the level of Stranded
Costs for 2002 and future years. In January 2003, Consumers filed a petition for
rehearing of the December 2002 Stranded Cost order in which it asked the MPSC to
grant a rehearing and revise certain features of the order. Several other
parties also filed rehearing petitions with the MPSC. As noted above, Consumers
has filed a request with the MPSC for authority to issue securitization bonds
that would allow recovery of the Clean Air Act expenditures that were excluded
from the Stranded Cost calculation and post-2000 Palisades expenditures.
On March 4, 2003, Consumers filed an application with the MPSC seeking approval
of "net" Stranded Costs incurred in 2002, and for approval of a "net" Stranded
Cost recovery charge. In the application, Consumers indicated that if Consumers'
proposal to securitize Clean Air Act expenditures and post-2000 Palisades'
expenditures were approved as proposed in its securitization case as discussed
above, then Consumers' "net" Stranded Costs incurred in 2002 are approximately
$35 million. If the proposal to securitize those costs is not approved, then
Consumers indicated that the costs would be properly included in the 2002 "net"
Stranded Cost calculation, which would increase Consumers' 2002 "net" Stranded
Costs to approximately $103 million. Consumers cannot predict the recoverability
of Stranded Costs, and therefore has not recorded any regulatory assets to
recognize the future recovery of such costs.
The MPSC staff has scheduled a collaborative process to discuss Stranded Costs
and related issues and to identify and make recommendations to the MPSC.
Consumers is participating in this collaborative process.
Since 1997, Consumers has incurred significant electric utility restructuring
implementation costs. The following table outlines the applications filed by
Consumers with the MPSC and the status of recovery for these costs.
In Millions
- --------------------------------------------------------------------------------------------------------------
Year Filed Year Incurred Requested Pending Allowed Disallowed
- --------------------------------------------------------------------------------------------------------------
1999 1997 & 1998 $ 20 $ - $ 15 $ 5
2000 1999 30 - 25 5
2001 2000 25 - 20 5
2002 2001 8 8 Pending Pending
2003 2002 2 2 Pending Pending
==============================================================================================================
The MPSC disallowed certain costs based upon a conclusion that these amounts did
not represent costs
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incremental to costs already reflected in electric rates. In the orders received
for the years 1997 through 2000, the MPSC also reserved the right to review
again the total implementation costs depending upon the progress and success of
the retail open access program, and ruled that due to the rate freeze imposed by
the Customer Choice Act, it was premature to establish a cost recovery method
for the allowable implementation costs. In addition to the amounts shown above,
as of March 31, 2003, Consumers incurred and deferred as a regulatory asset, $2
million of additional implementation costs and has also recorded as a regulatory
asset $14 million for the cost of money associated with total implementation
costs. Consumers believes the implementation costs and the associated cost of
money are fully recoverable in accordance with the Customer Choice Act. Cash
recovery from customers will probably begin after the rate freeze or rate cap
period has expired. As discussed above, Consumers has asked to include
implementation costs through December 31, 2003 in the pending securitization
case. If approved, the sale of Securitization bonds will allow for the recovery
of these costs. Consumers cannot predict the amounts the MPSC will approve as
allowable costs.
Consumers is also pursuing authorization at the FERC for MISO to reimburse
Consumers for approximately $8 million in certain electric utility restructuring
implementation costs related to its former participation in the development of
the Alliance RTO, a portion of which has been expensed. However, Consumers
cannot predict the amount the FERC will ultimately order to be reimbursed by the
MISO.
In 1996, Consumers filed new OATT transmission rates with the FERC for approval.
Interveners contested these rates, and hearings were held before an ALJ in 1998.
In 1999, the ALJ made an initial decision that was largely upheld by the FERC in
March 2002, which requires Consumers to refund, with interest, over-collections
for past services as measured by the FERC's finally approved OATT rates. Since
the initial decision, Consumers has been reserving a portion of revenues billed
to customers under the filed 1996 OATT rates. Consumers submitted revised rates
to comply with the FERC final order in June 2002. Those revised rates were
accepted by the FERC in August 2002 and Consumers is in the process of computing
refund amounts for individual customers. Consumers believes its reserve is
sufficient to satisfy its refund obligation. As of April 2003, Consumers had
paid $19 million in refunds.
In November 2002, the MPSC, upon its own motion, commenced a contested
proceeding requiring each utility to give reason as to why its rates should not
be reduced to reflect new personal property multiplier tables, and why it should
not refund any amounts that it receives as refunds from local governments as
they implement the new multiplier tables. Consumers responded to the MPSC that
it believes that refunds would be inconsistent with the electric rate freeze
that is currently in effect, and may otherwise be unlawful. Consumers is unable
to predict the outcome of this matter.
OTHER ELECTRIC UNCERTAINTIES
THE MIDLAND COGENERATION VENTURE: The MCV Partnership, which leases and operates
the MCV Facility, contracted to sell electricity to Consumers for a 35-year
period beginning in 1990 and to supply electricity and steam to Dow. Consumers,
through two wholly owned subsidiaries, holds the following assets related to the
MCV Partnership and MCV Facility: 1) CMS Midland owns a 49 percent general
partnership interest in the MCV Partnership; and 2) CMS Holdings holds, through
FMLP, a 35 percent lessor interest in the MCV Facility.
Consumers' consolidated retained earnings includes undistributed earnings from
the MCV Partnership, which at March 31, 2003 and 2002 are $233 million and $187
million, respectively.
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Consumers Energy Company
Summarized Statements of Income for CMS Midland and CMS Holdings
In Millions
- -------------------------------------------------------------------------------------------------------------------
March 31 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Operating income $16 $9
Income taxes and other 5 3
- -------------------------------------------------------------------------------------------------------------------
Net income $11 $6
===================================================================================================================
Power Supply Purchases from the MCV Partnership - Consumers' annual obligation
to purchase capacity from the MCV Partnership is 1,240 MW through the term of
the PPA ending in 2025. The PPA requires Consumers to pay, based on the MCV
Facility's availability, a levelized average capacity charge of 3.77 cents per
kWh and a fixed energy charge, and also to pay a variable energy charge based
primarily on Consumers' average cost of coal consumed for all kWh delivered.
Since January 1, 1993, the MPSC has permitted Consumers to recover capacity
charges averaging 3.62 cents per kWh for 915 MW, plus a substantial portion of
the fixed and variable energy charges. Since January 1, 1996, the MPSC has also
permitted Consumers to recover capacity charges for the remaining 325 MW of
contract capacity with an initial average charge of 2.86 cents per kWh
increasing periodically to an eventual 3.62 cents per kWh by 2004 and
thereafter. However, due to the current freeze of Consumers' retail rates that
the Customer Choice Act requires, the capacity charge for the 325 MW is now
frozen at 3.17 cents per kWh. Recovery of both the 915 MW and 325 MW portions of
the PPA are subject to certain limitations discussed below. After September
2007, the PPA's regulatory out terms obligate Consumers to pay the MCV
Partnership only those capacity and energy charges that the MPSC has authorized
for recovery from electric customers.
In 1992, Consumers recognized a loss and established a PPA liability for the
present value of the estimated future underrecoveries of power supply costs
under the PPA based on MPSC cost recovery orders. Primarily as a result of the
MCV Facility's actual availability being greater than management's original
estimates, the PPA liability has been reduced at a faster rate than originally
anticipated. At March 31, 2003 and 2002, the remaining after-tax present value
of the estimated future PPA liability associated with the loss totaled $30
million and $46 million, respectively. The PPA liability is expected to be
depleted in late 2004. For further discussion on the impact of the frozen PSCR,
see "Electric Rate Matters" in this Note.
In March 1999, Consumers and the MCV Partnership reached a settlement agreement
effective January 1, 1999, that addressed, among other things, the ability of
the MCV Partnership to count modifications increasing the capacity of the
existing MCV Facility for purposes of computing the availability of contract
capacity under the PPA for billing purposes. That settlement agreement capped
payments made on the basis of availability that may be billed by the MCV
Partnership at a maximum 98.5 percent availability level.
When Consumers returns, as expected, to unfrozen rates beginning in 2004,
Consumers will recover from customers capacity and fixed energy charges on the
basis of availability, to the extent that availability does not exceed 88.7
percent availability established in previous MPSC orders. For capacity and
energy payments billed by the MCV Partnership after September 15, 2007, and not
recovered from customers, Consumers would expect to claim a regulatory out under
the PPA. The regulatory out provision relieves Consumers of the obligation to
pay more for capacity and energy payments than the MPSC allows Consumers to
collect from its customers. Consumers estimates that 51 percent of the actual
cash underrecoveries for the years 2003 and 2004 will be charged to the PPA
liability, with the remaining portion charged to operating expense as a result
of Consumers' 49 percent ownership in the MCV Partnership. All cash
underrecoveries will be expensed directly to income once the PPA liability is
depleted. If the MCV Facility's generating availability remains at the maximum
98.5 percent level during the next five years, Consumers' after-tax cash
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Consumers Energy Company
underrecoveries associated with the PPA could be as follows:
In Millions
- --------------------------------------------------------------------------------------------------------------------
2003 2004 2005 2006 2007
- --------------------------------------------------------------------------------------------------------------------
Estimated cash underrecoveries at 98.5%, net of tax $37 $36 $36 $36 $25
Amount to be charged to operating expense, net of tax $18 $18 $36 $36 $25
Amount to be charged to PPA liability, net of tax $19 $18 $ - $ - $ -
====================================================================================================================
In February 1998, the MCV Partnership appealed the January 1998 and February
1998 MPSC orders related to electric utility restructuring. At the same time,
MCV Partnership filed suit in the United States District Court in Grand Rapids
seeking a declaration that the MPSC's failure to provide Consumers and MCV
Partnership a certain source of recovery of capacity payments after 2007
deprived MCV Partnership of its rights under the Public Utilities Regulatory
Policies Act of 1978. In July 1999, the District Court granted MCV Partnership's
motion for summary judgment. The Court permanently prohibited enforcement of the
restructuring orders in any manner that denies any utility the ability to
recover amounts paid to qualifying facilities such as the MCV Facility or that
precludes the MCV Partnership from recovering the avoided cost rate. The MPSC
appealed the Court's order to the 6th Circuit Court of Appeals in Cincinnati. In
June 2001, the 6th Circuit overturned the lower court's order and dismissed the
case against the MPSC. The appellate court determined that the case was
premature and concluded that the qualifying facilities needed to wait until 2008
for an actual factual record to develop before bringing claims against the MPSC
in federal court.
NUCLEAR MATTERS: Throughout 2002, Big Rock, currently in decommissioning,
progressed on plan with building and equipment dismantlement to return the site
to a natural setting free for any future use. Periodic NRC inspection reports
continued to reflect positively on Big Rock project performance. The NRC found
all decommissioning activities were performed in accordance with applicable
regulatory and license conditions.
In February 2003, the NRC completed its end-of-cycle plant performance
assessment of Palisades. The end-of-cycle review for Palisades covered the 2002
calendar year. The NRC determined that Palisades was operated in a manner that
preserved public health and safety and fully met all cornerstone objectives.
Based on the plant's performance, only regularly scheduled inspections are
planned through March 2004. The NRC noted that they are planning inspections of
the new independent spent fuel storage facility as needed during construction
activities along with routine inspections for the new security requirements.
Spent Nuclear Fuel Storage: During the fourth quarter of 2002, equipment
fabrication, assembly and testing was completed at Big Rock on NRC approved
transportable steel and concrete canisters or vaults, commonly known as
"dry-casks", for temporary onsite storage of spent fuel and movement of fuel
from the fuel pool to dry casks began. As of March 31, 2003, all of the seven
dry casks had been loaded with spent fuel. These transportable dry casks will
remain onsite until the DOE moves the material to a permanent national fuel
repository.
At Palisades, the amount of spent nuclear fuel discharged from the reactor to
date exceeds Palisades' temporary on-site storage pool capacity. Consequently,
Consumers is using NRC-approved steel and concrete vaults, "dry casks," for
temporary on-site storage. As of March 31, 2003, Consumers had loaded 18 dry
casks with spent nuclear fuel at Palisades. Palisades will need to load
additional dry casks by the fall of 2004 in order to continue operation.
Palisades currently has three empty storage-only dry casks on-site, with storage
pad capacity for up to seven additional loaded dry casks. Consumers anticipates
that licensed transportable dry casks for additional storage, along with more
storage pad capacity, will be available prior to 2004.
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Consumers Energy Company
In 1997, a U.S. Court of Appeals decision confirmed that the DOE was to begin
accepting deliveries of spent nuclear fuel for disposal by January 31, 1998.
Subsequent U.S. Court of Appeals litigation in which Consumers and certain other
utilities participated has not been successful in producing more specific relief
for the DOE's failure to comply.
In July 2000, the DOE reached a settlement agreement with one utility to address
the DOE's delay in accepting spent fuel. The DOE may use that settlement
agreement as a framework that it could apply to other nuclear power plants.
However, certain other utilities challenged the validity of the mechanism for
funding the settlement in an appeal, and the reviewing court sustained their
challenge. Additionally, there are two court decisions that support the right of
utilities to pursue damage claims in the United States Court of Claims against
the DOE for failure to take delivery of spent fuel. A number of utilities have
commenced litigation in the Court of Claims, including Consumers, which filed
its complaint in December 2002. The Chief Judge of the Court of Claims
identified six lead cases to be used as vehicles for resolving dispositive
motions. Consumers' case is not a lead case. It is unclear what impact this
decision by the Chief Judge will have on the outcome of Consumers' litigation.
If the litigation that was commenced in the fourth quarter of 2002, against the
DOE is successful, Consumers anticipates future recoveries from the DOE to
defray the significant costs it will incur for the storage of spent fuel until
the DOE takes possession as required by law.
As of March 31, 2003, Consumers has a recorded liability to the DOE of $138
million, including interest, which is payable upon the first delivery of spent
nuclear fuel to the DOE. Consumers recovered through electric rates the amount
of this liability, excluding a portion of interest.
On March 26, 2003, the Michigan Environmental Council, the Public Interest
Research Group in Michigan, and the Michigan Consumer Federation submitted a
complaint to the MPSC, which was served on Consumers by the MPSC on April 18,
2003. The complaint asks the MPSC to commence a generic investigation and
contested case to review all facts and issues concerning costs associated with
spent nuclear fuel storage and disposal. The complaint seeks a variety of relief
with respect to Consumers Energy, The Detroit Edison Company, Indiana & Michigan
Electric Company, Wisconsin Electric Power Company and Wisconsin Public Service
Corporation, including establishing external trusts to which amounts collected
in electric rates for spent nuclear fuel storage and disposal should be
transferred, and the adoption of additional measures related to the storage and
disposal of spent nuclear fuel. Consumers is reviewing the complaint and, at
this time, is unable to predict the outcome of this matter.
In July 2002, Congress approved and the President signed a bill designating the
site at Yucca Mountain, Nevada, for the development of a repository for the
disposal of high-level radioactive waste and spent nuclear fuel. The next step
will be for the DOE to submit an application to the NRC for a license to begin
construction of the repository. The application and review process is estimated
to take several years.
Palisades Plant Operations: In March 2002, corrosion problems were discovered in
the reactor head at an unaffiliated nuclear power plant in Ohio. As a result,
the NRC requested that all United States nuclear plants utilizing pressurized
water reactors to provide reports detailing their reactor head inspection
histories, design capabilities and future inspection plans. In response to the
issues identified at this and other nuclear plants worldwide, a bare metal
visual inspection was completed on the Palisades reactor vessel head during the
spring 2003 refueling outage. No indication of leakage was detected on any of
the 54 penetrations.
Insurance: Consumers maintains primary and excess nuclear property insurance
from NEIL, totaling $2.7 billion in recoverable limits for the Palisades nuclear
plant. Consumers also procures coverage from NEIL that would partially cover the
cost of replacement power during certain prolonged accidental outages at
Palisades. NEIL's policies include coverage for acts of terrorism.
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Consumers Energy Company
Consumers retains the risk of loss to the extent of the insurance deductibles
and to the extent that its loss exceeds its policy limits. Because NEIL is a
mutual insurance company, Consumers could be subject to assessments from NEIL up
to $25.8 million in any policy year if insured losses in excess of NEIL's
maximum policyholders surplus occur at its, or any other member's nuclear
facility.
Consumers maintains nuclear liability insurance for injuries and off-site
property damage resulting from the nuclear hazard at Palisades for up to
approximately $9.5 billion, the maximum insurance liability limits established
by the Price-Anderson Act. Congress enacted the Price-Anderson Act to provide
financial protection for persons who may be liable for a nuclear accident or
incident and persons who may be injured by a nuclear incident. The
Price-Anderson Act was recently extended to December 31, 2003. Part of the
Price-Anderson Act's financial protection consists of a mandatory industry-wide
program under which owners of nuclear generating facilities could be assessed if
a nuclear incident occurs at any of such facilities. The maximum assessment
against Consumers could be $88 million per occurrence, limited to maximum annual
installment payments of $10 million. Consumers also maintains insurance under a
master worker program that covers tort claims for bodily injury to workers
caused by nuclear hazards. The policy contains a $300 million nuclear industry
aggregate limit. Under a previous insurance program providing coverage for
claims brought by nuclear workers, Consumers remains responsible for a maximum
assessment of up to $6.3 million. The Big Rock plant remains insured for nuclear
liability by a combination of insurance and United States government indemnity
totaling $544 million.
Insurance policy terms, limits and conditions are subject to change during the
year as Consumers renews its policies.
GAS CONTINGENCIES
GAS ENVIRONMENTAL MATTERS: Under the Michigan Natural Resources and
Environmental Protection Act, Consumers expects that it will ultimately incur
investigation and remedial action costs at a number of sites. These include 23
former manufactured gas plant facilities, which were operated by Consumers for
some part of their operating lives, including sites in which it has a partial or
no current ownership interest. Consumers has completed initial investigations at
the 23 sites. For sites where Consumers has received site-wide study plan
approvals, it will continue to implement these plans. It will also work toward
closure of environmental issues at sites as studies are completed. Consumers has
estimated its costs related to investigation and remedial action for all 23
sites using the Gas Research Institute-Manufactured Gas Plant Probabilistic Cost
Model. The estimated total costs are between $82 million and $113 million; these
estimates are based on discounted 2001 costs and follow EPA recommended use of
discount rates between three and seven percent for this type of activity.
Consumers expects to fund a significant portion of these costs through insurance
proceeds and through MPSC approved rates charged to its customers. As of March
31, 2003, Consumers has an accrued liability of $49 million, net of $33 million
of expenditures incurred to date, and a regulatory asset of $69 million. Any
significant change in assumptions, such as an increase in the number of sites,
different remediation techniques, nature and extent of contamination, and legal
and regulatory requirements, could affect Consumers' estimate of remedial action
costs.
The MPSC, in its November 7, 2002, gas distribution rate order, authorized
Consumers to continue to recover approximately $1 million of manufactured gas
plant facilities environmental clean-up costs annually. Consumers defers and
amortizes, over a period of 10 years, manufactured gas plant facilities
environmental clean-up costs above the amount currently being recovered in
rates. Additional rate recognition of amortization expense cannot begin until
after a prudency review in a gas rate case. The annual amount that the MPSC
authorized Consumers to recover in rates will continue to be offset by $2
million to reflect amounts recovered from all other sources.
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Consumers Energy Company
GAS RATE MATTERS
GAS COST RECOVERY: As part of the on-going GCR process, which includes an annual
reconciliation process with the MPSC, Consumers expects to collect all of its
incurred gas costs. Under an order issued by the MPSC on March 12, 2003,
Consumers increased its maximum GCR factor in May 2003, based on a formula that
tracks increases in NYMEX prices.
2003 GAS RATE CASE: On March 14, 2003, Consumers filed an application with the
MPSC seeking a $156 million increase in its gas delivery and transportation
rates, which include a 13.5 percent authorized return on equity, based on a 2004
test year. If approved, the request would add about $6.40 per month, or about 9
percent, to the typical residential customer's average monthly bill.
Contemporaneously with this filing, Consumers has requested interim rate relief
in the same amount.
In September 2002, the FERC issued an order rejecting a filing by Consumers to
assess certain rates for non-physical gas title tracking services offered by
Consumers. Despite Consumers' arguments to the contrary, the FERC asserted
jurisdiction over such activities and allowed Consumers to refile and justify a
title transfer fee not based on volumes as Consumers proposed. Because the order
was issued six years after Consumers made its original filing initiating the
proceeding, over $3 million in non-title transfer tracking fees had been
collected. No refunds have been ordered, and Consumers sought rehearing of the
September order. If refunds were ordered they may include interest which would
increase the refund liability to more than the $3 million collected. In December
2002, Consumers established a $3.6 million reserve related to this matter.
Consumers is unable to say with certainty what the final outcome of this
proceeding might be.
In November 2002, the MPSC upon its own motion commenced a contested proceeding
requiring each utility to give reason as to why its rates should not be reduced
to reflect new personal property multiplier tables, and why it should not refund
any amounts that it receives as refunds from local governments as they implement
the new multiplier tables. Consumers responded to the MPSC that it believes that
refunds would be inconsistent with the November 7, 2002 gas rate order in case
U-13000, with the Customer Choice Act, and may otherwise be unlawful. Consumers
is unable to predict the outcome of this matter.
OTHER UNCERTAINTIES
SECURITY COSTS: Since the September 11, 2001 terrorist attacks in the United
States, Consumers has increased security at all critical facilities and over its
critical infrastructure, and will continue to evaluate security on an ongoing
basis. Consumers may be required to comply with federal and state regulatory
security measures promulgated in the future. Through December 31, 2002,
Consumers has incurred approximately $4 million in incremental security costs,
including operating, capital, and decommissioning and removal costs. Consumers
estimates it may incur additional incremental security costs in 2003 of
approximately $6 million. Consumers will attempt to seek recovery of these costs
from its customers. In December 2002, the Michigan legislature passed, and the
governor signed, a bill that would allow Consumers to seek recovery of
additional nuclear electric division security costs incurred during the rate
freeze and cap periods imposed by the Customer Choice Act. Of the $4 million in
incremental security costs incurred through December 31, 2002, approximately $3
million related to nuclear security costs. Of the estimated $6 million for
incremental security costs expected to be incurred in 2003, $4 million relates
to nuclear security costs. On February 5, 2003, the MPSC adopted filing
requirements for the recovery of enhanced security costs.
DERIVATIVE ACTIVITIES: Consumers uses a variety of contracts to protect against
commodity price and interest rate risk. Some of these contracts may be subject
to derivative accounting, which requires that the value of the contracts to be
adjusted fair value through earnings or equity depending upon certain criteria.
Such adjustments to fair value could cause earnings volatility. For further
information about derivative activities, see Note 4, Financial and Derivative
Instruments.
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Consumers Energy Company
In addition to the matters disclosed in this note, Consumers and certain of its
subsidiaries are parties to certain lawsuits and administrative proceedings
before various courts and governmental agencies arising from the ordinary course
of business. These lawsuits and proceedings may involve personal injury,
property damage, contractual matters, environmental issues, federal and state
taxes, rates, licensing and other matters.
Consumers has accrued estimated losses for certain contingencies discussed in
this note. Resolution of these contingencies is not expected to have a material
adverse impact on Consumers' financial position, liquidity, or results of
operations.
3: FINANCINGS AND CAPITALIZATION
REGULATORY AUTHORIZATION FOR FINANCINGS: At March 31, 2003, Consumers had FERC
authorization to issue or guarantee through June 2004, up to $1.1 billion of
short-term securities outstanding at any one time. Consumers also had remaining
FERC authorization to issue through June 2004 up to $500 million of long-term
securities for refinancing or refunding purposes, $381 million for general
corporate purposes, and $610 million of first mortgage bonds to be issued solely
as collateral for the long-term securities. On April 30, 2003, Consumers sold
$625 million principal amount of first mortgage bonds, described below. Its
remaining FERC authorization after this issue is (1) $250 million of long-term
securities for refinancing or refunding purposes, (2) $6 million for general
corporate purposes, and (3) $610 million remaining first mortgage bonds
available to be issued solely as collateral for the long-term securities. On
October 10, 2002, FERC granted a waiver of its competitive bid/negotiated
placement requirements applicable to the remaining long-term securities
authorization indicated above.
SHORT-TERM FINANCINGS: In March 2003, Consumers obtained a replacement revolving
credit facility in the amount of $250 million secured by first mortgage bonds.
The cost of the facility is LIBOR plus 350 basis points. The new credit facility
matures in March 2004 with two annual extensions at Consumers' option, which
would extend the maturity to March 2006. The prior facility was due to expire in
July 2003. At March 31, 2003, a total of $252 million was outstanding on all
short-term financing at a weighted average interest rate of 6.22 percent,
compared with $150 million outstanding at March 31, 2002 at a weighted average
interest rate of 2.6 percent.
LONG-TERM FINANCINGS: In March 2003, Consumers entered into a $140 million term
loan secured by first mortgage bonds with a private investor bank. This loan has
a term of six years at a cost of LIBOR plus 475 basis points. Proceeds from this
loan were used for general corporate purposes.
In March 2003, Consumers entered into a $150 million term loan secured by first
mortgage bonds. This term loan has a three-year maturity expiring in March 2006;
the loan has a cost of LIBOR plus 450 basis points. Proceeds from this loan were
used for general corporate purposes.
FIRST MORTGAGE BONDS: In April 2003, Consumers sold $625 million principal
amount of first mortgage bonds in a private offering to institutional investors;
$250 million were issued at 4.25 percent, maturing on April 15, 2008, and net
proceeds were approximately $248 million, $375 million were issued at 5.38
percent, maturing on April 15, 2013, and net proceeds were approximately $371
million. Consumers used the net proceeds to replace a $250 million senior reset
put bond that matured in May 2003, to pay an associated $32 million option call
payment, and for general corporate purposes that may include paying down
additional debt. Consumers has agreed to file a registration statement with the
SEC to permit holders of these first mortgage bonds to exchange the bonds for
new bonds that will be registered under the Securities Act of 1933. Consumers
has agreed to file this registration statement by December 31, 2003.
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Consumers Energy Company
Consumers secures its first mortgage bonds by a mortgage and lien on
substantially all of its property. Consumers' ability to issue and sell
securities is restricted by certain provisions in its first mortgage bond
Indenture, its articles of incorporation and the need for regulatory approvals
to meet appropriate federal law.
MANDATORILY REDEEMABLE PREFERRED SECURITIES: Consumers has wholly owned
statutory business trusts that are consolidated within its financial statements.
Consumers created these trusts for the sole purpose of issuing Trust Preferred
Securities. The primary asset of the trusts is a note or debenture of Consumers.
The terms of the Trust Preferred Security parallel the terms of the related
Consumers' note or debenture. The term, rights and obligations of the Trust
Preferred Security and related note or debenture are also defined in the related
indenture through which the note or debenture was issued, Consumers' guarantee
of the related Trust Preferred Security and the declaration of trust for the
particular trust. All of these documents together with their related note or
debenture and Trust Preferred Security constitute a full and unconditional
guarantee by Consumers of the trust's obligations under the Trust Preferred
Security. In addition to the similar provisions previously discussed, specific
terms of the securities follow.
In Millions
- ------------------------------------------------------------------------------------------------------------------
Earliest
Trust and Securities Rate Amount Outstanding Maturity Redemption
- ------------------------------------------------------------------------------------------------------------------
March 31 2003 2002 2001 Year
- ------------------------------------------------------------------------------------------------------------------
Consumers Power Company Financing I,
Trust Originated Preferred Securities 8.36% $ 70 $ 70 $100 2015 2000
Consumers Energy Company Financing II,
Trust Originated Preferred Securities 8.20% 120 120 120 2027 2002
Consumers Energy Company Financing III,
Trust Originated Preferred Securities 9.25% 175 175 175 2029 2004
Consumers Energy Company Financing IV,
Trust Preferred Securities 9.00% 125 125 - 2031 2006
---------------------------
Total $490 $490 $395
==================================================================================================================
OTHER: At March 31, 2003, Consumers had, through its wholly owned subsidiary
Consumers Receivables Funding, a $325 million trade receivable sale program in
place as an anticipated source of funds for general corporate purposes. At March
31, 2003 and 2002, the receivables sold under the program were $325 million for
each year; the average annual discount rate was 1.57 percent and 2.15 percent,
respectively. Accounts receivable and accrued revenue in the Consolidated
Balance Sheets have been reduced to reflect receivables sold. On April 30, 2003,
Consumers ended its trade receivable sale program with its then existing
purchaser and anticipates that a new trade receivable program will be in place
with a new purchaser in May 2003.
Under the program discussed above, Consumers sold accounts receivable but
retained servicing responsibility. Consumers is responsible for the
collectability of the accounts receivable sold, however, the purchaser of sale
of accounts receivable have no recourse to Consumers' other assets for failure
of debtors to pay when due and there are no restrictions on accounts receivables
not sold. No gain or loss has been recorded on the sale of accounts receivable
and Consumers retains no interest in the receivables sold.
DIVIDEND RESTRICTIONS: Under the provisions of its articles of incorporation,
Consumers had $423 million of unrestricted retained earnings available to pay
common dividends at March 31, 2003. However, pursuant to restrictive covenants
in its debt facilities, Consumers is limited to common stock dividend payments
that will not exceed $300 million in any calendar year. In January 2003,
Consumers declared and paid a $78 million common dividend. In March 2003,
Consumers declared a $31 million common dividend payable in May 2003.
FASB INTERPRETATION NO. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENT
FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS:
Effective January 2003, this interpretation elaborates on the disclosure to be
made by a guarantor about its obligations under certain guarantees that it has
issued. It also requires that a guarantor recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and measurement provision of this
interpretation does not apply to certain guarantee contracts, such as
warranties, derivatives, or guarantees between either parent and subsidiaries or
corporations under common control, although
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Consumers Energy Company
disclosure of such guarantees is required. For contracts that are within the
initial recognition and measurement provision of this interpretation, the
provisions are to be applied to guarantees issued or modified after December 31,
2002; no cumulative effect adjustments are required.
Following is a general description of Consumers' guarantees as required by this
Interpretation:
March 31, 2003 In Millions
- ------------------------------------------------------------------------------------------------------------------
Issue Expiration Maximum Carrying Recourse
Guarantee Description Date Date Obligation Amount Provision(a)
- ------------------------------------------------------------------------------------------------------------------
Standby letters of credit Various Various $ 7 $ - $ -
Surety bonds Various Various 8 - -
Nuclear insurance retrospective premiums Various Various 120 - -
==================================================================================================================
(a) Recourse provision indicates the approximate recovery from third
parties including assets held as collateral.
Following is additional information regarding Consumers' guarantees:
March 31, 2003
- ---------------------------------------------------------------------------------------------------------------------
Events That Would
Guarantee Description How Guarantee Arose Require Performance
- ---------------------------------------------------------------------------------------------------------------------
Standby letters of credit Normal operations of Non-compliance with
coal power plants environmental regulations
Self insurance requirement Non-performance
Surety bonds Normal operating activity, Non-performance
permits and license
Nuclear insurance retrospective premiums Normal operations of Call by NEIL and
nuclear plants Price-Anderson Act
for nuclear incident
=====================================================================================================================
4: FINANCIAL AND DERIVATIVE INSTRUMENTS
FINANCIAL INSTRUMENTS: The carrying amounts of cash, short-term investments and
current liabilities approximate their fair values due to their short-term
nature. Consumers estimates the fair values of long-term investments based on
quoted market prices or, in the absence of specific market prices, on quoted
market prices of similar investments or other valuation techniques. The carrying
amounts of all long-term investments, except as shown below, approximate fair
value.
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In Millions
- ---------------------------------------------------------------------------------------------------------------
March 31 2003 2002
- ---------------------------------------------------------------------------------------------------------------
Fair Unrealized Fair Unrealized
Available-for-sale securities Cost Value Gain Cost Value Gain
- ---------------------------------------------------------------------------------------------------------------
Common stock of CMS Energy (a) $ 10 $ 10 $ - $ 35 $ 54 $ 19
SERP 18 18 - 21 22 1
Nuclear decommissioning
investments (b) 458 529 71 465 576 111
===============================================================================================================
(a) Consumers recognized a $12 million loss on this investment in 2002 and an
additional $12 million loss in the first quarter of 2003 because the loss was
other than temporary, as the fair value was below the cost basis for a period
greater than six months. As of March 31, 2003, Consumers held 2.4 million shares
of CMS Energy Common Stock with a fair value of $10 million.
(b) On January 1, 2003, Consumers adopted SFAS No. 143 and began classifying its
unrealized gains and losses on nuclear decommissioning investments as regulatory
liabilities. Consumers previously classified these investments in accumulated
depreciation.
At March 31, 2003, the carrying amount of long-term debt was $2.7 billion and at
March 31, 2002, $2.4 billion, and the fair values were $2.7 billion and $2.4
billion, respectively. For held-to-maturity securities and related-party
financial instruments, see Note 1.
RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS: Consumers is exposed to
market risks including, but not limited to, changes in interest rates, commodity
prices, and equity security prices. Consumers' market risk, and activities
designed to minimize this risk, are subject to the direction of an executive
oversight committee consisting of designated members of senior management and a
risk committee, consisting of certain business unit managers. The role of the
risk committee is to review the corporate commodity position and ensure that net
corporate exposures are within the economic risk tolerance levels established by
Consumers' Board of Directors. Established policies and procedures are used to
manage the risks associated with market fluctuations.
Consumers uses various contracts, including swaps, options, and forward
contracts to manage its risks associated with the variability in expected future
cash flows attributable to fluctuations in interest rates and commodity prices.
When management uses these instruments, it intends that an opposite movement in
the value of the at-risk item would offset any losses incurred on the contracts.
Consumers enters into all risk management contracts for purposes other than
trading.
These instruments contain credit risk if the counterparties, including financial
institutions and energy marketers, fail to perform under the agreements.
Consumers minimizes such risk by performing financial credit reviews using,
among other things, publicly available credit ratings of such counterparties.
Contracts used to manage interest rate and commodity price risk may be
considered derivative instruments that are subject to derivative and hedge
accounting pursuant to SFAS No. 133. SFAS No. 133 requires Consumers to
recognize at fair value all contracts that meet the definition of a derivative
instrument on the balance sheet as either assets or liabilities. The standard
also requires Consumers to record all changes in fair value directly in
earnings, or other comprehensive income if the derivative meets certain
qualifying cash flow hedge criteria. In order for derivative instruments to
qualify for hedge accounting under SFAS No. 133, the hedging relationship must
be formally documented at inception and be highly effective in achieving
offsetting cash flows or offsetting changes in fair value attributable to the
risk being hedged. If hedging a forecasted transaction, the forecasted
transaction must be probable. If a derivative instrument, used as a cash flow
hedge, is terminated early because it is probable that a forecasted transaction
will not occur, any gain or loss
CE-48
Consumers Energy Company
as of such date is immediately recognized in earnings. If a derivative
instrument, used as a cash flow hedge, is terminated early for other economic
reasons, any gain or loss as of the termination date is deferred and recorded
when the forecasted transaction affects earnings.
Consumers determines fair value based upon quoted market prices and mathematical
models using current and historical pricing data. Option models require various
inputs, including forward prices, volatilities, interest rates and exercise
periods. Changes in forward prices or volatilities could significantly change
the calculated fair value of the call option contracts. At March 31, 2003,
Consumers assumed a market-based interest rate of 4.5 percent and a volatility
rate of 107.5 percent in calculating the fair value of its electric call
options. The ineffective portion, if any, of all hedges is recognized in
earnings.
The majority of Consumers' contracts are not subject to derivative accounting
because they qualify for the normal purchases and sales exception of SFAS No.
133. Derivative accounting is required, however, for certain contracts used to
limit Consumers' exposure to electricity and gas commodity price risk and
interest rate risk.
The following table reflects the fair value of contracts requiring derivative
accounting:
In Millions
- ------------------------------------------------------------------------------------------------------------------
March 31 2003 2002
- -------------------------------------------------------------------------------------------------------------------
Fair Fair
Derivative Instruments Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------
Electric contracts $8 $ 1 $21 $ 5
Gas contracts - - - 4
Interest rate risk contracts - (1) - (2)
Derivative contracts associated with Consumers'
equity investment in the MCV Partnership - 17 - (1)
===================================================================================================================
The fair value of all derivative contracts, except the fair value of derivative
contracts associated with Consumers' equity investment in the MCV Partnership,
is included in either Other Assets or Other Liabilities on the Balance Sheet.
The fair value of derivative contracts associated with Consumers' equity
investment in the MCV Partnership is included in Investments - Midland
Cogeneration Venture Limited Partnership on the Balance Sheet.
ELECTRIC CONTRACTS: Consumers' electric business uses purchased electric call
option contracts to meet, in part, its regulatory obligation to serve. This
obligation requires Consumers to provide a physical supply of electricity to
customers, to manage electric costs and to ensure a reliable source of capacity
during peak demand periods. As of March 31, 2003, Consumers recorded on the
balance sheet all of its unexpired purchased electric call option contracts
subject to derivative accounting at a fair value of $1 million. These contracts
will expire in the third quarter of 2003.
Consumers believes that certain of its electric capacity and energy contracts
are not derivatives due to the lack of an active energy market in the state of
Michigan, as defined by SFAS No. 133, and the transportation cost to deliver the
power under the contracts to the closest active energy market at the Cinergy hub
in Ohio. If a market develops in the future, Consumers may be required to
account for these contracts as derivatives. The mark-to-market impact in
earnings related to these contracts, particularly related to the PPA could be
material to the financial statements.
CE-49
Consumers Energy Company
During 2002, Consumers' electric business also used gas swap contracts to
protect against price risk due to the fluctuations in the market price of gas
used as fuel for generation of electricity. These gas swaps were financial
contracts that were used to offset increases in the price of probable forecasted
gas purchases. These contracts did not qualify for hedge accounting. Therefore,
Consumers recorded any change in the fair value of these contracts directly in
earnings as part of power supply costs. As of March 31, 2002, these contracts
had a fair value of $1 million. These contracts expired in December 2002.
As of March 31, 2003, Consumers recorded a total of $11 million, net of tax, as
an unrealized gain in other comprehensive income related to its proportionate
share of the effects of derivative accounting related to its equity investment
in the MCV Partnership. Consumers expects to reclassify this gain, if this value
remains, as an increase to other operating revenue during the next 12 months.
GAS CONTRACTS: Consumers' gas business uses fixed price gas supply contracts,
and fixed price weather-based gas supply call options and fixed price gas supply
put options, and other types of contracts, to meet its regulatory obligation to
provide gas to its customers at a reasonable and prudent cost. During 2002, some
of the fixed price gas supply contracts and the weather-based gas call options
and gas put options required derivative accounting. The fixed price gas supply
contracts expired in October 2002, and the weather-based gas call options and
gas put options expired in February 2003. As of March 31, 2003, Consumers did
not have any gas supply related contracts that required derivative accounting.
INTEREST RATE RISK CONTRACTS: Consumers uses interest rate swaps to hedge the
risk associated with forecasted interest payments on variable-rate debt. These
interest rate swaps are designated as cash flow hedges. As such, Consumers will
record any change in the fair value of these contracts in other comprehensive
income unless the swaps are sold. As of March 31, 2003 and March 31, 2002,
Consumers had entered into a swap to fix the interest rate on $75 million of
variable-rate debt. This swap will expire in June 2003. As of March 31, 2003,
this interest rate swap had a negative fair value of $1 million. This amount, if
sustained, will be reclassified to earnings, increasing interest expense when
the swap is settled on a monthly basis. As of March 31, 2002, this interest rate
swap had a negative fair value of $2 million.
Consumers also uses interest rate swaps to hedge the risk associated with the
fair value of its debt. These interest rate swaps are designated as fair value
hedges. In March 2002, Consumers entered into a fair value hedge to hedge the
risk associated with the fair value of $300 million of fixed-rate debt, issued
in March 2002. As of March 31, 2002, the swap had a negative fair value of less
than $1 million. In June 2002, this swap was terminated and resulted in a $7
million gain that is deferred and recorded as part of the debt. It is
anticipated that this gain will be recognized over the remaining life of the
debt.
Consumers was able to apply the shortcut method to all interest rate hedges,
therefore there was no ineffectiveness associated with these hedges.
5: IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
SFAS NO. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS: Beginning January 1,
2003, companies must comply with SFAS No. 143. The standard requires companies
to record the fair value of the legal obligations related to an asset retirement
in the period in which it is incurred. Consumers has determined that it has
legal asset retirement obligations, particularly in regard to its nuclear
plants.
Prior to adoption of SFAS No. 143, Consumers classified the removal cost
liability of assets included in the scope of SFAS No. 143 as part of the reserve
for accumulated depreciation. For these assets, the removal cost of $448 million
which was classified as part of the reserve at December 31, 2002, was
reclassified in January 2003, in part, as 1) a $364 million ARO liability, 2) a
$136 million regulatory liability, 3) a $45 million regulatory asset, and 4) a
$7 million net increase to property, plant, and equipment, as prescribed by SFAS
CE-50
Consumers Energy Company
No. 143. As required by SFAS No. 71 for regulated entities, Consumers is
reflecting a regulatory asset and liability instead of a cumulative effect of a
change in accounting principle.
The fair value of ARO liabilities has been calculated using an expected present
value technique. This technique reflects assumptions, such as costs, inflation,
and profit margin that third parties would consider in order to take on the
settlement of the obligation. Fair value, to the extent possible, should include
a market risk premium for unforeseeable circumstances. No market risk premium
was included in Consumers' ARO fair value estimate since a reasonable estimate
could not be made. If a five percent market risk premium was assumed, Consumers'
ARO liability would be $381 million.
If a reasonable estimate of fair value cannot be made in the period the asset
retirement obligation is incurred, such as assets with an indeterminate life,
the liability is to be recognized when a reasonable estimate of fair value can
be made. Generally, transmission and distribution assets have an indeterminate
life, retirement cash flows cannot be determined and there is a low probability
of a retirement date, therefore no liability has been recorded for these assets.
No liability has been recorded for assets that have an immaterial cumulative
disposal cost, such as substation batteries. The initial measurement of the ARO
liability for Consumers' Palisades Nuclear Plant and Big Rock Nuclear Plant is
based on decommissioning studies, which are based largely on third party cost
estimates.
The following table is a general description of the AROs and their associated
long-lived assets.
March 31, 2003 In Millions
- -------------------------------------------------------------------------------------------------------------------
In Service Trust
ARO Description Date Long Lived Assets Fund
- -------------------------------------------------------------------------------------------------------------------
Palisades - decommission plant site 1972 Palisades nuclear plant $ 426
Big Rock - decommission plant site 1962 Big Rock nuclear plant 103
JHCampbell intake/discharge water line 1980 Plant intake/discharge water line -
Closure of coal ash disposal areas Various Generating plants coal ash areas -
Closure of wells at gas storage fields Various Gas storage fields -
Indoor gas services equipment relocations Various Gas meters located inside structures -
====================================================================================================================
The following table is a reconciliation of the carrying amount of the AROs.
March 31, 2003 In Millions
- -------------------------------------------------------------------------------------------------------------------
Pro Forma ARO Liability ARO
ARO liability ---------------------------- Cash flow liability
ARO 1/1/02 1/1/03 Incurred Settled Accretion Revisions 3/31/03
- ------------------------------- --------- ----------------------------------------------------------------------
Palisades - decommission $232 $249 $ - $ - $4 $ - $253
Big Rock - decommission 94 61 - (7) 3 - 57
JHCampbell intake line - - - - - - -
Coal ash disposal areas 46 51 - - 1 - 52
Wells at gas storage fields 2 2 - - - - 2
Indoor gas services relocations 1 1 - - - - 1
--------- ----------------------------------------------------------------------
Total $375 $364 $ - $(7) $8 $ - $365
===================================================================================================================
SFAS NO. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES:
Issued by the FASB in July 2002, this standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. This standard is
effective for exit or disposal activities initiated after December 31, 2002.
Upon adoption of the standard, there was no impact on Consumers' consolidated
financial statements.
CE-51
Consumers Energy Company
FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES: Issued
by the FASB in January 2003, the interpretation expands upon and strengthens
existing accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another entity.
The consolidation requirements of the interpretation apply immediately to
variable interest entities created after January 31, 2003. For Consumers, the
consolidation requirements apply to pre-existing entities beginning July 1,
2003. Certain of the disclosure requirements apply to all financial statements
initially issued after January 31, 2003. Consumers will be required to
consolidate any entities that meet the requirements of the interpretation. Upon
adoption of the standard on January 31, 2003, there was no impact on Consumers'
consolidated financial statements, and Consumers does not anticipate any
additional impact to its consolidated financial statements upon adoption of
additional standard requirements on July 1, 2003.
CE-52
PANHANDLE EASTERN PIPE LINE COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
SALE OF PANHANDLE
In December 2002, CMS Energy reached a definitive agreement to sell the
Panhandle companies to Southern Union Panhandle Corp. The agreement called for
Southern Union Panhandle Corp, a newly formed entity owned by Southern Union
Company and AIG Highstar Capital L.P. to pay $662 million in cash and assume
$1.166 billion in debt. On March 13, 2003, CMS Energy and Southern Union Company
received requests for additional information ("second requests") from the FTC
related to Southern Union's acquisition of Panhandle. CMS Energy and Southern
Union are in the process of responding to the second requests.
On May 12, 2003, the parties entered into an amendment to the original stock
purchase agreement that was executed in December 2002. Under the amendment, AIG
Highstar Capital, L.P. and AIG Highstar II Funding Corp. will no longer be
parties to the transaction. The Amended and Restated Stock Purchase Agreement
calls for Southern Union Panhandle Corp. to purchase all of Panhandle's
outstanding capital stock. Southern Union Panhandle Corp. agreed to pay
approximately $584 million in cash and 3 million shares of Southern Union
Company common stock, and to assume approximately $1.166 billion in debt. The
total value of the transaction to CMS Energy will depend on the price of
Southern Union Company common stock at the closing. At May 12, 2003, the closing
price of Southern Union common stock on the New York Stock Exchange was $12.79.
The boards of directors of all applicable companies have approved the amended
agreement. The sale of Panhandle is subject to customary closing conditions and
action by the Federal Trade Commission under the Hart-Scott-Rodino Act. All
necessary state regulatory approvals for the sale pursuant to the original stock
purchase agreement have been received. The parties expect the amendment will
expedite the regulatory approval of the transaction and anticipate that state
regulatory authorities will not object to the changed terms provided for in the
amended agreement. The closing is expected to occur by June 30, 2003. AIG
Highstar Capital's withdrawal from the transaction should help resolve
regulatory issues that arose as a result of AIG Highstar Capital's ownership of
Southern Star Central Gas Pipeline's Inc. CMS Gas Transmission and Southern
Union also entered into a shareholder agreement, relating to CMS Gas
Transmission's ownership of the Southern Union shares of common stock. Pursuant
to this shareholder agreement, CMS Gas Transmission generally will be prohibited
from disposing of the Southern Union common stock for a period ending 90 - 105
days following the closing of the transaction.
Under the terms of the Panhandle sale agreement, CMS Energy was to retain
Panhandle's ownership interests in the Centennial and Guardian pipeline
projects, as well as certain of Panhandle's net deferred tax assets, all tax
liabilities, and pension and other postretirement assets and liabilities.
Panhandle has since sold its interest in Centennial and the Guardian interest
and the related cash collateral has been transferred to Panhandle's direct
parent, CMS Gas Transmission. For further information, see Note 5, Related Party
Transactions. CMS Gas Transmission has signed a definitive agreement to sell its
interest in Guardian which is also expected to close in the second quarter of
2003.
FORWARD-LOOKING STATEMENTS
Panhandle, an indirect subsidiary of CMS Energy, is primarily engaged in the
interstate transportation and storage of natural gas and conducts operations
primarily in the central, gulf coast, midwest, and southwest regions of the
United States. Panhandle also owns a LNG importation terminal (See Note 1,
Corporate Structure). The rates and conditions of service of the interstate
natural gas transmission and storage operations of Panhandle, as well as the LNG
operations, are subject to the rules and regulations of the FERC.
This MD&A refers to, and in some sections specifically incorporates by
reference, Panhandle's Condensed Notes to Consolidated Financial Statements and
should be read in conjunction with such Consolidated Financial Statements and
Condensed Notes. This Form 10-Q and other written and oral statements that
Panhandle may make contain forward-looking statements, as defined by the Private
Securities Litigation Reform Act of 1995. Panhandle's intentions with the use of
the words "anticipates," "believes," "estimates," "expects," "intends," and
"plans" and variations of such words and similar expressions, are solely to
identify forward-looking statements that involve risk and uncertainty. These
forward-looking statements are subject to various factors that could cause
Panhandle's actual results to differ materially from those anticipated in such
statements. Panhandle has no obligation to update or revise forward-looking
statements regardless of whether new information, future events or any other
factors affect the information contained in such statements. Panhandle does,
however, discuss certain risk factors, uncertainties and assumptions in this
MD&A and in Item 1 of the 2002 Form 10-K in the section entitled
"Forward-Looking Statements, Cautionary Factors and Uncertainties" and in
various public filings it periodically makes with the SEC. Panhandle designed
this discussion of potential risks and uncertainties, which is by no means
comprehensive, to highlight important factors that may impact Panhandle's
business and financial outlook. This Form 10-Q also describes material
contingencies in Panhandle's Condensed Notes to Consolidated Financial
Statements and Panhandle encourages its readers
PE-1
to review these Notes. All note references within this MD&A refer to Panhandle's
Condensed Notes to Consolidated Financial Statements.
The following information is provided to facilitate increased understanding of
the Consolidated Financial Statements and accompanying Condensed Notes of
Panhandle and should be read in conjunction with these financial statements.
Because all of the outstanding common stock of Panhandle Eastern Pipe Line is
owned by a wholly-owned subsidiary of CMS Energy, the following discussion uses
the reduced disclosure format permitted for issuers that are wholly-owned direct
or indirect subsidiaries of reporting companies.
CRITICAL ACCOUNTING POLICIES
USE OF ESTIMATES: The preparation of financial statements, in conformity with
accounting principles generally accepted in the United States, requires
management to make judgments, estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. The principles of SFAS No. 5
guide the recording of contingent liabilities within the financial statements.
Certain accounting principles require subjective and complex judgments used in
the preparation of financial statements. Accordingly, a different financial
presentation could result depending on the judgment, estimates or assumptions
that are used. Such estimates and assumptions, include, but are not specifically
limited to: depreciation and amortization, interest rates, discount rates,
future commodity prices, mark-to-market valuations, investment returns,
volatility in the price of CMS Energy Common Stock, impact of new accounting
standards, future costs associated with long-term contractual obligations,
future compliance costs associated with environmental regulations and continuing
creditworthiness of counterparties. Although these estimates are based on
management's knowledge of current expected future events, actual results could
materially differ from those estimates.
SYSTEM GAS AND OPERATING SUPPLIES: System gas and operating supplies consists of
gas held for operations and materials and supplies, carried at the lower of
weighted average cost or market. The gas held for operations that is not
expected to be consumed in operations in the next twelve months has been
reflected in non-current assets. All system gas and materials and supplies
purchased are recorded at the lower of cost or market, while net gas received
from and owed back to customers is valued at market.
GAS IMBALANCES: Gas imbalances occur as a result of differences in volumes of
gas received and delivered. Gas imbalance in-kind receivables and payables are
valued at cost or market, based on whether net imbalances have reduced or
increased system gas balances, respectively.
FUEL TRACKER: Liability accounts are maintained for net volumes of fuel gas owed
to customers collectively. Trunkline records an asset whenever fuel is due from
customers from prior under recovery based on contractual and specific tariff
provisions which support the treatment as an asset. Panhandle's other companies
that are subject to fuel tracker provisions record an expense when fuel is under
recovered. The pipelines' fuel reimbursement is in-kind and non-discountable.
RELATED PARTY TRANSACTIONS: Panhandle enters into a number of significant
transactions with related parties. These transactions include revenues for the
transportation of natural gas for Consumers, CMS MST and the MCV Partnership
which are based on regulated prices, market prices or competitive bidding.
Related party expenses include payments for services provided by affiliates, as
well as allocated benefit plan costs. Other income is primarily interest income
from the Note receivable - CMS Capital (See Note 5, Related Party Transactions).
PE-2
GOODWILL: Goodwill represents the excess of costs over fair value of assets of
businesses acquired. The Company adopted the provisions of SFAS No. 142 as of
January 1, 2002. Goodwill acquired in a purchase business combination and
determined to have an indefinite useful life is not amortized, but instead
tested for impairment at least annually in accordance with the provisions of
SFAS No. 142. Panhandle completed the goodwill impairment testing required upon
adoption of SFAS No. 142 in 2002 which resulted in a $601 million pre-tax
write-down ($369 million after-tax) under the new standard. The impact was
reflected retroactively to the first quarter of 2002 as a cumulative effect of a
change in accounting for goodwill, pursuant to the requirements of SFAS No. 142.
ACCOUNTING FOR RETIREMENT BENEFITS: Panhandle follows SFAS No. 87 to account for
pension costs and SFAS No. 106 to account for other postretirement benefit
costs. These statements require liabilities to be recorded on the balance sheet
at the present value of these future obligations to employees net of any plan
assets. The calculation of these liabilities and associated expenses require the
expertise of actuaries and are subject to many assumptions, including life
expectancies, present value discount rates, expected long-term rate of return on
plan assets, rate of compensation increase and anticipated health care costs.
Any change in these assumptions can significantly change the liability and
associated expenses recognized in any given year.
The Pension Plan is a CMS Energy plan for CMS Energy and affiliates, of which
Panhandle is a participating affiliate. The Pension Plan includes amounts for
employees of CMS Energy and affiliates, including Panhandle, which were not
distinguishable from the Pension Plan's total assets. On December 21, 2002, a
definitive agreement was executed to sell Panhandle. The sale is expected to
close in 2003. The Pension Plan assets and obligations associated with Panhandle
employees will be retained by CMS Energy. Upon the closing of the sale of
Panhandle to Southern Union Panhandle Corp., none of the Panhandle employees
will be eligible to accrue additional benefits under the Pension Plan. However,
the Pension Plan will retain pension payment obligations for Panhandle employees
who are vested under the Pension Plan.
CMS Energy estimates CMS Energy's pension expense will approximate $46 million,
$51 million and $58 million in 2003, 2004 and 2005, respectively, as compared to
an approximated $33 million in 2002 of which Panhandle's allocated share is
approximately 11 percent. Future actual pension expense will depend on future
investment performance, changes in future discount rates and various other
factors related to the populations participating in the Pension Plan.
In order to keep health care benefits and costs competitive, CMS Energy has
announced several changes to the Health Care Plan. These changes are effective
January 1, 2003. The most significant change is that CMS Energy's future
increases in health care costs will be shared with salaried employees. The
salaried retirees Health Care Plan also has been amended. Pre-Medicare retirees
now elect coverage from four different levels of coverage, with the two best
coverage options reacquiring premium contributions. These plans also coordinate
benefits under a maintenance of benefits provision to reduce claims costs.
Mail-order prescription copays also have been increased for all salaried
employees.
ACCOUNTING FOR DERIVATIVES: Panhandle utilizes interest-rate related derivative
instruments to manage its exposure on its debt instruments and does not enter
into derivative instruments for any purpose other than hedging purposes. That
is, Panhandle does not speculate using derivative instruments.
Interest rate swap agreements are used to reduce interest rate risks and to
manage interest expense. By entering into these agreements, Panhandle generally
converts floating-rate debt into fixed-rate debt. This reduces Panhandle's risk
of incurring higher interest costs in periods of rising interest rates. Interest
differentials to be paid or received because of swap agreements are reflected as
an adjustment to interest
PE-3
expense. The negative fair value of interest rate swap agreements was $24
million pre-tax, $14 million net of tax at March 31, 2003 which is reflected in
comprehensive loss. Current market pricing models were used to estimate fair
values of interest rate swap agreements. The negative fair value of interest
rate swap agreements was $22 million pre-tax, $13 million net of tax at December
31, 2002. Current market pricing models were used to estimate fair values of
interest rate swap agreements.
RESULTS OF OPERATIONS
NET INCOME (LOSS):
IN MILLIONS
- ------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31 2003 2002 CHANGE
- ------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $31 $(340) $371
==================================================================================================================
- ----------------------------------------------------------------------------
REASONS FOR THE CHANGE IN MILLIONS
2003 VS. 2002
- ----------------------------------------------------------------------------
Reservation revenue $ (1)
LNG terminalling revenue 1
Commodity revenue 3
Equity earnings and other revenue 1
Operation, maintenance, administrative and general (4)
Depreciation and amortization (1)
Other income, net 1
Interest charges (2)
Minority interest 1
Income taxes 1
Cumulative effect of change in accounting principle,
net of tax 371
- ----------------------------------------------------------------------------
Total Change $ 371
============================================================================
For the quarter ended March 31, 2003, Panhandle had net income of $31 million,
an increase of $371 million from the corresponding period in 2002 due primarily
to a goodwill impairment charge of $601 million ($369 million after-tax) in the
first quarter of 2002 which was recorded in conjunction with the adoption of
SFAS No. 142. SFAS No. 142 requires that goodwill no longer be amortized over an
estimated useful life, but rather goodwill amounts are subject to a fair-value
based impairment assessment.
RESERVATION REVENUE: For the three months ended March 31, 2003, reservation
revenue decreased $1 million compared to the same time period during 2002, due
to slightly lower average reservation rates on Panhandle.
LNG TERMINALLING REVENUE: For the three months ended March 31, 2003, LNG
terminalling revenue increased $1 million compared to the same time period
during 2002 due to higher LNG volumes
PE-4
on the BG LNG Services contract. Trunkline LNG's 22-year agreement with BG LNG
Services for the existing uncommitted long-term capacity at the company's
facility became effective in January 2002 (see Note 3, Regulatory Matters).
COMMODITY REVENUE: For the three months ended March 31, 2003, commodity revenue
increased $3 million compared to the same time period during 2002, primarily due
to an increase in commodity volumes. Volumes increased 16 percent in the three
months of 2003 versus 2002 due to a colder winter in the Midwest market area
during the first quarter of 2003 compared to the same time period during 2002.
EQUITY EARNINGS AND OTHER REVENUE: Equity earnings and other revenue for the
three months ended March 31, 2003 increased $1 million compared to the same time
period during 2002. The increase was primarily due to the sale of Panhandle's
one-third equity interest in Centennial in February 2003 for $40 million to
Centennial's two other partners, MAPL and TEPPCO, which resulted in no income
for the Centennial equity investment during the first quarter of 2003, while
start-up related losses of $1 million occurred during the first quarter of 2002.
In addition, imbalance cash-out gains in the first quarter of 2003, recouping
prior losses, were comparable to a non-recurring gain of $4 million for the
settlement of Order 637 matters related to capacity release and imbalance
penalties during the first quarter of 2002 (see Note 3, Regulatory Matters).
OPERATION, MAINTENANCE, GENERAL AND ADMINISTRATIVE: Operation, maintenance,
general and administrative expenses increased by $4 million for the three months
ended March 31, 2003, compared to the same time period during 2002. Expense
increases in the first three months of 2003 were primarily due to Panhandle's
fuel costs in excess of recoveries from customers of $6.4 million and a
non-recurring adjustment recorded in the first quarter of 2002 of $3 million for
lower final incentive plan payouts approved in 2002 for 2001 awards, partially
offset by decreased CMS corporate charges during the first quarter of 2003.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization increased by $1
million for the three months ended March 31, 2003, compared to the same time
period during 2002. Expense increases in the first three months of 2003 were
primarily due to increases in the property, plant and equipment asset balances.
OTHER INCOME, NET: Other income, net for the three months ended March 31, 2003
increased $1 million compared to 2002, primarily due to increased interest
income related to a higher Note Receivable - CMS Capital balance and a higher
interest rate related to the note receivable balance during the first quarter of
2003 compared to the first quarter of 2002.
INTEREST CHARGES: Interest Charges for the three months ended March 31, 2003,
compared to the same time period during 2002, increased by $2 million primarily
due to Panhandle securing short-term bank loans in the amounts of $30 million
and $10 million during December 2002 and January 2003, respectively, higher
charges for the LNG Holding's interest rate swaps of $150 million and a
non-recurring gain of $2 million in the first quarter of 2002 for reversal of
interest expense related to the Order 637 settlement. The increases were
partially offset by elimination of interest on $129 million of reductions of
long-term debt principal in April 2002 and May 2002. On March 31, 2003,
Panhandle retired approximately $7 million of the $40 million short-term bank
loans. For further discussion of Panhandle's long-term debt and guarantees, see
Note 7, Commitments and Contingencies - Other Commitments and Contingencies.
MINORITY INTEREST: Minority interest decreased $1 million for the three months
ended March 31, 2003 compared to the same time period during 2002 due to
Panhandle purchasing Dekatherm Investor
PE-5
Trust's interest in LNG Holdings during November 2002 for approximately $41
million. As a result, Panhandle owns 100 percent of LNG Holdings.
INCOME TAXES: Income taxes during the three months ended March 31, 2003,
compared to the same time period during 2002, decreased $1 million due to
corresponding changes in pretax income.
OUTLOOK
Panhandle is a leading United States interstate natural gas pipeline system and
also owns the nation's largest operating LNG regasification terminal and intends
to optimize results through expansion and better utilization of its existing
facilities and construction of new facilities. This involves providing
additional transportation, storage and other asset-based value-added services to
customers such as gas-fueled power plants, local distribution companies,
industrial and end-users, marketers and others. Panhandle conducts operations
primarily in the central, gulf coast, midwest, and southwest regions of the
United States.
In December 2002, CMS Energy reached a definitive agreement to sell the
Panhandle companies to Southern Union Panhandle Corp. The agreement called for
Southern Union Panhandle Corp, a newly formed entity owned by Southern Union
Company and AIG Highstar Capital L.P. to pay $662 million in cash and assume
$1.166 billion in debt. On March 13, 2003, CMS Energy and Southern Union Company
received requests for additional information ("second requests") from the FTC
related to Southern Union's acquisition of Panhandle. CMS Energy and Southern
Union are in the process of responding to the second requests.
On May 12, 2003, the parties entered into an amendment to the original stock
purchase agreement that was executed in December 2002. Under the amendment, AIG
Highstar Capital, L.P. and AIG Highstar II Funding Corp. will no longer be
parties to the transaction. The Amended and Restated Stock Purchase Agreement
calls for Southern Union Panhandle Corp. to purchase all of Panhandle's
outstanding capital stock. Southern Union Panhandle Corp. agreed to pay
approximately $584 million in cash and 3 million shares of Southern Union
Company common stock, and to assume approximately $1.166 billion in debt. The
total value of the transaction to CMS Energy will depend on the price of
Southern Union Company common stock at the closing. At May 12, 2003, the closing
price of Southern Union common stock on the New York Stock Exchange was $12.79.
The boards of directors of all applicable companies have approved the amended
agreement. The sale of Panhandle is subject to customary closing conditions and
action by the Federal Trade Commission under the Hart-Scott-Rodino Act. All
necessary state regulatory approvals for the sale pursuant to the original stock
purchase agreement have been received. The parties expect the amendment will
expedite the regulatory approval of the transaction and anticipate that state
regulatory authorities will not object to the changed terms provided for in the
amended agreement. The closing is expected to occur by June 30, 2003. AIG
Highstar Capital's withdrawal from the transaction should help resolve
regulatory issues that arose as a result of AIG Highstar Capital's ownership of
Southern Star Central Gas Pipeline's Inc. CMS Gas Transmission and Southern
Union also entered into a shareholder agreement, relating to CMS Gas
Transmission's ownership of the Southern Union shares of common stock. Pursuant
to this shareholder agreement, CMS Gas Transmission generally will be prohibited
from disposing of the Southern Union common stock for a period ending 90 - 105
days following the closing of the transaction.
Under the terms of the Panhandle sale agreement, CMS Energy was to retain
Panhandle's ownership interests in the Centennial and Guardian pipeline
projects, as well as certain of Panhandle's net deferred tax assets, all tax
liabilities, and pension and other postretirement assets and liabilities.
On February 10, 2003, Panhandle sold its one-third equity interest in Centennial
to Centennial's two other partners, MAPL and TEPPCO for $40 million with no
income impact resulting from the sale in 2003 (see Note 5, Related Party
Transactions).
On March 10, 2003, Panhandle's ownership interest in Guardian was transferred to
CMS Gas Transmission (see Note 5, Related Party Transactions). CMS Gas
Transmission has signed a definitive agreement to sell its interest in Guardian
which is also expected to close in the second quarter of 2003.
In October 2001, Trunkline LNG announced the planned expansion of the Lake
Charles facility to approximately 1.2 bcf per day of send out capacity, up from
its current send out capacity of 630 million cubic feet per day. In December
2002, FERC approved the expansion of the LNG regasification terminal. In March
2003, Trunkline LNG received FERC authorization to commence construction. On
April 17, 2003, Trunkline LNG filed to amend the authority granted for its LNG
expansion with certain facility modifications. The modifications will not affect
the authorized additional storage capacity and daily sendout capability and
confirms the revised in-service date of January 1, 2006. The expansion
expenditures are currently expected to be funded by Panhandle contributions to
LNG Holdings, sourced
PE-6
by operating cash flows, capital markets or other funding. For further
discussion of Trunkline LNG, see Note 3, Regulatory Matters.
UNCERTAINTIES: Panhandle's results of operations and financial position may be
affected by a number of trends or uncertainties that have, or Panhandle
reasonably expects could have, a material impact on income from continuing
operations and cash flows. Such trends and uncertainties include: 1) the
increased competition in the market for transmission of natural gas to the
midwest causing pressure on prices charged by Panhandle; 2) the current market
conditions causing more contracts to be of shorter duration, which may increase
revenue volatility; 3) the increased potential for declining financial condition
of certain customers within the industry due to recession and other factors; 4)
exposure to customer concentration with a significant portion of revenues
realized from a relatively small number of customers; 5) the possibility of
decreased demand for natural gas resulting from a downturn in the economy and
the scaling back of new power plants; 6) the impact of any future rate cases,
for any of Panhandle's regulated operations; 7) the impact of current
initiatives for additional federal rules and legislation regarding pipeline
safety; 8) capital spending requirements for safety, environmental or regulatory
requirements that could result in depreciation expense increases not covered by
additional revenues; 9) the impact of CMS Energy and its subsidiaries'
distressed financial condition and ratings downgrades on Panhandle's liquidity
and costs of operating, including Panhandle's reduced ability to draw on the CMS
Capital loan and current limited access to capital markets; 10) impact of the
trend of increasing costs for employee benefits including medical and retirement
related costs; 11) the effects of changing regulatory and accounting related
matters resulting from current events; and 12) the impact of the proposed
acquisition by Southern Union Panhandle Corp. For further information about
uncertainties, see Note 7, Commitments and Contingencies.
LIQUIDITY
CMS ENERGY FINANCIAL CONDITION
In July of 2002, the credit ratings of the publicly traded securities of CMS
Energy and Panhandle were downgraded by the major rating agencies. The ratings
downgrade for both companies' securities was largely a function of the
uncertainties associated with CMS Energy's financial condition and liquidity,
restatement and re-audit of 2000 and 2001 financial statements, and lawsuits
that directly affects and limits CMS Energy's access to the capital markets.
As a result of certain of these downgrades, contractual rights were triggered in
several contractual arrangements between Panhandle and third parties, as
described in the Panhandle Financial Condition section below.
In response to the July debt downgrades, CMS Energy and its subsidiaries
Consumers and Enterprises have replaced or restructured several of their
existing unsecured credit facilities with secured credits. The new facilities
have conditions requiring mandatory prepayment of borrowings from asset sales,
debt issuances and/or equity issuances, impose certain dividend restrictions and
grant the applicable bank groups either first or second liens on the capital
stock of Enterprises and its major direct and indirect domestic subsidiaries,
including Panhandle Eastern Pipe Line (but excluding subsidiaries of Panhandle
Eastern Pipe Line).
CMS Energy's liquidity and capital requirements are generally a function of its
results of operations, capital expenditures, contractual obligations, working
capital needs and collateral requirements. CMS Energy has historically met its
consolidated cash needs through its operating and investing activities and, as
needed, through access to bank financing and the capital markets.
PE-7
In 2003, CMS Energy has contractual obligations and planned capital expenditures
that would require substantial amounts of cash. CMS Energy at the parent level
had approximately $598 million and Panhandle had approximately $52 million of
publicly issued and credit facility debt maturing in 2003.
CMS Energy has taken significant steps to address its 2003 maturities, as
described below. As of May 9, 2003, CMS Energy at the parent level had
approximately $220 million and Panhandle had approximately $39 million of
remaining publicly issued and credit facility debt maturing in 2003. In
addition, CMS Energy could also become subject to liquidity
demands pursuant to commercial commitments under guarantees, indemnities and
letters of credit. Management is actively pursuing plans to refinance debt and
to sell assets, including the sale of Panhandle. See Outlook section of this
MD&A.
CMS Energy has reduced debt through asset sales, securitization proceeds, and
proceeds from LNG monetization, with a total of approximately $2.8 billion in
cash proceeds from such events over the past two years. Through March of 2003,
CMS Energy has accomplished approximately $97 million of additional asset sales.
In January 2003, CMS MST closed on the sale of a substantial portion of its
natural gas trading contracts for $17 million of cash proceeds. The sale of its
interest in the Centennial Pipeline, resulting in net proceeds to CMS Energy of
$40 million, closed in February 2003. Additionally, in March 2003, CMS MST sold
substantially all of its wholesale power book and related supply portfolio for
cash proceeds of $34 million to Constellation Power Source, Inc. The sale
contains a potential to increase proceeds to $40 million dependent upon future
years' performance of the sold assets. Additionally, during the first quarter of
2003, CMS MST sold its 50 percent joint venture ownership interest in Texon, its
50 percent interest in Premstar and its Tulsa retail contracts, resulting in net
cash proceeds of approximately $6 million.
CMS Energy believes that further targeted asset sales, together with its planned
reductions in operating expenses, capital expenditures, and the suspension of
the common dividend also will contribute to improved liquidity. CMS Energy
believes that, assuming the successful implementation of its financial
improvement plan, its present level of cash and borrowing capacity along with
anticipated cash flows from operating and investing activities will be
sufficient to meet its liquidity needs through 2003. There can be no assurances
that the financial improvement plan will be successful and failure to achieve
its goals could have a material adverse effect on CMS Energy's liquidity and
operations. In such event, CMS Energy would be required to consider the full
range of strategic measures available to companies in similar circumstances.
CMS Energy continues to explore financing opportunities to supplement its
financial improvement plan. These potential opportunities include refinancing
its bank credit facilities; entering into leasing arrangements and/or vendor
financing; refinancing and issuing new capital markets debt, preferred and/or
common equity; and negotiating private placement debt, preferred and/or common
equity. Specifically, as of March 31, 2003, CMS Energy has taken the following
action to supplement its financial improvement plan in 2003:
o On March 30, 2003 CMS Energy entered into an amendment and restatement
of its existing $300 million and $295.8 million revolving credit
facilities under which $409 was then outstanding. The Second Amended
and Restated Senior Credit Agreement includes a $159 million tranche
with a maturity date of April 30, 2004 and a $250 million tranche with
a maturity date of
PE-8
September 30, 2004. The facility was underwritten by several banks at a
total annual cost to CMS Energy of approximately ten percent, which
includes the initial commitment fee. Any proceeds of debt or equity
issuances by CMS Energy and its subsidiaries or any asset sales by CMS
Energy or its subsidiaries, other than Consumers, are required to be
used to prepay this facility. This facility is primarily collateralized
by the stock of Consumers, Enterprises and certain Enterprises
subsidiaries.
o On March 30, 2003 Enterprises entered into a revolving credit facility
in an aggregate amount of $441 million. The maturity date of this
facility is April 30, 2004. Subsequently, on April 21, 2003,
Enterprises entered into a $75 million revolving credit facility with a
maturity date of April 30, 2004. These facilities were being
underwritten by several banks at a total annual cost to CMS Energy of
approximately ten percent, which includes the initial commitment fee.
Proceeds from these loans will be used for general corporate purposes,
to retire debt and to collateralize $160 million of letters of credit.
Any proceeds of debt or equity issuances by CMS Energy and its
subsidiaries or any asset sales by CMS Energy or its subsidiaries,
other than Consumers, are required to be used to prepay these
facilities. It is expected that proceeds from the Panhandle sale will
be used to pay off these facilities in full. These facilities are
guaranteed by CMS Energy, whose guaranty is primarily secured by the
stock of Consumers and Enterprises.
In 1994, CMS Energy executed an indenture with J.P. Morgan Chase Bank pursuant
to CMS Energy's general term notes program. The indenture, through supplements,
contains certain provisions that can trigger a limitation on CMS Energy's
consolidated indebtedness. The limitation can be activated when CMS Energy's
consolidated leverage ratio, as defined in the indenture (essentially the ratio
of consolidated debt to consolidated capital), exceeds 0.75 to 1.0. At March 31,
2003, CMS Energy's consolidated leverage ratio was 0.79 to 1.0. As a result, CMS
Energy will not permit certain material subsidiaries, excluding Consumers and
its subsidiaries but including Panhandle and its subsidiaries, to become liable
for new indebtedness. However, CMS Energy and the material subsidiaries may
incur revolving indebtedness to banks of up to $1 billion in the aggregate and
refinance existing debt outstanding of CMS Energy and of its material
subsidiaries. This leverage ratio may be significantly reduced with the proceeds
of CMS Energy's sale of Panhandle, its sale of CMS Field Services, other asset
sales or other options.
PANHANDLE FINANCIAL CONDITION
On June 11, 2002, Moody's Investors Service, Inc. lowered its rating on
Panhandle's senior unsecured notes from Baa3 to Ba2 based on concerns
surrounding the liquidity and debt levels of CMS Energy (see discussion in the
CMS Energy Financial Condition section above). On July 15, 2002, Fitch Ratings,
Inc. lowered its rating on these notes from BBB to BB+ and again on September 4,
2002 to BB based on similar concerns. On July 16, 2002, S&P also lowered its
rating on these notes from BBB- to BB, in line with their rating on CMS Energy
based on their belief that CMS Energy and its subsidiaries are at equal risk of
default since the parent relies on its subsidiaries to meet its financial
commitments. Effective with these downgrades, Panhandle's debt is below
investment grade which, if not restored to investment grade, will increase
operating and financing costs. Panhandle's senior unsecured note provisions are
not directly impacted by debt rating reductions, but are subject to other
requirements such as the maintenance of a fixed charge coverage ratio and a
leverage ratio which restrict certain payments if not maintained and limitations
on liens. At March 31, 2003, Panhandle was subject to a $168 million limitation
on additional restricted payments, including dividends and loans to affiliates.
At March 31,
PE-9
2003, Panhandle was in compliance with all covenants, having received a waiver
for a certain matter as discussed below.
Due to liquidity issues related to CMS Energy and subsidiaries as discussed
above, Panhandle's ability to draw on the full amount of the Note Receivable
from CMS Capital, if needed, could be affected.
In conjunction with the Centennial and Guardian pipeline projects, Panhandle
provided guarantees related to the project financings during the construction
phases and initial operating periods. On July 17, 2002, following the Panhandle
debt ratings downgrades by Moody's and S&P, the lender sent notice to Panhandle,
pursuant to the terms of the guaranty agreements, requiring Panhandle to provide
acceptable credit support for its pro rata portion of those construction loans,
which aggregated $110 million including anticipated future draws. On September
27, 2002, Centennial's other partners provided credit support of $25 million
each in the form of guarantees to the lender to cover Panhandle's obligation of
$50 million of loan guarantees. The partners were paid credit fees by Panhandle
on the outstanding balance of the guarantees for the periods which they were in
effect. In December 2002, Panhandle recorded a $26 million pre-tax ($16 million
after-tax) write-down of its investment in Centennial to $40 million as a result
of indicated values upon announcement of the definitive agreement to sell
Panhandle and the associated efforts to sell Centennial. On February 10, 2003,
Panhandle sold its one-third equity interest in Centennial for $40 million to
Centennial's two other partners, MAPL and TEPPCO. Panhandle has been released by
MAPL, TEPPCO and the lenders for any liabilities related to Panhandle's $50
million parent guaranty of the project debt. In March 2003, $40 million of cash
capital from the sale of Centennial was returned to CMS Gas Transmission.
In October 2002, Panhandle provided a letter of credit to the Guardian lenders
which constitutes acceptable credit support under the Guardian financing
agreement. This letter of credit was cash collateralized by Panhandle with
approximately $63 million. Effective March 10, 2003, Panhandle's ownership
interest in Guardian was transferred to CMS Gas Transmission. Panhandle was
released from its guarantee obligations associated with the Guardian
non-recourse guaranty as of March 10, 2003 by Prudential and the other
noteholders. For further information, see Note 5, Related Party Transactions.
In December 2002 and January 2003, Panhandle secured short-term bank loans in
the amounts of $30 million and $10 million, respectively, with interest payable
at rates of LIBOR plus 4 percent. The loans are due the earlier of December 2003
or upon the sale of Panhandle. On March 31, 2003, Panhandle retired
approximately $7 million of the short-term bank loans. The stock of most of
Panhandle's subsidiaries were pledged as collateral for the loans, which were
utilized to improve overall liquidity which had been reduced by various cash
requirements.
On March 1, 2003, certain assets held by CMS Field Services were contributed to
Panhandle by its parent, CMS Gas Transmission, with a net book value of $15.2
million, to be included in the sale to Southern Union Panhandle Corp.
Panhandle had received a waiver until April 30, 2003 to provide certified
September 30, 2002 financial statements to the LNG Holdings lenders under that
credit facility. Panhandle has since satisfied that requirement. Panhandle also
has received a waiver until June 30, 2003 of a requirement to provide certain
documentation. Should it be unable to execute the required documents by the
timing indicated, LNG Holdings could be declared to be in default under its
credit facility and the debt thereunder could be accelerated and become
immediately due and payable.
PE-10
OTHER MATTERS
DISCLOSURE AND INTERNAL CONTROLS
Panhandle's CEO and CFO are responsible for establishing and maintaining
Panhandle's disclosure controls and procedures. Management, under the direction
of Panhandle's principal executive and financial officers, has evaluated the
effectiveness of Panhandle's disclosure controls and procedures within the past
ninety days of this filing. Based on this evaluation, Panhandle's CEO and CFO
have concluded that disclosure controls and procedures are effective to ensure
that material information was presented to them and properly disclosed. There
have been no significant changes in Panhandle's internal controls that could
significantly affect internal controls subsequent to such evaluation.
CUSTOMER CONCENTRATION
During the first quarter of 2003, sales to Proliance Energy, LLC, a
nonaffiliated local distribution company and gas marketer, accounted for 16
percent of Panhandle's consolidated revenues, sales to BG LNG Services, a
nonaffiliated gas marketer, accounted for 11 percent and sales to subsidiaries
of CMS Energy also accounted for 11 percent of Panhandle's consolidated
revenues. No other customer accounted for 10 percent or more of consolidated
revenues during the same period. Aggregate sales to Panhandle's top 10 customers
accounted for 67 percent of revenues during the first quarter of 2003.
ENVIRONMENTAL MATTERS
Panhandle is subject to federal, state, and local laws and regulations governing
environmental quality and pollution control. These laws and regulations under
certain circumstances require Panhandle to remove or remedy the effect on the
environment of specified substances at its operating sites.
PCB ASSESSMENT AND CLEAN-UP PROGRAMS: Panhandle previously identified
environmental contamination at certain sites on its systems and undertook
clean-up programs at these sites. The contamination resulted from the past use
of lubricants containing PCBs in compressed air systems and the prior use of
wastewater collection facilities and other on-site disposal areas. Panhandle is
also taking actions regarding PCBs in paints at various locations. For further
information, see Note 7, Commitments and Contingencies - Environmental Matters.
AIR QUALITY CONTROL: In 1998, the EPA issued a final rule on regional ozone
control that requires revised SIPS for 22 states, including five states in which
Panhandle operates. Based on EPA guidance to these states for development of
these SIPS, Panhandle expects future compliance costs to be approximately $16
million for capital improvements to be incurred from 2004 through 2007.
Panhandle expects final rules from the EPA in 2003 and 2004 regarding control of
hazardous air pollutants, and Panhandle expects that some of its engines and
turbines will be affected. In 2002, the Texas Commission on Environmental
Quality enacted the Houston/Galveston SIP regulations requiring reductions in
nitrogen oxide emissions in an eight-county area surrounding Houston.
Trunkline's Cypress compressor station is affected and may require the
installation of emission controls. In 2003, the new regulations will also
require all grandfathered facilities to enter into the new source permit program
which may require the installation of emission controls at five additional
facilities. The company expects to incur future capital costs of approximately
$21 million in order to comply with these programs.
In 1997, the Illinois Environmental Protection Agency initiated an enforcement
proceeding relating to alleged air quality permit violations at Panhandle's
Glenarm compressor station. On November 15, 2001 the Illinois Pollution Control
Board approved an order imposing a penalty of $850 thousand, plus fees and cost
reimbursements of $116 thousand. Under terms of the sale of Panhandle to CMS
Energy, a
PE-11
subsidiary of Duke Energy was obligated to indemnify Panhandle against this
environmental penalty. The state issued a permit in February 2002 requiring the
installation of certain capital improvements at the facility at a cost of
approximately $3 million. Controls were installed on two engines in 2002 and it
is planned to install controls on two additional engines in 2003 in accordance
with the 2002 permit. For further information on the above environmental
matters, see Note 7, Commitments and Contingencies - Environmental Matters.
OFF-BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS: The SEC
has adopted new rules that require the company to provide, in a separate
captioned subsection of the MD&A, a comprehensive explanation of its off-balance
sheet arrangements that have, or are reasonably likely to have, a current or
future effect on the company that is material to investors. As of December 31,
2002, Panhandle had guarantees related to the Centennial and Guardian pipeline
projects of $50 million and $60 million, respectively, and a letter of credit
for $63 million supporting the Guardian guarantee. Panhandle has since been
released from these guarantees and the letter of credit obligation has been
transferred to CMS Gas Transmission (see Panhandle Financial Condition section
of this MD&A). As of March 31, 2003, Panhandle has purchased $2 million of
surety bonds to indemnify third parties for unforeseen events which may occur in
the course of construction or repair projects.
CASH MANAGEMENT: In August 2002, FERC issued a NOPR concerning the management of
funds by certain FERC-regulated companies. The proposed rule could establish
limits on the amount of funds that may be swept from a regulated subsidiary to a
non-regulated parent under cash management programs. The proposed rule would
require written cash management arrangements that would specify the duties and
restrictions of the participants, the methods of calculating interest and
allocating interest income and expenses, and the restrictions on deposits or
borrowings by money pool members. These cash management agreements may also
require participants to provide documentation of certain transactions. In the
NOPR, FERC proposed that to participate in a cash management or money pool
arrangement, FERC-regulated entities would be required to maintain a minimum
proprietary capital balance (stockholder's equity) of 30 percent and both the
FERC-regulated entity and its parent would be required to maintain investment
grade credit ratings. The FERC recently met, but no action was taken on cash
management issues related to the NOPR.
NEW ACCOUNTING STANDARDS
In addition to the identified critical accounting policies discussed above,
future results will be affected by a number of new accounting standards that
recently have been issued.
FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES: Issued
by the FASB in January 2003, the interpretation expands upon and strengthens
existing accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another entity.
The consolidation requirements of the interpretation apply immediately to
variable interest entities created after January 31, 2003. For Panhandle, the
consolidation requirements apply to pre-existing entities beginning July 1,
2003. Certain of the disclosure requirements apply to all financial statements
initially issued after January 31, 2003. Panhandle will be required to
consolidate any entities that meet the requirements of the interpretation.
Panhandle has adopted the interpretation effective January 1, 2003 and the
implementation had no impact on the financial statements presented.
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PANHANDLE EASTERN PIPE LINE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN MILLIONS)
Three Months Ended March 31,
2003 2002
--------- ---------
OPERATING REVENUE
Transportation and storage of natural gas $ 116 $ 114
LNG terminalling revenue 14 13
Equity losses from unconsolidated subsidiaries - (1)
Other 7 7
--------- ---------
Total operating revenue 137 133
--------- ---------
OPERATING EXPENSES
Operation and maintenance 34 32
Administrative and general 19 17
Depreciation and amortization 14 13
General taxes 7 7
--------- ---------
Total operating expenses 74 69
--------- ---------
PRETAX OPERATING INCOME 63 64
OTHER INCOME, NET 4 3
INTEREST CHARGES
Interest on long-term debt 18 20
Other interest 2 (2)
--------- ---------
Total interest charges 20 18
MINORITY INTEREST - 1
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 47 48
INCOME TAXES 18 19
--------- ---------
INCOME FROM CONTINUING OPERATIONS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE 29 29
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE,
NET OF TAX:
Goodwill, FAS 142 - (369)
Asset Retirement Obligations, FAS 143 2 -
--------- ---------
CONSOLIDATED NET INCOME (LOSS) $ 31 $ (340)
========= =========
The accompanying condensed notes are an integral part of these statements.
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PANHANDLE EASTERN PIPE LINE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
Three Months Ended March 31,
2003 2002
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 31 $ (340)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 14 13
Cumulative effect of change in accounting principle (2) 369
Deferred income taxes 18 22
Changes in current assets and liabilities (7) (35)
----------- ----------
Net cash provided by operating activities 54 29
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital and investment expenditures (13) (10)
Purchase of system gas (2) -
Sale of Centennial 40 -
Retirements and other 1 (5)
----------- ----------
Net cash provided by (used in) investing activities 26 (15)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (increase)/decrease in current Note receivable - CMS Capital (62) 7
Debt issuance 10 -
Debt retirements (10) -
Debt issuance costs - (2)
Return of capital (40) -
Dividend - (16)
Other - 1
----------- ----------
Net cash used in financing activities (102) (10)
----------- ----------
Net Increase in Cash and Temporary Cash Investments (22) 4
CASH AND TEMPORARY CASH INVESTMENTS,
BEGINNING OF PERIOD 81 3
----------- ----------
CASH AND TEMPORARY CASH INVESTMENTS,
END OF PERIOD $ 59 $ 7
=========== ==========
OTHER CASH FLOW ACTIVITIES WERE:
Interest paid (net of amounts capitalized) $ 32 $ 34
OTHER NONCASH ACTIVITIES WERE:
Return of capital - Guardian equity investment $ (28) $ -
Property contributions received 15 -
The accompanying condensed notes are an integral part of these statements.
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PANHANDLE EASTERN PIPE LINE COMPANY
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
March 31,
2003 December 31,
(Unaudited) 2002
------------ ------------
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Cost $ 1,794 $ 1,765
Less accumulated depreciation and amortization 202 188
------------ ------------
Sub-total 1,592 1,577
Construction work-in-progress 48 44
------------ ------------
Net property, plant and equipment 1,640 1,621
------------ ------------
INVESTMENTS IN AFFILIATES 5 68
------------ ------------
CURRENT ASSETS
Cash and temporary cash investments at cost, which approximates market 59 81
Restricted cash - 64
Accounts receivable, less allowances of $5 and $8 as of March 31, 2003
and December 31, 2002, respectively 50 50
Accounts receivable - related parties 6 9
Gas imbalances - receivable 31 18
System gas and operating supplies 27 41
Deferred income taxes 10 13
Note receivable - CMS Capital 185 60
Other 6 6
------------ ------------
Total current assets 374 342
------------ ------------
NON-CURRENT ASSETS
Goodwill, net 113 113
Debt issuance cost 17 17
Deferred income taxes 28 40
Non-current system gas 12 15
Other 16 16
------------ ------------
Total non-current assets 186 201
------------ ------------
TOTAL ASSETS $ 2,205 $ 2,232
============ ============
The accompanying condensed notes are an integral part of these statements.
PE-15
PANHANDLE EASTERN PIPE LINE COMPANY
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
March 31,
2003 December 31,
(Unaudited) 2002
------------- -------------
COMMON STOCKHOLDER'S EQUITY AND LIABILITIES
CAPITALIZATION
Common stockholder's equity
Common stock, no par, 1,000 shares authorized, issued and outstanding $ 1 $ 1
Accumulated other comprehensive loss (40) (39)
Other paid-in capital 1,228 1,281
Accumulated deficit (310) (341)
Note receivable - CMS Capital (150) (150)
------------- -------------
Total common stockholder's equity 729 752
Long-term debt 1,147 1,150
------------- -------------
Total capitalization 1,876 1,902
------------- -------------
CURRENT LIABILITIES
Accounts payable 9 9
Accounts payable - related parties 6 8
Current portion of long-term debt 12 12
Note payable 33 30
Gas imbalances - payable 42 41
Accrued taxes 15 11
Accrued interest 11 25
Accrued liabilities 20 21
Other 43 38
------------- -------------
Total current liabilities 191 195
------------- -------------
NON-CURRENT LIABILITIES
Post-retirement benefits 55 53
Other 83 82
------------- -------------
Total non-current liabilities 138 135
------------- -------------
TOTAL COMMON STOCKHOLDER'S EQUITY AND LIABILITIES $ 2,205 $ 2,232
============= =============
The accompanying condensed notes are an integral part of these statements.
PE-16
PANHANDLE EASTERN PIPE LINE COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDER'S EQUITY
AND COMPREHENSIVE INCOME
(UNAUDITED)
(IN MILLIONS)
Three Months Three Months
Ended Ended
March 31, March 31,
2003 2002
------------- -------------
COMMON STOCK
At beginning and end of period $ 1 $ 1
------------- -------------
OTHER PAID-IN CAPITAL
At beginning of period 1,281 1,286
Return of capital - Centennial (40) -
Return of capital - Guardian equity investment (28) -
Trunkline Field Services contribution from CMS Gas Transmission 15 -
------------- -------------
At end of period 1,228 1,286
------------- -------------
ACCUMULATED OTHER COMPREHENSIVE LOSS
Minimum Pension Liability
At beginning of period (26) -
------------- -------------
At end of period (26) -
------------- -------------
Interest Rate Swaps
At beginning of period (13) -
Unrealized loss related to interest rate swaps (1) -
------------- -------------
At end of period (14) -
------------- -------------
ACCUMULATED DEFICIT
At beginning of period (341) (13)
Net income 31 (340)
Common stock dividends - (16)
------------- -------------
At end of period (310) (369)
------------- -------------
NOTE RECEIVABLE - CMS CAPITAL
At beginning of period (150) (150)
------------- -------------
At end of period (150) (150)
------------- -------------
TOTAL COMMON STOCKHOLDER'S EQUITY $ 729 $ 768
============= =============
Disclosure of Comprehensive Income:
Other comprehensive income
Interest Rate Swaps
Unrealized loss related to interest rate swaps, net of tax $ (1) $ -
Net income (loss) 31 (340)
------------- -------------
Total Comprehensive Income (Loss) $ 30 $ (340)
============= =============
The accompanying condensed notes are an integral part of these statements.
PE-17
PANHANDLE EASTERN PIPE LINE COMPANY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
These interim Consolidated Financial Statements have been prepared by Panhandle
in accordance with accounting principles generally accepted in the United States
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. As such, certain information and footnote
disclosures normally included in full year financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted. Certain prior year amounts have been
reclassified to conform to the presentation in the current year. In management's
opinion, the unaudited information contained in this report reflects all
adjustments necessary to assure the fair presentation of financial position,
results of operations and cash flows for the periods presented. The Condensed
Notes to the Consolidated Financial Statements and the related Consolidated
Financial Statements should be read in conjunction with the Consolidated
Financial Statements and Notes to Consolidated Financial Statements contained in
the Panhandle Form 10-K for the year ended December 31, 2002 which includes the
Report of the Independent Auditors. Due to the seasonal nature of Panhandle's
operations, the results as presented for this interim period are not necessarily
indicative of results to be achieved for the fiscal year.
1. CORPORATE STRUCTURE
Panhandle is a wholly owned subsidiary of CMS Gas Transmission and ultimately
CMS Energy. Panhandle was incorporated in Delaware in 1929. Panhandle is
primarily engaged in interstate transportation and storage of natural gas, owns
a LNG regasification plant and related facilities, and is subject to the rules
and regulations of the FERC. It conducts operations in the central, gulf coast,
midwest, and southwest regions of the United States.
In December 2002, CMS Energy reached a definitive agreement to sell the
Panhandle companies to Southern Union Panhandle Corp. The agreement called for
Southern Union Panhandle Corp, a newly formed entity owned by Southern Union
Company and AIG Highstar Capital L.P. to pay $662 million in cash and assume
$1.166 billion in debt. On March 13, 2003, CMS Energy and Southern Union Company
received requests for additional information ("second requests") from the FTC
related to Southern Union's acquisition of Panhandle. CMS Energy and Southern
Union are in the process of responding to the second requests.
On May 12, 2003, the parties entered into an amendment to the original stock
purchase agreement that was executed in December 2002. Under the amendment, AIG
Highstar Capital, L.P. and AIG Highstar II Funding Corp. will no longer be
parties to the transaction. The Amended and Restated Stock Purchase Agreement
calls for Southern Union Panhandle Corp. to purchase all of Panhandle's
outstanding capital stock. Southern Union Panhandle Corp. agreed to pay
approximately $584 million in cash and 3 million shares of Southern Union
Company common stock, and to assume approximately $1.166 billion in debt. The
total value of the transaction to CMS Energy will depend on the price of
Southern Union Company common stock at the closing. At May 12, 2003, the closing
price of Southern Union common stock on the New York Stock Exchange was $12.79.
The boards of directors of all applicable companies have approved the amended
agreement. The sale of Panhandle is subject to customary closing conditions and
action by the Federal Trade Commission under the Hart-Scott-Rodino Act. All
necessary state regulatory approvals for the sale pursuant to the original stock
purchase agreement have been received. The parties expect the amendment will
expedite the regulatory approval of the transaction and anticipate that state
regulatory authorities will not object to the changed terms provided for in the
amended agreement. The closing is expected to occur by June 30, 2003. AIG
Highstar Capital's withdrawal from the transaction should help resolve
regulatory issues that arose as a result of AIG Highstar Capital's ownership of
Southern Star Central Gas Pipeline's Inc. CMS Gas Transmission and Southern
Union also entered into a shareholder agreement, relating to CMS Gas
Transmission's ownership of the Southern Union shares of common stock. Pursuant
to this shareholder agreement, CMS Gas Transmission generally will be prohibited
from disposing of the Southern Union common stock for a period ending 90 - 105
days following the closing of the transaction.
Under the terms of the Panhandle sale agreement, CMS Energy was to retain
Panhandle's ownership interests in the Centennial and Guardian pipeline
projects, as well as certain of Panhandle's net deferred tax assets, all tax
liabilities, and pension and other postretirement assets and liabilities.
Panhandle has since sold its interest in Centennial and the Guardian interest
and the related cash collateral has been transferred to Panhandle's direct
parent, CMS Gas Transmission. For further information, see Note 5, Related Party
Transactions. CMS Gas Transmission has signed a definitive agreement to sell its
interest in Guardian, which is also expected to close in the second quarter of
2003.
On March 1, 2003, certain assets held by CMS Field Services with net book value
of $15.2 million were contributed to Panhandle by its parent, CMS Gas
Transmission, to be included in the sale to Southern
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Union Panhandle Corp.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER MATTERS
PRINCIPLES OF CONSOLIDATIONS: The consolidated financial statements include the
accounts of Panhandle and all majority-owned subsidiaries, after eliminating
significant intercompany transactions and balances. Investments in businesses
not controlled by Panhandle, but over which it has significant influence, are
accounted for using the equity method.
USE OF ESTIMATES: The preparation of financial statements, in conformity with
accounting principles generally accepted in the United States, requires
management to make judgments, estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. The principles of SFAS No. 5
guide the recording of contingent liabilities within the financial statements.
Certain accounting principles require subjective and complex judgments used in
the preparation of financial statements. Accordingly, a different financial
presentation could result depending on the judgment, estimates or assumptions
that are used. Such estimates and assumptions, include, but are not specifically
limited to: depreciation and amortization, interest rates, discount rates,
future commodity prices, mark-to-market valuations, investment returns,
volatility in the price of CMS Energy Common Stock, impact of new accounting
standards, future costs associated with long-term contractual obligations,
future compliance costs associated with environmental regulations and continuing
creditworthiness of counterparties. Although these estimates are based on
management's knowledge of current expected future events, actual results could
materially differ from those estimates.
SYSTEM GAS AND OPERATING SUPPLIES: System gas and operating supplies consists of
gas held for operations and materials and supplies, carried at the lower of
weighted average cost or market. The gas held for operations that is not
expected to be consumed in operations in the next twelve months has been
reflected in non-current assets. All system gas and materials and supplies
purchased are recorded at the lower of cost or market, while net gas received
from and owed back to customers is valued at market.
GAS IMBALANCES: Gas imbalances occur as a result of differences in volumes of
gas received and delivered. Gas imbalance in-kind receivables and payables are
valued at cost or market, based on whether net imbalances have reduced or
increased system gas balances, respectively.
FUEL TRACKER: Liability accounts are maintained for net volumes of fuel gas owed
to customers collectively. Trunkline records an asset whenever fuel is due from
customers from prior under recovery based on contractual and specific tariff
provisions which support the treatment as an asset. Panhandle's other companies
that are subject to fuel tracker provisions record an expense when fuel is under
recovered. The pipelines' fuel reimbursement is in-kind and non-discountable.
RELATED PARTY TRANSACTIONS: Panhandle enters into a number of significant
transactions with related parties. These transactions include revenues for the
transportation of natural gas for Consumers,
PE-19
CMS MST and the MCV Partnership which are based on regulated prices, market
prices or competitive bidding. Related party expenses include payments for
services provided by affiliates and payment of overhead costs and management and
royalty fees to CMS Gas Transmission and CMS Energy, as well as allocated
benefit plan costs. Other income is primarily interest income from the Note
receivable - CMS Capital (See Note 5, Related Party Transactions).
GOODWILL: Goodwill represents the excess of costs over fair value of assets of
businesses acquired. The Company adopted the provisions of SFAS No. 142 as of
January 1, 2002. Goodwill acquired in a purchase business combination and
determined to have an indefinite useful life is not amortized, but instead
tested for impairment at least annually in accordance with the provisions of
SFAS No. 142. Panhandle completed the goodwill impairment testing required upon
adoption of SFAS No. 142 in 2002 which resulted in a $601 million pre-tax
write-down ($369 million after-tax) under the new standard. The impact has been
reflected retroactively to the first quarter of 2002 as a cumulative effect of a
change in accounting for goodwill, pursuant to the requirements of SFAS No. 142.
ACCOUNTING FOR RETIREMENT BENEFITS: Panhandle follows SFAS No. 87 to account for
pension costs and SFAS No. 106 to account for other postretirement benefit
costs. These statements require liabilities to be recorded on the balance sheet
at the present value of these future obligations to employees net of any plan
assets. The calculation of these liabilities and associated expenses require the
expertise of actuaries and are subject to many assumptions, including life
expectancies, present value discount rates, expected long-term rate of return on
plan assets, rate of compensation increase and anticipated health care costs.
Any change in these assumptions can significantly change the liability and
associated expenses recognized in any given year.
The Pension Plan is a CMS Energy plan for CMS Energy and affiliates, of which
Panhandle is a participating affiliate. The Pension Plan includes amounts for
employees of CMS Energy and affiliates, including Panhandle, which were not
distinguishable from the Pension Plan's total assets. On December 21, 2002, a
definitive agreement was executed to sell Panhandle. The sale is expected to
close in 2003. The Pension Plan assets and obligations associated with Panhandle
employees will be retained by CMS Energy. Upon the closing of the sale of
Panhandle to Southern Union Panhandle Corp., none of the Panhandle employees
will be eligible to accrue additional benefits under the Pension Plan. However,
the Pension Plan will retain pension payment obligations for Panhandle employees
who are vested under the Pension Plan.
ACCOUNTING FOR DERIVATIVES: Panhandle utilizes interest-rate related derivative
instruments to manage its exposure on its debt instruments and does not enter
into derivative instruments for any purpose other than hedging purposes. That
is, Panhandle does not speculate using derivative instruments.
Interest rate swap agreements are used to reduce interest rate risks and to
manage interest expense. By entering into these agreements, Panhandle generally
converts floating-rate debt into fixed-rate debt. This reduces Panhandle's risk
of incurring higher interest costs in periods of rising interest rates. Interest
differentials to be paid or received because of swap agreements are reflected as
an adjustment to interest expense. The negative fair value of interest rate swap
agreements was $24 million pre-tax, $14 million net of tax at March 31, 2003.
Current market pricing models were used to estimate fair values of interest rate
swap agreements. In accordance with SFAS No. 133, an unrealized loss of $14
million after-tax was recorded to other comprehensive loss. The negative fair
value of interest rate swap agreements was $22 million pre-tax, $13 million net
of tax at December 31, 2002. Current market pricing models were used to estimate
fair values of interest rate swap agreements.
PE-20
NEW ACCOUNTING STANDARDS ADOPTED
SFAS NO. 143, ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS: In June 2001, the
FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations ("ARO"),
which is effective for fiscal years beginning after June 15, 2002. The Statement
requires legal obligations associated with the retirement of long-lived assets
to be recognized at their fair value at the time that the obligations are
incurred. Upon initial recognition of a liability, cost should be capitalized as
part of the related long-lived asset and allocated to expense over the useful
life of the asset. Panhandle adopted the new rules on asset retirement
obligations on January 1, 2003. Adoption of the new rule resulted in an increase
in net property, plant and equipment of $10 million, recognition of an asset
retirement obligation of $6 million, and a cumulative effect of adoption that
increased net income and stockholder's equity by $2 million, net of tax, and
there were no settlements during the first quarter of 2003. Accretion expense
for the first quarter of 2003 was approximately $0.1 million and the accretion
expense for the first quarter of 2002 would have been approximately $0.1 million
on a pro forma basis.
The fair value of ARO liabilities has been calculated using an expected present
value technique. This technique reflects assumptions, such as costs, inflation,
and profit margin that third parties would consider in order to take on the
settlement of the obligation. Fair value, to the extent possible, should include
a market risk premium for unforeseeable circumstances. No market risk premium
was included in Panhandle's ARO fair value estimate since a reasonable estimate
could not be made. If a reasonable estimate of fair value cannot be made in the
period the asset retirement obligation is incurred, such as assets with an
indeterminate life, the liability will be recognized when a reasonable estimate
of fair value can be made. Generally, mass property such as onshore transmission
assets have an indeterminate life, retirement cash flows cannot be determined
and there is a low probability of a retirement date, therefore no liability has
been recorded for these assets. The initial measurement of the ARO liability for
Panhandle's offshore lateral lines is based largely on cost estimates from third
parties.
The following table is a general description of the ARO and its associated
long-lived assets.
MARCH 31, 2003 IN MILLIONS
- -------------------------------------------------------------------------------------------------------
IN SERVICE
ARO DESCRIPTION DATE LONG LIVED ASSETS AMOUNT
- -------------------------------------------------------------------------------------------------------
Retire offshore lateral lines Various Panhandle offshore lateral lines $9.6
The following table is a reconciliation of the carrying amount of the ARO.
MARCH 31, 2003 IN MILLIONS
- ------------------------------------------------------------------------------------------------------
ARO LIABILITY
---------------------------------------------------------------------------------
PRO FORMA CASH FLOW
ARO DESCRIPTION 1/1/02 1/1/03 INCURRED SETTLED ACCRETION REVISIONS 3/31/03
- ------------------------------------------------------------------------------------------------------
Offshore laterals $5.6 $6.0 $0.5 - $0.1 - $6.6
---------------------------------------------------------------------------------
Total $5.6 $6.0 $0.5 - $0.1 - $6.6
=================================================================================
SFAS NO. 145, RESCISSION OF FASB STATEMENTS NO. 4, 44 AND 64, AMENDMENT OF FASB
STATEMENT NO. 13, AND TECHNICAL CORRECTIONS: Issued by the FASB on April 30,
2002, this Statement rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, and SFAS No. 64, Extinguishment of Debt Made to Satisfy
Sinking-Fund Requirements. As a result, any gain or loss on extinguishment of
debt should be classified as an extraordinary item only if it meets the criteria
set forth in APB Opinion No. 30. SFAS No. 145 amends SFAS No. 13, Accounting for
Leases, to require sale-leaseback accounting for certain lease modifications
that have similar economic impacts to sale-leaseback transactions. This
provision is effective for transactions occurring and financial statements
issued after May 15, 2002. Panhandle has adopted SFAS No. 145 and the
implementation resulted in no amount being reclassified during the first quarter
of 2003.
SFAS NO. 146, ACCOUNTING FOR COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES:
Issued by the FASB in July 2002, this standard requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the date of a commitment to an exit or disposal plan. SFAS No. 146
supersedes previous accounting guidance, EITF No. 94-3, "Liability recognition
for Certain Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred In a Restructuring)." This standard is effective for exit
or disposal activities initiated after December 31,
PE-21
2002. The scope of SFAS No. 146 includes, (1) costs related to termination
benefits of employees who are involuntarily terminated, (2) costs to terminate a
contract that is not a capital lease, and (3) costs to consolidate facilities or
relocate employees. Any future exit or disposal activities that Panhandle may
engage in will be subject to the provisions of this statement.
SFAS NO. 148, ACCOUNTING FOR STOCK-BASED COMPENSATION - TRANSITION AND
DISCLOSURE: Issued by the FASB in December 2002, this standard provides for
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, the
statement amends the disclosure requirements of SFAS No. 123 to require more
prominent and more frequent disclosures in financial statements about the
effects of stock-based compensation. The transition guidance and annual
disclosure provisions of the statement are effective as of December 31, 2002 and
interim disclosure provisions are effective for interim financial reports
starting in 2003. Panhandle has adopted the fair value based method of
accounting for stock-based employee compensation effective December 31, 2002,
the amounts of which were immaterial during the fourth quarter of 2002, applying
the prospective method of adoption which requires recognition of all employee
awards granted, modified, or settled after the beginning of the year in which
the recognition provisions are first applied. Panhandle has adopted SFAS No. 148
for new awards granted since January 1, 2002, and the application of SFAS No.
148 resulted in no amount recorded during the first quarter of 2003.
FASB INTERPRETATION NO. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE REQUIREMENT
FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS: Issued
by the FASB in November 2002, the interpretation expands on existing disclosure
requirements for most guarantees, and clarifies that at the time a company
issues a guarantee, the company must recognize an initial liability for the fair
value, or market value, of the obligations it assumes under that guarantee and
must disclose that information in its interim and annual financial statements.
The interpretation is effective for guarantees issued or modified on and after
January 1, 2003. For contracts that are within the initial recognition and
measurement provision of this interpretation, the provisions are to be applied
to guarantees issued or modified after December 31, 2002. Implementation of the
standard resulted in no amount being recorded in the first quarter of 2003.
FASB INTERPRETATION NO. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES: Issued
by the FASB in January 2003, the interpretation expands upon and strengthens
existing accounting guidance that addresses when a company should include in its
financial statements the assets, liabilities and activities of another entity.
The consolidation requirements of the interpretation apply immediately to
variable interest entities created after January 31, 2003. For Panhandle, the
consolidation requirements apply to pre-existing entities beginning July 1,
2003. Certain of the disclosure requirements apply to all financial statements
initially issued after January 31, 2003. Panhandle will be required to
consolidate any entities that meet the requirements of the interpretation.
Panhandle has adopted the interpretation effective January 1, 2003 and the
implementation had no impact on the financial statements presented.
3. REGULATORY MATTERS
In conjunction with a FERC order issued in September 1997, FERC required certain
natural gas producers to refund previously collected Kansas ad-valorem taxes to
interstate natural gas pipelines, including Panhandle Eastern Pipe Line. FERC
ordered these pipelines to refund these amounts to their customers. In June
2001, Panhandle Eastern Pipe Line filed with the FERC a proposed settlement,
which was supported by most of the customers and affected producers. In October
2001, the FERC approved that settlement. The settlement provided for a
resolution of the Kansas ad-valorem tax matter on the Panhandle Eastern Pipe
Line system for a majority of refund amounts. Certain producers and the state of
Missouri elected to not participate in the
PE-22
settlement. A FERC hearing to resolve all outstanding issues has been scheduled
for October 16, 2003. At March 31, 2003 and December 31, 2002, accounts
receivable included $8 million for tax collections due from natural gas
producers. At March 31, 2003 and December 31, 2002, other current liabilities
included $11 million for tax collections due to customers. On January 2, 2003,
the Commission issued an order indicating its intention to cease collection
efforts for approximately $5 million of the amounts due from affected producers.
Remaining amounts collected but not refunded are subject to refund pending
resolution of issues remaining in the FERC docket and Kansas intrastate
proceeding.
In March 2001, Trunkline received FERC approval to abandon 720 miles of its
26-inch diameter pipeline that extends from Longville, Louisiana to Bourbon,
Illinois. This filing was in conjunction with Centennial, a joint venture in
which Panhandle owned a one-third equity interest, converting the line from
natural gas transmission service to a refined products pipeline, which began
full commercial service in April 2002. Effective April 2001, the 26-inch
pipeline was conveyed to Centennial. On February 10, 2003, Panhandle sold its
one-third equity interest in Centennial for $40 million to Centennial's two
other partners, MAPL and TEPPCO.
In July 2001, Panhandle Eastern Pipe Line filed a settlement with customers on
FERC Order 637 matters to resolve issues including capacity release and
imbalance penalties, among others. On October 12, 2001 and December 19, 2001
FERC issued orders approving the settlement, with modifications. The settlement
changes became final effective February 1, 2002 and Panhandle recognized
approximately $3 million of income, after-tax, including interest. Management
believes that this matter will not have a material adverse effect on
consolidated results of operations or financial position.
In December 2001, Trunkline LNG filed with the FERC a certificate application to
expand the Lake Charles facility to approximately 1.2 billion cubic feet per day
of sendout capacity versus the current capacity of 630 million cubic feet per
day. The BG Group has contract rights for all of this additional capacity. In
December 2002, the FERC issued an order approving the LNG terminal expansion. In
March 2003, Trunkline LNG received FERC authorization to commence construction.
On April 17, 2003, Trunkline LNG filed to amend the authority granted for its
LNG expansion with certain facility modifications. The modifications will not
affect the authorized additional storage capacity and daily sendout capability
and confirms the revised in-service date of January 1, 2006.
Panhandle has sought refunds from the State of Kansas concerning certain
corporate income tax issues for the years 1981 through 1984. On January 25,
2002, the Kansas Supreme Court entered an order affirming a previous Board of
Tax Court finding that Panhandle was entitled to refunds which with interest
total approximately $26 million. Pursuant to the provisions of the purchase
agreement between CMS Energy and a subsidiary of Duke Energy, Duke retains the
benefits of any tax refunds or liabilities for periods prior to the date of the
sale of Panhandle to CMS Energy.
In February 2002, Trunkline Gas filed a settlement with customers on Order 637
matters to resolve issues including capacity release and imbalance penalties,
among others. On July 5, 2002, FERC issued an order approving the settlement,
with modifications. On October 18, 2002, Trunkline Gas filed tariff sheets with
the FERC to implement Order 637 changes effective November 1, 2002. On February
12, 2003, FERC issued an order approving the settlement to be effective November
1, 2002. Management
PE-23
believes that this matter will not have a material adverse effect on
consolidated results of operations or financial position.
4. GOODWILL IMPAIRMENT
Goodwill represents the excess of costs over fair value of assets of businesses
acquired. Panhandle adopted the provisions of SFAS No. 142 as of January 1,
2002. Goodwill acquired in a purchase business combination and determined to
have an indefinite useful life is not amortized, but instead tested for
impairment annually in accordance with the provisions of SFAS No. 142. SFAS No.
142's transitional goodwill impairment evaluation required Panhandle to perform
an assessment of whether there was an indication that goodwill was impaired as
of the date of adoption. Panhandle's goodwill, which resulted from CMS Energy's
acquisition in March 1999, was tested for impairment as of January 1, 2002,
based on valuations by independent appraisers. As defined in SFAS No. 142,
Panhandle was considered a single reporting unit. The fair value of the
reporting unit was determined using a combination of the income approach based
on discounted cash flows and a market approach using public guideline companies
and market transactions. The goodwill impairment amount was determined by
comparing the fair value of goodwill to book value. The goodwill impairment test
resulted in a $601 million pre-tax write-down ($369 million after-tax) and was
recorded retroactive to the first quarter of 2002 as the cumulative effect of a
change in accounting for goodwill, pursuant to the requirements of SFAS No. 142.
5. RELATED PARTY TRANSACTIONS
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2003 MARCH 31, 2002
-------------- --------------
IN MILLIONS
Transportation of natural gas $ 15 $ 12
Other operating revenues - (1)
Operation and maintenance
Management & royalty fees - 4
Other Expenses (a) 6 8
Interest income 3 2
- -------------------------------------------------------------------------------------------------------------
(a) Includes allocated benefit plan costs
Panhandle has a number of significant transactions with related parties. Revenue
transactions, primarily for the transportation of natural gas for Consumers, CMS
MST and the MCV Partnership, all related parties, are based on regulated prices,
market prices or competitive bidding. Related party expenses include payments
for services provided by affiliates, as well as allocated benefit plan costs.
Effective January 1, 2003, in conjunction with the pending sale of Panhandle,
CMS Energy ceased charging Panhandle management and royalty fees.
PE-24
Other operating revenue for the three month period ended March 31, 2002 includes
equity losses related to Centennial of $1 million. There was no income related
to Centennial in the first quarter of 2003. On February 10, 2003, Panhandle sold
its one-third interest in Centennial for $40 million to Centennial's two other
partners, MAPL and TEPPCO. On March 28, 2003, $40 million of cash capital from
the sale of Centennial was returned to CMS Gas Transmission.
Interest income includes $3 million and $2 million for the period ended March
31, 2003 and 2002, respectively, for interest on the Note receivable from CMS
Capital.
In June 2001, Panhandle received a $150 million capital contribution from CMS
Gas Transmission. In June 2001, Panhandle also loaned CMS Capital $150 million.
At December 31, 2002, Note receivable - CMS Capital, totaled $210 million, of
which $150 million is reflected as a reduction to shareholder's equity and $60
million is reflected as current. At March 31, 2003, Note receivable - CMS
Capital, totaled $335 million, of which $150 million is reflected as a reduction
to shareholder's equity and $185 million is reflected as current. Net cash
generated by Panhandle, including funds from the Trunkline LNG monetization
transaction, in excess of operating, investing or financing needs, has been
loaned to CMS Capital and is reflected as Note receivable-CMS Capital on the
Consolidated Balance Sheet. Panhandle was credited with interest on the note at
the 30 day commercial paper rate plus 12.5 basis points through July 2002. In
August of 2002, the interest rate was increased to a one-month Libor plus 300
basis points.
Due to liquidity issues related to CMS Energy and subsidiaries, Panhandle's
ability to draw on the full amount of the Note Receivable from CMS Capital, if
needed, could be affected.
A summary of certain balances due to or due from related parties included in the
Consolidated Balance Sheets is as follows:
MARCH 31, DECEMBER 31,
2003 2002
(UNAUDITED) (AUDITED)
----------- ---------
IN MILLIONS
Note receivable - CMS Capital $185 $60
Accounts receivable 6 5
Accounts receivable - tax - 4
Current assets - other 2 1
Accounts payable 6 8
Stockholder's equity - note receivable (150) (150)
At December 31, 2002, Panhandle had an intercompany tax receivable of $4
million. The $4 million receivable at December 31, 2002 represented estimated
amounts to be received from CMS Energy over the next twelve months for federal
income taxes.
PE-25
At March 31, 2003 and December 31, 2002, Panhandle had an intercompany prepaid
insurance balances of $2 and $1 million, respectively, which represent insurance
prepayments by CMS Energy allocated to Panhandle and are included in Current
assets - other.
On March 10, 2003, Panhandle's ownership interest in Guardian was transferred to
CMS Gas Transmission as a return of capital and Panhandle was released from its
guarantee obligations associated with the Guardian non-recourse guaranty by
Prudential and the other noteholders (see Note 7, Commitments and
Contingencies). As a result, the $63 million in special deposits which
collateralized the guaranty and had been reflected as restricted cash in
Panhandle's financial statements were advanced to CMS Capital as part of the
demand Note Receivable from CMS Capital and were then made available to CMS Gas
Transmission.
On March 1, 2003, certain assets held by CMS Field Services with a net book
value of $15.2 million were contributed to Panhandle by its parent, CMS Gas
Transmission, to be included in the sale to Southern Union Panhandle Corp.
6. DEBT RATING DOWNGRADES
On June 11, 2002, Moody's Investors Service, Inc. lowered its rating on
Panhandle's senior unsecured notes from Baa3 to Ba2 based on concerns
surrounding the liquidity and debt levels of CMS Energy. On July 15, 2002, Fitch
Ratings, Inc. lowered its rating on these notes from BBB to BB+ and again on
September 4, 2002 to BB based on similar concerns. On July 16, 2002, S&P also
lowered its rating on these notes from BBB- to BB, in line with their rating on
CMS Energy based on their belief that CMS Energy and its subsidiaries are at
equal risk of default since the parent relies on its subsidiaries to meet its
financial commitments. Effective with this downgrade, Panhandle's debt is below
investment grade. Each of the three major ratings services currently have
negative outlooks for CMS Energy and its subsidiaries, due to uncertainties
associated with CMS Energy's financial condition and liquidity pending
resolution of the round trip trading investigations and lawsuits, financial
statement restatement and re-audit, and access to the capital markets.
Panhandle, as a result of the ratings downgrade by both Moody's and S&P to below
investment grade levels, can be required to pay the balance of the demand loan
owed LNG Holdings including the remaining principal and accrued interest at any
time such downgrades exist. In November 2002, Panhandle acquired Dekatherm
Investor Trust's interest, and owns 100% of LNG Holdings and will not demand
payment on the note payable to LNG Holdings.
7. COMMITMENTS AND CONTINGENCIES
LITIGATION: Panhandle is involved in legal, tax and regulatory proceedings
before various courts, regulatory commissions and governmental agencies
regarding matters arising in the ordinary course of business, some of which
involve substantial amounts. Where appropriate, Panhandle has made accruals in
accordance with SFAS No. 5 in order to provide for such matters. Management
believes the final disposition of these proceedings will not have a material
adverse effect on consolidated results of operations, liquidity, or financial
position.
ENVIRONMENTAL MATTERS: Panhandle is subject to federal, state and local
regulations regarding air and water quality, hazardous and solid waste disposal
and other environmental matters. Panhandle has identified environmental
contamination at certain sites on its systems and has undertaken cleanup
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programs at these sites. The contamination resulted from the past use of
lubricants containing PCBs in compressed air systems and the prior use of
wastewater collection facilities and other on-site disposal areas. Panhandle
communicated with the EPA and appropriate state regulatory agencies on these
matters. Under the terms of the sale of Panhandle to CMS Energy, a subsidiary of
Duke Energy is obligated to complete the Panhandle cleanup programs at certain
agreed-upon sites and to indemnify against certain future environmental
litigation and claims. Duke Energy's cleanup activities have been completed on
all but one of the agreed-upon sites. Should additional information be requested
regarding sites where compliance information has been submitted, Panhandle would
be obligated to respond to these requests.
As part of the cleanup program resulting from contamination due to the use of
lubricants containing PCBs in compressed air systems, Panhandle Eastern Pipe
Line and Trunkline have identified PCB levels above acceptable levels inside the
auxiliary buildings that house the air compressor equipment at thirty-two
compressor station sites. Panhandle has developed and is implementing an
EPA-approved process to remediate this PCB contamination in accordance with
federal, state and local regulations.
At some locations, PCBs have been identified in paint that was applied many
years ago. In accordance with EPA regulations, Panhandle is implementing a
program to remediate sites where such issues have been identified during
painting activities. If PCBs are identified above acceptable levels, the paint
is removed and disposed of in an EPA-approved manner. Approximately 15 percent
of the paint projects in the last few years have required this special
procedure.
The Illinois EPA notified Panhandle Eastern Pipe Line and Trunkline, together
with other non-affiliated parties, of contamination at former waste oil disposal
sites in Illinois. Panhandle and 21 other non-affiliated parties conducted an
initial investigation of one of the sites. Based on the information found during
the initial investigation, Panhandle and the 21 other non-affiliated parties
have decided to further delineate the extent of contamination by authorizing a
Phase II investigation at this site. Once data from the Phase II investigation
is evaluated, Panhandle and the 21 other non-affiliated parties will determine
what additional actions will be taken. Panhandle Eastern Pipe Line's and
Trunkline's estimated share for the costs of assessment and remediation of the
sites, based on the volume of waste sent to the facilities, is approximately 17
percent.
Panhandle expects these cleanup programs to continue for several years and has
estimated its share of remaining cleanup costs not indemnified by Duke Energy to
range from $18 million to $25 million. Panhandle has accrued approximately $22
million of such costs, of which $8 million is included in Other Current
Liabilities for the estimated current amounts and $14 million is included in
Other Non-current Liabilities on the Consolidated Balance Sheet at March 31,
2003. At December 31, 2002, Panhandle had $4 million included in Other Current
Liabilities and $18 million included in Other Non-current Liabilities.
AIR QUALITY CONTROL: In 1998, the EPA issued a final rule on regional ozone
control that requires revised SIPS for 22 states, including five states in which
Panhandle operates. This EPA ruling was challenged in court by various states,
industry and other interests, including INGAA, an industry group to which
Panhandle belongs. In March 2000, the court upheld most aspects of the EPA's
rule, but agreed with INGAA's position and remanded to the EPA the sections of
the rule that affected Panhandle. Based on EPA guidance to these states for
development of SIPs, Panhandle expects future compliance costs to be
approximately $16 million for capital improvements to be incurred from 2004
through 2007.
As a result of the 1990 Clean Air Act Amendments, the EPA must issue MACT rules
controlling hazardous air pollutants from internal combustion engines and
turbines. These rules are expected in late 2003 and mid 2004. Beginning in 2002,
the Texas Commission on Environmental Quality enacted the
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Houston/Galveston SIP regulations requiring reductions in nitrogen oxide
emissions in an eight county area surrounding Houston. Trunkline's Cypress
compressor station is affected and may require the installation of emission
controls. In 2003, the new regulations will also require all "grandfathered"
facilities to enter into the new source permit program which may require the
installation of emission controls at five additional facilities. The company
expects future capital costs for these programs to be approximately $21 million.
In 1997, the Illinois Environmental Protection Agency initiated an enforcement
proceeding relating to alleged air quality permit violations at Panhandle's
Glenarm compressor station. On November 15, 2001 the Illinois Pollution Control
Board approved an order imposing a penalty of $850 thousand, plus fees and cost
reimbursements of $116 thousand. Under terms of the sale of Panhandle to CMS
Energy, a subsidiary of Duke Energy was obligated to indemnify Panhandle against
this environmental penalty. The state issued a permit in February of 2002,
requiring the installation of certain capital improvements at the facility at a
cost of approximately $3 million. Controls were installed on two engines in 2002
and Panhandle plans to install controls on two additional engines in 2003 in
accordance with the 2002 permit.
SEC INVESTIGATION: As a result of the round-trip trading transactions at CMS
MST, CMS Energy's Board of Directors established a special committee of
independent directors to investigate matters surrounding the transactions and
retained outside counsel to assist in the investigation. The committee completed
its investigation and reported its findings to the Board of Directors in October
2002. The special committee concluded, based on an extensive investigation, that
the round-trip trades were undertaken to raise CMS MST's profile as an energy
marketer with the goal of enhancing its ability to market its services. The
committee found no apparent effort to manipulate the price of CMS Energy stock
or affect energy prices. The special committee also made recommendations
designed to prevent any reoccurrence of this practice, most of which have
already been implemented. Previously, CMS Energy terminated its speculative
trading business and revised its risk management policy. The Board of Directors
adopted, and CMS Energy has begun implementing, the remaining recommendations of
the special committee.
ACCOUNTING FOR RETIREMENT BENEFITS: Panhandle follows SFAS No. 87 to account for
pension costs and SFAS No. 106 to account for other postretirement benefit
costs. These statements require liabilities to be recorded on the balance sheet
at the present value of these future obligations to employees net of any plan
assets. The calculation of these liabilities and associated expenses require the
expertise of actuaries and are subject to many assumptions, including life
expectancies, present value discount rates, expected long-term rate of return on
plan assets, rate of compensation increase and anticipated health care costs.
Any change in these assumptions can significantly change the liability and
associated expenses recognized in any given year.
The Pension Plan is a CMS Energy plan for CMS Energy and affiliates, of which
Panhandle is a participating affiliate. The Pension Plan includes amounts for
employees of CMS Energy and affiliates, including Panhandle, which were not
distinguishable from the Pension Plan's total assets. On December 21, 2002, a
definitive agreement was executed to sell Panhandle. The sale is expected to
close in 2003. The Pension Plan assets and obligations associated with Panhandle
employees will be retained by CMS Energy. When the Southern Union Panhandle
Corp. transaction closes, none of the Panhandle employees will be eligible to
accrue additional benefits under the Pension Plan. However, the Pension Plan
will retain pension payment obligations under the Pension Plan for Panhandle
employees who are vested under the Pension Plan.
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The significant downturn in the equities markets has affected the value of the
Pension Plan's assets. The estimated fair value of the Pension Plan's assets at
December 31, 2002 was $607 million and the Accumulated Benefit Obligation was
estimated at $1.055 billion. The Pension Plan's Accumulated Benefit Obligation
thus exceeded the value of the assets at December 31, 2002, and as a result,
Panhandle and the other participants of the plan were required to recognize an
additional minimum liability for this excess in accordance with SFAS No. 87. As
of December 31, 2002, the additional minimum liability allocated to Panhandle
was $48 million, of which $6 million was recorded as an intangible asset, and
$42 million was charged to other comprehensive income ($26 million after-tax).
CMS Energy estimates CMS Energy's pension expense will approximate $46 million,
$51 million and $58 million in 2003, 2004 and 2005, respectively, as compared to
an approximated $33 million in 2002 of which Panhandle's allocated share was
approximately 11 percent. Future actual pension expense will depend on future
investment performance, changes in future discount rates and various other
factors related to the populations participating in the Pension Plan.
In order to keep health care benefits and costs competitive, CMS Energy has
announced several changes to the Health Care Plan. These changes are effective
January 1, 2003. The most significant change is that CMS Energy's future
increases in health care costs will be shared with salaried employees. The
salaried retirees Health Care Plan also has been amended. Pre-Medicare retirees
now elect coverage from four different levels of coverage, with the two best
coverage options requiring premium contributions. These plans also coordinate
benefits under a maintenance of benefits provision to reduce claims costs.
Mail-order prescription copays also have been increased for all salaried
employees.
OTHER COMMITMENTS AND CONTINGENCIES: In 1993, the U.S. Department of the
Interior announced its intention to seek additional royalties from gas producers
as a result of payments received by such producers in connection with past
take-or-pay settlements, and buyouts and buydowns of gas sales contracts with
natural gas pipelines. Panhandle Eastern Pipe Line and Trunkline, with respect
to certain producer contract settlements, may be contractually required to
reimburse or, in some instances, to indemnify producers against such royalty
claims. The potential liability of the producers to the government and of the
pipelines to the producers involves complex issues of law and fact which are
likely to take substantial time to resolve. If required to reimburse or
indemnify the producers, Panhandle Eastern Pipe Line and Trunkline may file with
FERC to recover a portion of these costs from pipeline customers. Management
believes these commitments and contingencies will not have a material adverse
effect on consolidated results of operations, liquidity or financial position.
At March 31, 2003 and 2002, Panhandle has accrued approximately $14 million in
Non-current Liabilities on the Consolidated Balance Sheet related to this
matter.
In May 2001, Panhandle provided a guaranty related to project financing
associated with its investment in Centennial in an amount up to $50 million
during the initial operating period of the project. Due to rating agency
downgrades of Panhandle's debt, the Centennial lender required additional credit
support from Panhandle. On September 27, 2002 Panhandle's partners provided
credit support of $25 million each in the form of guarantees to the Centennial
lender to cover Panhandle's $50 million obligation. The partners were paid
credit fees by Panhandle on the outstanding balance of the guarantees for the
periods for which they were in effect. On February 10, 2003, Panhandle sold its
one-third equity interest in Centennial for $40 million to Centennial's two
other partners, MAPL and TEPPCO. Panhandle has been released by MAPL, TEPPCO and
the lenders for any liabilities related to Panhandle's $50 million parent
guaranty of the project debt.
In November 2001, in conjunction with the Guardian project, Panhandle provided a
$60 million guaranty related to project financing during the construction and
initial operating period of the project. The
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guaranty is released when Guardian reaches certain operational and financial
targets. Due to rating agency downgrades of Panhandle's debt, the Guardian
lender assessed credit fees and required additional credit support from
Panhandle. In October 2002, Panhandle provided a letter of credit to the lenders
which constitutes acceptable credit support under the Guardian financing
agreement. This letter of credit was cash collateralized by Panhandle with
approximately $63 million which, including accumulated interest, is reflected as
Restricted Cash on the Consolidated Balance Sheet at December 31, 2002. On March
10, 2003, Panhandle's ownership interest in Guardian was transferred back to CMS
Gas Transmission (see Note 5, Related Party Transactions). Panhandle was also
released from the guarantee obligations associated with the Guardian
non-recourse debt as of March 10, 2003, by the partners, Prudential and the
other noteholders.
In December 2002 and January 2003, Panhandle secured short-term bank loans in
the amounts of $30 million and $10 million, respectively, with interest payable
at rates of LIBOR plus 4 percent. The loans are due the earlier of December 2003
or upon sale of Panhandle. The stock of most of Panhandle's subsidiaries were
pledged as collateral for the loans, which were utilized to improve overall
liquidity which had been reduced by various cash requirements.
Panhandle had received a waiver until April 30, 2003 to provide certified
September 30, 2002 financial statements to the LNG Holdings lenders under that
credit facility. Panhandle has since satisfied that requirement. Panhandle also
received a waiver until June 30, 2003 of a requirement to provide certain
documentation. Should it be unable to execute the required documents by the
timing indicated, LNG Holdings could be declared to be in default under its
credit facility and the debt thereunder could be accelerated and become
immediately due and payable.
Occasionally, Panhandle will purchase surety bonds to indemnify third parties
for unforeseen events which may occur in the course of construction or repair
projects. As of March 31, 2003, Panhandle has purchased $2 million of these
surety bonds.
SALE OF PANHANDLE
On May 12, 2003, CMS Energy and Southern Union Company entered into an amendment
to the original stock purchase agreement executed in December 2002, related to
Southern Union's acquisition of Panhandle. For further information, see Note 1,
Corporate Structure.
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QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
CMS ENERGY
Quantitative and Qualitative Disclosures about Market Risk is contained in PART
I: CMS ENERGY CORPORATION'S MANAGEMENT'S DISCUSSION AND ANALYSIS, which is
incorporated by reference herein.
CONSUMERS
Quantitative and Qualitative Disclosures about Market Risk is contained in PART
I: CONSUMERS' ENERGY COMPANY'S MANAGEMENT'S DISCUSSION AND ANALYSIS, which is
incorporated by reference herein.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The discussion below is limited to an update of developments that have occurred
in various judicial and administrative proceedings, many of which are more fully
described in CMS Energy's, Consumers' and Panhandle's respective Form 10-Ks for
the year ended December 31, 2002. Reference is also made to the Condensed Notes
to the Consolidated Financial Statements, in particular Note 4 - Uncertainties
for CMS Energy, Note 2, Uncertainties for Consumers, and Note 7 - Commitments
and Contingencies for Panhandle, included herein for additional information
regarding various pending administrative and judicial proceedings involving
rate, operating, regulatory and environmental matters.
CMS ENERGY
DEMAND FOR ACTIONS AGAINST OFFICERS AND DIRECTORS
The Board of Directors of CMS Energy received a demand, on behalf of a
shareholder of CMS Energy Common Stock, that it commence civil actions (i) to
remedy alleged breaches of fiduciary duties by CMS Energy officers and directors
in connection with round-trip trading at CMS MST, and (ii) to recover damages
sustained by CMS Energy as a result of alleged insider trades alleged to have
been made by certain current and former officers of CMS Energy and its
subsidiaries. If the Board elects not to commence such actions, the shareholder
has stated that he will initiate a derivative suit, bringing such claims on
behalf of CMS Energy. CMS Energy has elected two new members to its Board of
Directors who will serve as an independent litigation committee to determine
whether it is in the best interest of the company to bring the action demanded
by the shareholder. Counsel for the shareholder has agreed to extend the time
for CMS Energy to respond to the demand. CMS Energy cannot predict the outcome
of this litigation.
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CMS ENERGY AND CONSUMERS
EMPLOYMENT RETIREMENT INCOME SECURITY ACT ("ERISA") CLASS ACTION LAWSUITS
CMS Energy is a named defendant, along with Consumers, CMS MS&T and certain
named and unnamed officers and directors, in two lawsuits brought as purported
class actions on behalf of participants and beneficiaries of the CMS Employee's
Savings and Incentive Plan (the "Plan"). The two cases, filed in July 2002 in
the U.S. District Court, were consolidated by the trial judge, and an amended
consolidated complaint was filed. Plaintiffs allege breaches of fiduciary duties
under ERISA and seek restitution on behalf of the Plan with respect to a decline
in value of the shares of Common Stock held in the Plan. Plaintiffs also seek
other equitable relief and legal fees. These cases will be vigorously defended.
CMS Energy and Consumers cannot predict the outcome of this litigation.
SECURITIES CLASS ACTION LAWSUITS
Beginning on May 17, 2002, a number of securities class action complaints were
filed against CMS Energy, Consumers, and certain officers and directors of CMS
Energy and its affiliates. The complaints were filed as purported class actions
in the United States District Court for the Eastern District of Michigan. The
cases were consolidated into a single lawsuit and an amended and consolidated
class action complaint was filed on May 1, 2003. The defendants named in the
amended and consolidated class action complaint consist of CMS Energy,
Consumers, certain officers and directors of CMS Energy and its affiliates, and
certain underwriters of CMS Energy securities. The purported class period is
from May 1, 2000 through and including March 31, 2003. The amended and
consolidated class action complaint seeks unspecified damages based on
allegations that the defendants violated United States securities laws and
regulations by making allegedly false and misleading statements about CMS
Energy's business and financial condition. The companies intend to vigorously
defend against this action but cannot predict the outcome of this litigation.
CMS ENERGY, CONSUMERS AND PANHANDLE
ENVIRONMENTAL MATTERS: CMS Energy, Consumers, Panhandle and their subsidiaries
and affiliates are subject to various federal, state and local laws and
regulations relating to the environment. Several of these companies have been
named parties to various actions involving environmental issues. Based on their
present knowledge and subject to future legal and factual developments, CMS
Energy, Consumers and Panhandle believe that it is unlikely that these actions,
individually or in total, will have a material adverse effect on their financial
condition. See CMS Energy's, Consumers' and Panhandle's MANAGEMENT'S DISCUSSION
AND ANALYSIS; and CMS Energy's, Consumers' and Panhandle's CONDENSED NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS.
ITEM 5. OTHER INFORMATION
A shareholder who wishes to submit a proposal for consideration at the CMS
Energy 2004 Annual Meeting pursuant to the applicable rules of the SEC must send
the proposal to reach CMS' Corporate Secretary on or before December 24, 2003.
In any event if CMS has not
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received written notice of any matter to be proposed at that meeting by March 8,
2004, the holders of the proxies may use their discretionary voting authority on
any such matter. The proposals should be addressed to: Mr. Michael D. VanHemert,
Corporate Secretary, One Energy Plaza, Jackson, Michigan 49201.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) LIST OF EXHIBITS
(3) By-Laws of Consumers Energy Company
(4)(a) 87th Supplemental Indenture, dated as of March 26, 2003,
between Consumers Energy Company and JPMorgan Chase Bank as
Trustee
(4)(b) 88th Supplemental Indenture, dated as of March 27, 2003,
between Consumers Energy Company and JPMorgan Chase Bank as
Trustee
(4)(c) 89th Supplemental Indenture, dated as of March 28, 2003,
between Consumers Energy Company and JPMorgan Chase Bank as
Trustee
(4)(d) 90th Supplemental Indenture, dated as of April 30, 2003,
between Consumers Energy Company and JPMorgan Chase Bank as
Trustee
(4)(e) $140 million Term Loan Agreement dated March 26, 2003 between
Consumers Energy Company and the Bank/Agent, as defined
therein
(4)(f) $250 million Revolving Credit Facility dated March 27, 2003
among Consumers Energy Company, the Banks, the Agent, and the
Co-Documentation Agents, all as defined therein
(4)(g) $150 million Term Loan Agreement dated March 28, 2003 among
Consumers Energy Company, the Banks, and the Agent, all as
defined therein
(4)(h) $409 million Second Amended and Restated Credit Facility dated
March 30, 2003 among CMS Energy Corporation, the Banks, and
the Administrative Agent/Collateral Agent, all as defined
therein
(4)(i) $441 million Revolving Credit Facility dated March 30, 2003
among CMS Enterprises Company as Borrower, CMS Energy
Corporation as the Loan Party, the Banks, and the
Administrative Agent/Collateral Agent, all as defined therein
(4)(j) $75 million Revolving Credit Facility dated April 21, 2003
among CMS Enterprises Company as Borrower, CMS Energy
Corporation as the Loan Party, the Banks, and the
Administrative Agent/Collateral Agent, all as defined therein
(10)(a) Stock Purchase Agreement by and among CMS Gas Transmission
Company, AIG Highstar Capital, L.P., AIG Highstar II Funding
Corp., Southern Union Company and Southern Union Panhandle
Corp. dated as of December 21, 2002 (Filed as Exhibit 10.1 to
Form 8-K filed December 22, 2002)
(10)(b) Amended and Restated Stock Purchase Agreement by and among CMS
Gas Transmission Company, Southern Union Company and Southern
Union Panhandle Corp. dated as of May 12, 2003
(10)(c) Shareholder Agreement by and between CMS Gas Transmission
Company and Southern Union Company dated as of May 12, 2003
(10)(d) Amendment Agreement by and among CMS Gas Transmission Company,
AIG Highstar Capital, L.P., AIG Highstar II Funding Corp.,
Southern Union Company and Southern Union Panhandle Corp.
dated as of May 12, 2003
(12) CMS Energy: Statements regarding computation of Ratio of
Earnings to Fixed Charges
(99)(a) CMS Energy Corporation's certifications pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(99)(b) Consumers Energy Company's certifications pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
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(99)(c) Panhandle Eastern Pipe Line Corporation's certifications
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(B) REPORTS ON FORM 8-K
CMS ENERGY
During 1st Quarter 2003, CMS Energy filed reports of Form 8-K on January 24,
2003, February 21, 2003, March 5, 2003 and March 13, 2003 covering matters
pursuant to ITEM 5. OTHER EVENTS.
CONSUMERS
During 1st Quarter 2003, Consumers filed reports of Form 8-K on January 24,
2003, February 21, 2003, March 5, 2003 and March 13, 2003 covering matters
pursuant to ITEM 5. OTHER EVENTS.
PANHANDLE
During 1st Quarter 2003, Panhandle filed reports of Form 8-K on January 24,
2003, February 21, 2003 and March 13, 2003 covering matters pursuant to ITEM 5.
OTHER EVENTS.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature for each undersigned
company shall be deemed to relate only to matters having reference to such
company or its subsidiary.
CMS ENERGY CORPORATION
(Registrant)
Dated: May 13, 2003 By: /s/ Thomas J. Webb
-------------------------------------------------
Thomas J. Webb
Executive Vice President and
Chief Financial Officer
CONSUMERS ENERGY COMPANY
(Registrant)
Dated: May 13, 2003 By: /s/ Thomas J. Webb
-------------------------------------------------
Thomas J. Webb
Executive Vice President and
Chief Financial Officer
PANHANDLE EASTERN PIPE LINE COMPANY
(Registrant)
Dated: May 13, 2003 By: /s/ Thomas J. Webb
-------------------------------------------------
Thomas J. Webb
Executive Vice President and
Chief Financial Officer
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CERTIFICATION OF KENNETH WHIPPLE
I, Kenneth Whipple, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CMS Energy
Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operation and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
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6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: May 13, 2003 By: /s/ Kenneth Whipple
---------------------------------------
Kenneth Whipple
Chairman of the Board and
Chief Executive Officer
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CERTIFICATION OF THOMAS J. WEBB
I, Thomas J. Webb, certify that:
1. I have reviewed this quarterly report on Form 10-Q of CMS Energy
Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operation and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
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6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: May 13, 2003 By: /s/ Thomas J. Webb
---------------------------------------
Thomas J. Webb
Executive Vice President and
Chief Financial Officer
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CERTIFICATION OF KENNETH WHIPPLE
I, Kenneth Whipple, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Consumers
Energy Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operation and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
CO-10
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: May 13, 2003 By: /s/ Kenneth Whipple
---------------------------------------
Kenneth Whipple
Chairman of the Board and
Chief Executive Officer
CO-11
CERTIFICATION OF THOMAS J. WEBB
I, Thomas J. Webb, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Consumers
Energy Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operation and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
CO-12
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: May 13, 2003 By: /s/ Thomas J. Webb
---------------------------------------
Thomas J. Webb
Executive Vice President and
Chief Financial Officer
CO-13
CERTIFICATION OF CHRISTOPHER A. HELMS
I, Christopher A. Helms, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Panhandle
Eastern Pipe Line Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operation and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
CO-14
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: May 13, 2003 By: /s/ Christopher A. Helms
---------------------------------------
Christopher A. Helms
President and
Chief Executive Officer
CO-15
CERTIFICATION OF THOMAS J. WEBB
I, Thomas J. Webb, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Panhandle
Eastern Pipe Line Company;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operation and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant's internal controls; and
CO-16
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: May 13, 2003 By: /s/ Thomas J. Webb
---------------------------------------
Thomas J. Webb
Executive Vice President and
Chief Financial Officer
CO-17
CMS ENERGY, CONSUMERS AND PANHANDLE EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
(3) By-Laws of Consumers Energy Company
(4)(a) 87th Supplemental Indenture, dated as of March 26, 2003
between Consumers Energy Company and JPMorgan Chase Bank as
Trustee
(4)(b) 88th Supplemental Indenture, dated as of March 27, 2003
between Consumers Energy Company and JPMorgan Chase Bank as
Trustee
(4)(c) 89th Supplemental Indenture, dated as of March 28, 2003
between Consumers Energy Company and JPMorgan Chase Bank as
Trustee
(4)(d) 90th Supplemental Indenture, dated as of April 30, 2003,
between Consumers Energy Company and JPMorgan Chase Bank as
Trustee
(4)(e) $140 million Term Loan Agreement dated March 26, 2003 between
Consumers Energy Company and the Bank/Agent, as defined
therein
(4)(f) $250 million Revolving Credit Facility dated March 27, 2003
among Consumers Energy Company, the Banks, the Agent, and the
Co-Documentation Agents, all as defined therein
(4)(g) $150 million Term Loan Agreement dated March 28, 2003 among
Consumers Energy Company, the Banks, and the Agent, all as
defined therein
(4)(h) $409 million Second Amended and Restated Credit Facility dated
March 30, 2003 among CMS Energy Corporation, the Banks, and
the Administrative Agent/Collateral Agent, all as defined
therein
(4)(i) $441 million Revolving Credit Facility dated March 30, 2003
among CMS Enterprises Company as Borrower, CMS Energy
Corporation as the Loan Party, the Banks, and the
Administrative Agent/Collateral Agent, all as defined therein
(4)(j) $75 million Revolving Credit Facility dated April 21, 2003
among CMS Enterprises Company as Borrower, CMS Energy
Corporation as the Loan Party, the Banks, and the
Administrative Agent/Collateral Agent, all as defined therein
(10)(a) Stock Purchase Agreement by and among CMS Gas Transmission
Company, AIG Highstar Capital, L.P., AIG Highstar II Funding
Corp., Southern Union Company and Southern Union Panhandle
Corp. dated as of December 21, 2002 (Filed as Exhibit 10.1 to
Form 8-K filed December 22, 2002)
(10)(b) Amended and Restated Stock Purchase Agreement by and among CMS
Gas Transmission Company, Southern Union Company and Southern
Union Panhandle Corp. dated as of May 12, 2003
(10)(c) Shareholder Agreement by and between CMS Gas Transmission
Company and Southern Union Company dated as of May 12, 2003
(10)(d) Amendment Agreement by and among CMS Gas Transmission Company,
AIG Highstar Capital, L.P., AIG Highstar II Funding Corp.,
Southern Union Company and Southern Union Panhandle Corp.
dated as of May 12, 2003
(12) CMS Energy Statements regarding computation of Ratio of
Earnings to Fixed Charges
(99)(a) CMS Energy Corporation's certifications pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(99)(b) Consumers Energy Company's certifications pursuant to Section
906 of the Sarbanes-Oxley Act of 2002
(99)(c) Panhandle Eastern Pipe Line Corporation's certifications
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
CO-18
EXHIBIT 3
1
CONSUMERS ENERGY COMPANY
BYLAWS
ARTICLE I: LOCATION OF OFFICES
Section 1 - Registered Office: The registered office of Consumers
Energy Company, (the "Company") shall be at such place in the City of
Jackson, County of Jackson, Michigan, or elsewhere in the State of
Michigan, as the Board of Directors may from time to time designate.
Section 2 - Other Offices: The Company may have and maintain other
offices within or without the State of Michigan.
ARTICLE II: CORPORATE SEAL
Section 1 - Corporate Seal: The Company shall have a corporate seal
bearing the name of the Company. The form of the corporate seal may be
altered by the Board of Directors.
ARTICLE III: FISCAL YEAR
Section 1 - Fiscal Year: The fiscal year of the Company shall begin
with the first day of January and end with the thirty-first day of
December of each year.
ARTICLE IV: SHAREHOLDERS' MEETINGS
Section 1 - Annual Meetings: An annual meeting of the shareholders for
election of Directors and for such other business as may come before
the meeting shall be held at the registered office of the Company or at
such other place within or without the State of Michigan, at 10:00 AM,
Eastern Daylight Saving Time, or at such other time on the fourth
Friday in May of each year or upon such other date as the Board of
Directors may designate, but in no event shall such date be more than
ninety (90) days after the fourth Friday in May.
Section 2 - Special Meetings: Special meetings of the shareholders may
be called by the Board of Directors or by the Chairman of the Board.
Such meetings shall be held at the registered office of the Company or
at such other place within or without the State of Michigan as the
Board of Directors may designate.
Section 3 - Notices: Except as otherwise provided by law, written
notice of any meeting of the shareholders shall be given, either
personally or by mail to each shareholder of record entitled to vote at
such meeting, not less than ten (10) days nor more than sixty (60) days
prior to the date of the meeting, at their last known address as the
same appears on the stock records of the Company. Written notice shall
be considered given when deposited, with postage thereon prepaid, in a
post office or official depository under the control of the United
States postal service. Such notice shall specify the time and place of
holding the meeting, the purpose or purposes for which such meeting is
called, and the record date fixed for the determination of shareholders
entitled to notice of and to vote at such meeting. The Board of
Directors shall fix a record date for determining shareholders entitled
to notice of and to vote at a meeting of shareholders, which record
date shall not be more than sixty (60) days nor less than ten (10) days
before the date of the meeting. Such record date shall apply to any
adjournment of the meeting unless the Board of Directors shall fix a
new record date for purposes of the adjourned meeting.
2
No notice of an adjourned meeting shall be necessary if the
time and place to which the meeting is adjourned are announced at the
meeting at which the adjournment is taken. At the adjourned meeting
only such business may be transacted as might have been transacted at
the original meeting. If, after an adjournment, the Board of Directors
shall fix a new record date for the adjourned meeting, a notice of the
adjourned meeting shall be mailed, in conformity with the provisions of
the first paragraph of this Section 3, to each shareholder of record on
the new record date entitled to vote at the adjourned meeting.
Section 4 - Quorum: Except as otherwise provided by law or by the
Articles of Incorporation of the Company, the holders of the shares of
stock of the Company entitled to cast a majority of the votes at a
meeting shall constitute a quorum for the transaction of business at
the meeting, but a lesser number may convene any meeting and, by a
majority vote of the shares present at the meeting, may adjourn the
same from time to time until a quorum shall be present.
Section 5 - Voting: Shareholders may vote at all meetings in person or
by proxy, but all proxies shall be filed with the Secretary of the
meeting before being voted upon.
The voting powers of the shares of Preferred Stock, Class A
Preferred Stock, Preference Stock and Common Stock shall be as provided
by law or set forth in the Articles of Incorporation of the Company.
Section 6 - Inspectors: In advance of any meeting of shareholders the
Board of Directors shall appoint one or more inspectors to act at such
meeting or any adjournment thereof. The inspectors shall have such
powers and duties as are provided by law.
ARTICLE V: DIRECTORS
Section 1 - Number: The Board of Directors of the Company shall consist
of not less than seven (7) nor more than seventeen (17) members, as
fixed from time to time by resolution of the Board of Directors.
Section 2 - Election: The Directors shall be elected annually at the
annual meeting of the shareholders or at any adjournment thereof.
Section 3 - Term of Office: Subject to the provisions of the Articles
of Incorporation of the Company and unless otherwise provided by law,
the Directors shall hold office from the date of their election until
the next succeeding annual meeting and until their successors are
elected and shall qualify.
Section 4 - Vacancies: Any vacancy or vacancies in the Board of
Directors arising from any cause may be filled by the affirmative vote
of a majority of the Directors then in office although less than a
quorum. An increase in the number of members shall be construed as
creating a vacancy.
ARTICLE VI: DIRECTORS' MEETINGS
Section 1 - Organization Meeting: As soon as possible after their
election, the Board of Directors shall meet and organize and may also
transact other business.
Section 2 - Other Meetings: Meetings of the Board of Directors may be
held at any time upon call of the Secretary or an Assistant Secretary
made at the direction of the Chairman of the Board, the President, a
Vice Chairman, if any, or a Vice President.
3
Section 3 - Place of Meeting: All meetings of Directors shall be held
at such place within or without the State of Michigan as may be
designated in the call therefor.
Section 4 - Notice: A reasonable notice of all meetings, in writing or
otherwise, shall be given to each Director or sent to the Director's
residence or place of business; provided, however, that no notice shall
be required for an organization meeting if held on the same day as the
shareholders' meeting at which the Directors were elected.
No notice of the holding of an adjourned meeting shall be
necessary.
Notice of all meetings shall specify the time and place of
holding the meeting and unless otherwise stated any and all business
may be transacted at any such meeting.
Notice of the time, place and purpose of any meeting may be
waived in writing either before or after the holding thereof.
Section 5 - Quorum: At all meetings of the Board of Directors a
majority of the Board then in office shall constitute a quorum but a
majority of the Directors present may convene and adjourn any such
meeting from time to time until a quorum shall be present; provided,
that if the Board shall consist of ten (10) and not more than fifteen
(15), then five (5) members shall constitute a quorum; and if the Board
shall consist of more than fifteen (15), then seven (7) members shall
constitute a quorum.
Section 6 - Voting: All questions coming before any meeting of the
Board of Directors for action shall be decided by a majority vote of
the Directors present at such meeting, unless otherwise provided by
law, the Articles of Incorporation of the Company or by these Bylaws.
Section 7 - Participation by Communications Equipment: A Director or a
member of a Committee designated by the Board of Directors may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in
the meeting can hear each other. Participation in a meeting by such
means shall constitute presence in person at the meeting.
Section 8 - Action Without Meeting: Any action required or permitted to
be taken pursuant to authorization voted at a meeting of the Board of
Directors or a Committee thereof, may be taken without a meeting if,
before or after the action, all members of the Board or of the
Committee consent thereto in writing. The written consents shall be
filed with the minutes of the proceedings of the Board or Committee,
and the consents shall have the same effect as a vote of the Board or
Committee for all purposes.
ARTICLE VII: EXECUTIVE AND OTHER COMMITTEES
Section 1 - Number and Qualifications: By resolution passed by a
majority of the whole Board, the Board of Directors may from time to
time designate one or more of their number to constitute an Executive
or any other Committee of the Board, as the Board of Directors may from
time to time determine to be desirable, and may fix the number of
members and designate the Chairperson of each such Committee, except
that the Audit Committee shall consist of not less than three outside
members of the Board of Directors. Except as provided by law, the
powers of each such Committee shall be as defined in the resolution or
resolutions of the Board of Directors relating to the authorizations of
such Committee, and may include, if such resolution or resolutions so
provide, the power and
4
authority to declare a dividend or to authorize the issuance of shares
of stock of the Company.
Section 2 - Appointment: The appointment of members of each such
Committee, or other action respecting any Committee, may take place at
any meeting of the Directors.
Section 3 - Term of Office: The members of each Committee shall hold
office at the pleasure of the Board of Directors.
Section 4 - Vacancies: Any vacancy or vacancies in any such Committee
arising from any cause shall be filled by resolution passed by a
majority of the whole Board of Directors. By like vote the Board may
designate one or more Directors to serve as alternate members of a
Committee, who may replace an absent or disqualified member at a
meeting of a Committee; provided, however, in the absence or
disqualification of a member of a Committee, the members of the
Committee present at a meeting and not disqualified from voting,
whether or not constituting a quorum, may unanimously appoint another
member of the Board of Directors to act in the place of the absent or
disqualified member.
Section 5 - Minutes: Except as provided in Section 2 of Article X
hereof or as otherwise determined by the Board of Directors, each such
Committee shall make a written report or recommendation following its
meetings or keep minutes of all its meetings.
Section 6 - Quorum: At all meetings of any duly authorized Committee of
the Board of Directors, a majority of the members of such Committee
shall constitute a quorum but a majority of the members present may
convene and adjourn any such meeting from time to time until a quorum
shall be present; provided, that with respect to any Committee of the
Board other than the Executive Committee, if the membership of such
Committee is four (4) or less, then two (2) members of such Committee
shall constitute a quorum and one member may convene and adjourn any
such meeting from time to time until a quorum shall be present.
ARTICLE VIII: OFFICERS
Section 1 - Election: The officers shall be chosen by the Board of
Directors. The Company shall have a Chairman of the Board, a President,
a Secretary and a Treasurer, and such other officers as the Board of
Directors may from time to time determine, who shall have respectively
such duties and authority as may be provided by these Bylaws or as may
be provided by resolution of the Board of Directors not inconsistent
herewith. Any two (2) or more of such offices may be held by the same
person but no officer shall execute, acknowledge or verify any
instrument in more than one capacity if such instrument is required by
law, by the Articles of Incorporation of the Company or by these Bylaws
to be executed, acknowledged or verified by two (2) or more officers.
Section 2 - Qualifications: The Chairman of the Board and Vice
Chairman, if any, shall be chosen from among the Board of Directors,
but the other officers need not be members of the Board.
Section 3 - Vacancies: Any vacancy or vacancies among the officers
arising from any cause shall be filled by the Board of Directors. In
case of the absence of any officer of the Company or for any other
reason that the Board of Directors may deem sufficient, the Board of
Directors may delegate, for the time being, the powers or duties, or
any of them, of any officer to any other officer or to any Director.
Section 4 - Term of Office: Each officer of the Company shall hold
office until the officer's successor is chosen and qualified, or until
5
the officer's resignation or removal. Any officer appointed by the
Board of Directors may be removed at any time by the Board of Directors
with or without cause.
Section 5 - Compensation: The compensation of the officers shall be
fixed by the Board of Directors.
ARTICLE IX: AGENTS
Section 1 - Resident Agent: The Company shall have and continuously
maintain a resident agent, which may be either an individual resident
in the State of Michigan whose business office is identical with the
Company's registered office or a Michigan corporation or a foreign
corporation authorized to transact business in Michigan and having a
business office identical with the Company's registered office. The
Board of Directors shall appoint the resident agent.
Section 2 - Other Agents: The Board of Directors may appoint such other
agents as may in their judgment be necessary for the proper conduct of
the business of the Company.
ARTICLE X: POWERS AND DUTIES
Section 1 - Directors: The business and affairs of the Company shall be
managed by the Board of Directors which shall have and exercise all of
the powers and authority of the Company except as otherwise provided by
law, by the Articles of Incorporation of the Company or by these
Bylaws.
Section 2 - Executive Committee: In the interim between meetings of the
Board of Directors the Executive Committee shall have and exercise all
the powers and authority of the Board of Directors except as otherwise
provided by law. The Executive Committee shall meet from time to time
on the call of the Chairman of the Board or the Chairman of the
Committee. The Secretary shall keep minutes in sufficient detail to
advise fully the Board of Directors of the actions taken by the
Committee and shall submit copies of such minutes to the Board of
Directors for its approval or other action at its next meeting.
Section 3 - Chairman of the Board: The Chairman of the Board shall
preside at all meetings of Directors and shareholders; shall perform
and do all acts and things incident to the position of Chairman of the
Board; and shall perform such other duties as may be assigned from time
to time by the Board of Directors or the Executive Committee.
Unless otherwise provided by the Board or the Executive
Committee, the Chairman of the Board shall have full power and
authority on behalf of the Company to execute any shareholder, member
or partnership consents and to attend and act and to vote in person or
by proxy at any meetings of shareholders, members or partners of any
entity in which the Company may own stock or an interest and at any
such meeting shall possess and may exercise any and all the rights and
powers incident to the ownership of such stock or interest and which,
as the owner thereof, the Company might have possessed and exercised if
present. If the Chairman of the Board shall not exercise such powers,
or in the absence or inability to act of the Chairman, the President
may exercise such powers. In the absence or inability to act of the
President, a Vice Chairman, if any, may exercise such powers. In the
absence or inability to act of a Vice Chairman, any Vice President may
exercise such powers. The Board of Directors or Executive Committee by
resolution from time to time may confer like powers upon any other
person or persons.
Section 4 - President: The President shall be the chief executive
officer of the Company and, subject to the supervision of the Board of
6
Directors and of the Executive Committee, shall have general charge of
the business and affairs of the Company; shall perform and do all acts
and things incident to such position; and shall perform such other
duties as may be assigned from time to time by the Board of Directors,
the Executive Committee or the Chairman of the Board. In the absence of
the Chairman of the Board and a Vice Chairman, the President shall
preside at meetings of Directors. In the absence of the Chairman of the
Board, the President shall preside at meetings of shareholders.
Section 5 - Vice Chairman: The Vice Chairman, if any, shall perform
such of the duties of the Chairman of the Board or the President on
behalf of the Company as may be respectively assigned from time to time
by the Board of Directors, the Executive Committee, the Chairman of the
Board or the President. In the absence of the Chairman of the Board,
the Vice Chairman shall preside at meetings of Directors. In the
absence of the Chairman of the Board and the President, the Vice
Chairman shall preside at meetings of shareholders.
Section 6 - Vice Presidents: Vice Presidents, if any, shall perform
such of the duties of the Chairman of the Board or the President or the
Vice Chairman, if any, on behalf of the Company as may be respectively
assigned from time to time by the Board of Directors, the Executive
Committee, the Chairman of the Board or the President or a Vice
Chairman. The Board of Directors or Executive Committee may designate
one or more of the Vice Presidents as Executive Vice President or
Senior Vice President.
Section 7 - Controller: Subject to the Board of Directors, the
Executive Committee, the Chairman of the Board, the President and the
Vice President having general charge of accounting, the Controller, if
any, shall have charge of the supervision of the accounting system of
the Company, including the preparation and filing of all tax returns
and financial reports required by law to be made to any and all public
authorities and officials; and shall perform such other duties as may
be assigned, from time to time, by the Board of Directors, the
Executive Committee, the Chairman of the Board, the President, a Vice
Chairman, if any, or Vice President having general charge of
accounting.
Section 8 - Treasurer: It shall be the duty of the Treasurer to have
the care and custody of all the funds and securities, including the
investment thereof, of the Company which may come into the Treasurer's
hands, and to endorse checks, drafts and other instruments for the
payment of money for deposit or collection when necessary or proper and
to deposit the same to the credit of the Company in such bank or banks
or depository as the Treasurer may designate, and the Treasurer may
endorse all commercial documents requiring endorsements for or on
behalf of the Company. The Treasurer may sign all receipts and vouchers
for the payments made to the Company; shall render an account of
transactions to the Board of Directors or the Executive Committee as
often as the Board or the Committee shall require; and shall perform
all acts incident to the position of Treasurer, subject to the control
of the Board of Directors, the Executive Committee, the Chairman of the
Board, the President and a Vice Chairman, if any.
Section 9 - Secretary: The Secretary shall act as custodian of and
record the minutes of all meetings of the Board of Directors, of the
Executive Committee, of the shareholders and of any Committees of the
Board of Directors which keep formal minutes; shall attend to the
giving and serving of all notices of the Company; shall prepare or
cause to be prepared the list of shareholders required to be produced
at any meeting; shall attest the seal of the Company upon all contracts
and instruments executed under such seal and shall affix or cause to be
affixed the seal of the Company thereto and to all certificates of
shares of the capital
7
stock; shall have charge of the stock records of the Company and such
other books and papers as the Board of Directors, the Executive
Committee, the Chairman of the Board, the President or a Vice Chairman,
if any, may direct; and shall, in general, perform all the duties of
Secretary, subject to the control of the Board of Directors, the
Executive Committee, the Chairman of the Board, the President and a
Vice Chairman, if any.
Section 10 - General Counsel: The General Counsel, if any, shall have
charge of all matters of a legal nature involving the Company.
Section 11 - Assistant Controllers,
Assistant Secretaries and
Assistant Treasurers: An Assistant Controller, an
Assistant Secretary or an Assistant Treasurer, if any, shall, in the
absence or inability to act or at the request of the Controller,
Secretary or Treasurer, respectively, perform the duties of the
Controller or Secretary or Treasurer, respectively, and shall perform
such other duties as may from time to time be assigned by the Board of
Directors, the Executive Committee, the Chairman of the Board, the
President or a Vice Chairman, if any. The performance of any such duty
shall be conclusive evidence of their right to act.
Section 12 - Principal Financial Officer and
Principal Accounting Officer: The Board of Directors or
the Executive Committee may from time to time designate officers of the
Company to be the Principal Financial Officer and the Principal
Accounting Officer of the Company.
ARTICLE XI: STOCK
Section 1 - Stock Certificates: The shares of stock of the Company
shall be represented by certificates which shall be numbered and shall
be entered on the stock records of the Company and registered as they
are issued. Each certificate shall state on its face that the Company
is formed under the laws of Michigan, the name of the person or persons
to whom issued, the number and class of shares and the designation of
the series the certificate represents, and the par value of each share
represented by the certificate; shall be signed by the Chairman of the
Board or a Vice Chairman or the President or one of the Vice Presidents
and also may be signed by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary; and shall be sealed with the
seal of the Company or a facsimile thereof. When such certificates are
countersigned by a transfer agent or registered by a registrar, the
signatures of any such Chairman of the Board, Vice Chairman, President,
Vice President, Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary may be facsimiles. In case any officer, who shall have signed
or whose facsimile signature shall have been placed on any such
certificate, shall cease to be such officer of the Company before such
certificate shall have been issued by the Company, such certificate may
nevertheless be issued by the Company with the same effect as if the
person, who signed such certificate or whose facsimile signature shall
have been placed thereon, were such officer of the Company at the date
of issue.
Each certificate shall set forth on its face or back or state
that the Company will furnish to a shareholder upon request and without
charge a full statement of the designations, relative rights,
preferences and limitations of the shares of stock of each class
authorized to be issued and of each series so far as the same have been
prescribed and the authority of the Board of Directors to designate and
prescribe the relative rights, preferences and limitations of other
series.
8
Section 2 - Stock Records: The shares of stock of the Company shall be
transferable on the stock records of the Company in person or by proxy
duly authorized and upon surrender and cancellation of the old
certificates therefor.
The Board of Directors may fix a date preceding the date fixed
for any meeting of the shareholders or any dividend payment date or the
date for the allotment of rights or the date when any change,
conversion or exchange of stock shall go into effect or the date for
any other action, as the record date for the determination of the
shareholders entitled to notice of and to vote at such meeting or to
receive payment of such dividend or to receive such allotment of rights
or to exercise such rights in respect of any such change, conversion or
exchange of stock or to take such other action, as the case may be,
notwithstanding any transfer of shares on the records of the Company or
otherwise after any such record date fixed as aforesaid. The record
date so fixed by the Board shall not be more than sixty (60) nor less
than ten (10) days before the date of the meeting of the shareholders,
nor more than sixty (60) days before any other action. If the Board of
Directors does not fix a date of record, as aforesaid, the record date
shall be as provided by law.
Section 3 - Stock - Preferred, Class A Preferred, Preference and
Common: The Preferred Stock, Class A Preferred Stock, Preference Stock
and Common Stock of the Company shall consist of shares having a par
value of $100, no par value, $1 and $10 per share, respectively.
The designations, relative rights, preferences, limitations
and voting powers, or restrictions, or qualifications of the shares of
Preferred Stock, Class A Preferred Stock, Preference Stock and Common
Stock shall be as set forth in the Articles of Incorporation of the
Company.
Section 4 - Replacing Certificates: In case of the alleged loss, theft
or destruction of any certificate of shares of stock and the submission
of proper proof thereof, a new certificate may be issued in lieu
thereof upon delivery to the Company by the owner or the owner's legal
representative of a bond of indemnity against any claim that may be
made against the Company on account of such alleged lost, stolen or
destroyed certificate or such issuance of a new certificate.
ARTICLE XII: AUTHORIZED SIGNATURES
Section 1 - Authorized Signatures: All checks, drafts and other
negotiable instruments issued by the Company shall be made in the name
of the Company and shall be signed manually or signed by facsimile
signature by such one of the officers of the Company or such other
person as the Chairman of the Board, the Vice Chairman of the Board,
President or the Treasurer may from time to time designate.
ARTICLE XIII: INSURANCE
Section 1 - Insurance: 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 enterprise against any liability asserted against such
person and incurred by such person in any such capacity.
9
ARTICLE XIV: AMENDMENTS OF BYLAWS
Section 1 - Amendments, How Effected: These Bylaws may be amended or
repealed, or new Bylaws may be adopted, either by the majority vote of
the votes cast by the shareholders entitled to vote thereon or by the
majority vote of the Directors then in office at any meeting of the
Directors.
Amended and Restated
May 25, 2001
EXHIBIT 4(a)
EIGHTY-SEVENTH SUPPLEMENTAL INDENTURE
PROVIDING AMONG OTHER THINGS FOR
FIRST MORTGAGE BONDS,
COLLATERAL SERIES DUE 2009
--------------
DATED AS OF MARCH 26, 2003
--------------
CONSUMERS ENERGY COMPANY
TO
JPMORGAN CHASE BANK,
TRUSTEE
Counterpart _____ of 80
THIS EIGHTY-SEVENTH SUPPLEMENTAL INDENTURE, dated as of March 26, 2003
(herein sometimes referred to as "this Supplemental Indenture"), made and
entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized
and existing under the laws of the State of Michigan, with its principal
executive office and place of business at 212 West Michigan Avenue, in Jackson,
Jackson County, Michigan 49201, formerly known as Consumers Power Company
(hereinafter sometimes referred to as the "Company"), and JPMORGAN CHASE BANK, a
corporation organized and existing under the laws of the State of New York, with
its corporate trust offices at 450 W. 33rd Street, in the Borough of Manhattan,
The City of New York, New York 10001 (hereinafter sometimes referred to as the
"Trustee"), as Trustee under the Indenture dated as of September 1, 1945 between
Consumers Power Company, a Maine corporation (hereinafter sometimes referred to
as the "Maine corporation"), and City Bank Farmers Trust Company (Citibank,
N.A., successor, hereinafter sometimes referred to as the "Predecessor
Trustee"), securing bonds issued and to be issued as provided therein
(hereinafter sometimes referred to as the "Indenture"),
WHEREAS at the close of business on January 30, 1959, City Bank Farmers
Trust Company was converted into a national banking association under the title
"First National City Trust Company"; and
WHEREAS at the close of business on January 15, 1963, First National
City Trust Company was merged into First National City Bank; and
WHEREAS at the close of business on October 31, 1968, First National
City Bank was merged into The City Bank of New York, National Association, the
name of which was thereupon changed to First National City Bank; and
WHEREAS effective March 1, 1976, the name of First National City Bank
was changed to Citibank, N.A.; and
WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company
succeeded Citibank, N.A. as Trustee under the Indenture; and
WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to
Manufacturers Hanover Trust Company as Trustee under the Indenture; and
WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National
Association), merged with and into Chemical Bank which thereafter was renamed
The Chase Manhattan Bank; and
WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged
with Morgan Guaranty Trust Company of New York and the surviving corporation was
renamed JPMorgan Chase Bank; and
WHEREAS the Indenture was executed and delivered for the purpose of
securing such bonds as may from time to time be issued under and in accordance
with the terms of the Indenture, the aggregate principal amount of bonds to be
secured thereby being limited to $5,000,000,000 at any one time outstanding
(except as provided in Section 2.01 of the Indenture), and the Indenture
describes and sets forth the property conveyed thereby and is filed in the
Office of the Secretary of State of the State of Michigan and is of record in
the Office of
-1-
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and
WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of the
Secretary of State of the State of Michigan and is of record in the Office of
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and
WHEREAS the Company and the Maine corporation entered into an Agreement
of Merger and Consolidation, dated as of February 14, 1968, which provided for
the Maine corporation to merge into the Company; and
WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was merged
into the Company and the name of the Company was changed from "Consumers Power
Company of Michigan" to "Consumers Power Company"; and
WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided,
among other things, for the assumption of the Indenture by the Company; and
WHEREAS said Sixteenth Supplemental Indenture became effective on the
effective date of such Agreement of Merger and Consolidation; and
WHEREAS the Company has succeeded to and has been substituted for the
Maine corporation under the Indenture with the same effect as if it had been
named therein as the mortgagor corporation; and
WHEREAS effective March 11, 1997, the name of Consumers Power Company
was changed to Consumers Energy Company; and
WHEREAS, the Company has entered into a Term Loan Agreement dated as of
March 26, 2003 (the "Term Loan Agreement") with Beal Bank, S.S.B. (the "Bank")
as administrative agent (in such capacity, the "Agent") for the Banks (as such
term is defined in the Term Loan Agreement) providing for the making of certain
financial accommodations thereunder, and pursuant to such Term Loan Agreement
the Company has agreed to issue to the Agent, as evidence of and security for
the Obligations (as such term is defined in the Term Loan Agreement), a new
series of bonds under the Indenture; and
WHEREAS, for such purposes the Company desires to issue a new series of
bonds, to be designated First Mortgage Bonds, Collateral Series due 2009, each
of which bonds shall also bear the descriptive title "First Mortgage Bond"
(hereinafter provided for and hereinafter sometimes referred to as the "2009
Collateral Series Bonds"), the bonds of which series are to be issued as
registered bonds without coupons and are to bear interest at the rate per annum
specified herein and are to mature March 26, 2009; and
WHEREAS, each of the registered bonds without coupons of the 2009
Collateral Series Bonds and the Trustee's Authentication Certificate thereon are
to be substantially in the following form, to wit:
-2-
[FORM OF REGISTERED BOND OF THE 2009 COLLATERAL SERIES BONDS]
[FACE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
COLLATERAL SERIES DUE 2009
No. 1 $140,000,000
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Beal Bank, S.S.B.,
as agent (in such capacity, the "Agent") for the Banks under and as defined in
the Term Loan Agreement dated as of March 26, 2003 (the "Term Loan Agreement")
the principal sum of One Hundred Forty Million Dollars ($140,000,000) or such
lesser principal amount as shall be equal to the aggregate principal amount of
the Term Loans (as defined in the Term Loan Agreement) included in the
Obligations (as defined in the Term Loan Agreement) outstanding on March 26,
2009 (the "Maturity Date"), but not in excess, however, of the principal amount
of this bond, and to pay interest thereon at the Interest Rate (as defined
below) until the principal hereof is paid or duly made available for payment on
the Maturity Date, or, in the event of redemption of this bond, until the
redemption date, or, in the event of default in the payment of the principal
hereof, until the Company's obligations with respect to the payment of such
principal shall be discharged as provided in the Indenture (as defined on the
reverse hereof). Interest on this bond shall be payable on each Interest Payment
Date (as defined below), commencing on the first Interest Payment Date next
succeeding March 26, 2003. If the Maturity Date falls on a day which is not a
Business Day, as defined below, principal and any interest and/or fees payable
with respect to the Maturity Date will be paid on the immediately preceding
Business Day. The interest payable, and punctually paid or duly provided for, on
any Interest Payment Date will, subject to certain exceptions, be paid to the
person in whose name this bond (or one or more predecessor bonds) is registered
at the close of business on the Record Date (as defined below); provided,
however, that interest payable on the Maturity Date will be payable to the
person to whom the principal hereof shall be payable. Should the Company default
in the payment of interest ("Defaulted Interest"), the Defaulted Interest shall
be paid to the person in whose name this bond (or one or more predecessor bonds)
is registered on a subsequent record date fixed by the Company, which subsequent
record date shall be fifteen (15) days prior to the payment of such Defaulted
Interest. As used herein, (A) "Business Day" shall mean any day, other than a
Saturday or Sunday, on which banks generally are open in New York, New York and
Dallas, Texas for the conduct of substantially all of their commercial lending
activities and on which interbank wire transfers can be made on the Fedwire
system; (B) "Interest Payment Date" shall mean each date on which interest
and/or fees under the Term Loan Agreement are due and payable from time to time
pursuant to the Term Loan Agreement; (C) "Interest Rate" shall mean a rate of
interest per annum, adjusted as necessary, to result in an interest payment
equal to the aggregate amount of interest and fees due under the Term Loan
Agreement on the applicable Interest Payment Date; and (D) "Record Date" with
respect to any Interest Payment Date shall mean the day (whether or not a
Business Day) immediately next preceding such Interest Payment Date.
- 3 -
Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City of Jackson, Michigan, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.
This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.
IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to be
executed in its name by its Chairman of the Board, its President or one of its
Vice Presidents by his or her signature or a facsimile thereof, and its
corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon
and attested by its Secretary or one of its Assistant Secretaries by his or her
signature or a facsimile thereof.
CONSUMERS ENERGY COMPANY
Dated:
By: ________________________________
Printed: ___________________________
Title: _____________________________
Attest: _________________________
TRUSTEE'S AUTHENTICATION CERTIFICATE
This is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.
JPMORGAN CHASE BANK, Trustee
By_________________________________
Authorized Officer
- 4 -
[REVERSE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
COLLATERAL SERIES DUE 2009
This bond is one of the bonds of a series designated as First Mortgage
Bonds, Collateral Series due 2009 (sometimes herein referred to as the "2009
Collateral Series Bonds") issued under and in accordance with and secured by an
Indenture dated as of September 1, 1945, given by the Company (or its
predecessor, Consumers Power Company, a Maine corporation) to City Bank Farmers
Trust Company (JPMorgan Chase Bank, successor) (hereinafter sometimes referred
to as the "Trustee"), together with indentures supplemental thereto, heretofore
or hereafter executed, to which indenture and indentures supplemental thereto
(hereinafter referred to collectively as the "Indenture") reference is hereby
made for a description of the property mortgaged and pledged, the nature and
extent of the security and the rights, duties and immunities thereunder of the
Trustee and the rights of the holders of said bonds and of the Trustee and of
the Company in respect of such security, and the limitations on such rights. By
the terms of the Indenture, the bonds to be secured thereby are issuable in
series which may vary as to date, amount, date of maturity, rate of interest and
in other respects as provided in the Indenture.
The 2009 Collateral Series Bonds are to be issued and delivered to the
Agent in order to evidence and secure the obligation of the Company under the
Term Loan Agreement to make payments to the Banks under the Term Loan Agreement
and to provide the Banks the benefit of the lien of the Indenture with respect
to the 2009 Collateral Series Bonds.
The obligation of the Company to make payments with respect to the
principal of the 2009 Collateral Series Bonds shall be fully or partially, as
the case may be, satisfied and discharged to the extent that, at the time that
any such payment shall be due, the then due principal of the Term Loans included
in the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2009
Collateral Series Bonds shall be deemed discharged in the same amount as the
payment with respect to the Term Loans discharges the outstanding obligation
with respect to such Term Loans.
The obligation of the Company to make payments with respect to the
interest on the 2009 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2009 Collateral Series
- 5 -
Bonds shall be deemed discharged in the same amount as the payment with respect
to the Term Loans discharges the outstanding obligation with respect to such
Term Loans.
The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on this bond, so far as such payments at the time have become due, has
been fully satisfied and discharged unless and until the Trustee shall have
received a written notice from the Agent stating (i) that timely payment of
principal and interest on the 2009 Collateral Series Bonds has not been made,
(ii) that the Company is in arrears as to the payments required to be made by it
to the Agent pursuant to the Term Loan Agreement, and (iii) the amount of the
arrearage.
If an Event of Default (as defined in the Term Loan Agreement) with
respect to the payment of the principal of any Term Loans shall have occurred,
it shall be deemed to be a default for purposes of Section 11.01 of the
Indenture in the payment of the principal of the 2009 Collateral Series Bonds
equal to the amount of such unpaid principal (but in no event in excess of the
principal amount of the 2009 Collateral Series Bonds). If an Event of Default
(as defined in the Term Loan Agreement) with respect to the payment of interest
on any Term Loans or fees shall have occurred, it shall be deemed to be a
default for purposes of Section 11.01 of the Indenture in the payment of the
interest on the 2009 Collateral Series Bonds equal to the amount of such unpaid
interest or fees.
This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Term Loan Agreement
and the acceleration of the Obligations, as provided in Section 9.2 of the Term
Loan Agreement. This bond is not redeemable by the operation of the improvement
fund or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.
In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the Indenture, or (c) reduce
the percentage of the principal amount of the bonds the holders of which are
required to approve any such supplemental indenture.
- 6 -
The Company reserves the right, without any consent, vote or other
action by holders of the 2009 Collateral Series Bonds or any other series
created after the Sixty-eighth Supplemental Indenture to amend the Indenture to
reduce the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than any supplemental
indenture which is subject to the proviso contained in the immediately preceding
sentence) (a) from not less than seventy-five per centum (including sixty per
centum of each series affected) to not less than a majority in principal amount
of the bonds at the time outstanding or (b) in case fewer than all series are
affected, not less than a majority in principal amount of the bonds of all
affected series, voting together.
No recourse shall be had for the payment of the principal of or
interest on this bond, or for any claim based hereon, or otherwise in respect
hereof or of the Indenture, to or against any incorporator, stockholder,
director or officer, past, present or future, as such, of the Company, or of any
predecessor or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and owner hereof by
the acceptance of this bond and being likewise waived and released by the terms
of the Indenture.
This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.
The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Term Loans arising under the Term Loan
Agreement, and all of the fees payable pursuant to the Term Loan Agreement,
shall have been duly paid, and the Term Loan Agreement shall have been
terminated.
[END OF FORM OF REGISTERED BOND OF THE 2009 COLLATERAL SERIES BONDS]
- 7 -
AND WHEREAS all acts and things necessary to make the 2009 Collateral
Series Bonds, when duly executed by the Company and authenticated by the Trustee
or its agent and issued as prescribed in the Indenture, as heretofore
supplemented and amended, and this Supplemental Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute the Indenture,
as supplemented and amended as aforesaid, as well as by this Supplemental
Indenture, a valid, binding and legal instrument for the security thereof, have
been done and performed, and the creation, execution and delivery of this
Supplemental Indenture and the creation, execution and issuance of bonds subject
to the terms hereof and of the Indenture, as so supplemented and amended, have
in all respects been duly authorized;
NOW, THEREFORE, in consideration of the premises, of the acceptance and
purchase by the holders thereof of the bonds issued and to be issued under the
Indenture, as supplemented and amended as above set forth, and of the sum of One
Dollar duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$140,000,000 principal amount of the 2009 Collateral Series Bonds proposed to be
issued initially and all other bonds which shall be issued under the Indenture,
as supplemented and amended from time to time, and for the purpose of securing
the faithful performance and observance of all covenants and conditions therein,
and in any indenture supplemental thereto, set forth, the Company has given,
granted, bargained, sold, released, transferred, assigned, hypothecated,
pledged, mortgaged, confirmed, set over, warranted, alienated and conveyed and
by these presents does give, grant, bargain, sell, release, transfer, assign,
hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto
JPMorgan Chase Bank, as Trustee, as provided in the Indenture, and its successor
or successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and to all
the property, described in Section 11 hereof, together (subject to the
provisions of Article X of the Indenture) with the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, excepting, however, the
property, interests and rights specifically excepted from the lien of the
Indenture as set forth in the Indenture;
TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises, property,
franchises and rights, or any thereof, referred to in the foregoing granting
clause, with the reversion and reversions, remainder and remainders and (subject
to the provisions of Article X of the Indenture) the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, and all the estate,
right, title and interest and claim whatsoever, at law as well as in equity,
which the Company now has or may hereafter acquire in and to the aforesaid
premises, property, franchises and rights and every part and parcel thereof;
SUBJECT, HOWEVER, with respect to such premises, property, franchises
and rights, to excepted encumbrances as said term is defined in Section 1.02 of
the Indenture, and subject also to all defects and limitations of title and to
all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all
said premises, property, franchises and rights hereby conveyed, assigned,
pledged or mortgaged, or intended so to be, unto the Trustee, its successor or
successors in trust and their assigns forever;
- 8 -
BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or hereafter
authenticated and delivered under and secured by the Indenture and interest
coupons appurtenant thereto, pursuant to the provisions of the Indenture and of
any supplemental indenture, and for the enforcement of the payment of said bonds
and coupons when payable and the performance of and compliance with the
covenants and conditions of the Indenture and of any supplemental indenture,
without any preference, distinction or priority as to lien or otherwise of any
bond or bonds over others by reason of the difference in time of the actual
authentication, delivery, issue, sale or negotiation thereof or for any other
reason whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and premium,
if any, and interest on every such bond shall, subject to the terms thereof, be
equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the execution
and delivery thereof;
AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as supplemented
and amended as above set forth, are to be issued, authenticated and delivered,
and all said premises, property, franchises and rights hereby and by the
Indenture and indentures supplemental thereto conveyed, assigned, pledged or
mortgaged, or intended so to be, are to be dealt with and disposed of under,
upon and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes expressed in the Indenture, as supplemented and
amended as above set forth, and the parties hereto mutually agree as follows:
SECTION 1. There is hereby created one series of bonds (the "2009
Collateral Series Bonds") designated as hereinabove provided, which shall also
bear the descriptive title "First Mortgage Bond", and the form thereof shall be
substantially as hereinbefore set forth (the "Sample Bond"). The 2009 Collateral
Series Bonds shall be issued in the aggregate principal amount of $140,000,000,
shall mature on March 26, 2009 and shall be issued only as registered bonds
without coupons in denominations of $1,000 and any multiple thereof. The serial
numbers of the 2009 Collateral Series Bonds shall be such as may be approved by
any officer of the Company, the execution thereof by any such officer either
manually or by facsimile signature to be conclusive evidence of such approval.
The 2009 Collateral Series Bonds are to be issued to and registered in the name
of the Agent under the Term Loan Agreement (as such terms are defined in the
Sample Bond) to evidence and secure any and all Obligations (as such term is
defined in the Term Loan Agreement) of the Company under the Term Loan
Agreement.
The 2009 Collateral Series Bonds shall bear interest as set forth in
the Sample Bond. The principal of and the interest on said bonds shall be
payable as set forth in the Sample Bond.
The obligation of the Company to make payments with respect to the
principal of 2009 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2009
Collateral Series Bonds shall be deemed discharged in the
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same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.
The obligation of the Company to make payments with respect to the
interest on 2009 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2009 Collateral Series Bonds shall be deemed discharged in the
same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.
The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on the 2009 Collateral Series Bonds, so far as such payments at the
time have become due, has been fully satisfied and discharged unless and until
the Trustee shall have received a written notice from the Agent stating (i) that
timely payment of principal and interest on the 2009 Collateral Series Bonds has
not been made, (ii) that the Company is in arrears as to the payments required
to be made by it to the Agent pursuant to the Term Loan Agreement, and (iii) the
amount of the arrearage.
The 2009 Collateral Series Bonds shall be exchangeable for other
registered bonds of the same series, in the manner and upon the conditions
prescribed in the Indenture, upon the surrender of such bonds at the Investor
Services Department of the Company, as transfer agent. However, notwithstanding
the provisions of Section 2.05 of the Indenture, no charge shall be made upon
any registration of transfer or exchange of bonds of said series other than for
any tax or taxes or other governmental charge required to be paid by the
Company.
SECTION 2. The 2009 Collateral Series Bonds are not redeemable by the
operation of the maintenance and replacement provisions of this Indenture or
with the proceeds of released property.
SECTION 3. Upon the occurrence of an Event of Default under the Term
Loan Agreement and the acceleration of the Obligations, the 2009 Collateral
Series Bonds shall be redeemable in whole upon receipt by the Trustee of a
written demand from the Agent stating that there has occurred under the Term
Loan Agreement both an Event of Default and a declaration of acceleration of the
Obligations and demanding redemption of the 2009 Collateral Series Bonds
(including a description of the amount of principal, interest and fees which
comprise such Obligations). The Company waives any right it may have to prior
notice of such redemption under the Indenture. Upon surrender of the 2009
Collateral Series Bonds by the Agent to the Trustee, the 2009 Collateral Series
Bonds shall be redeemed at a redemption price equal to the aggregate amount of
the Obligations.
SECTION 4. The Company reserves the right, without any consent, vote or
other action by the holder of the 2009 Collateral Series Bonds or of any
subsequent series of bonds issued under the Indenture, to make such amendments
to the Indenture, as supplemented, as shall be necessary in order to amend
Section 17.02 to read as follows:
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SECTION 17.02. With the consent of the holders of not less
than a majority in principal amount of the bonds at the time
outstanding or their attorneys-in-fact duly authorized, or, if fewer
than all series are affected, not less than a majority in principal
amount of the bonds at the time outstanding of each series the rights
of the holders of which are affected, voting together, the Company,
when authorized by a resolution, and the Trustee may from time to time
and at any time enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Indenture or of any
supplemental indenture or modifying the rights and obligations of the
Company and the rights of the holders of any of the bonds and coupons;
provided, however, that no such supplemental indenture shall (1) extend
the maturity of any of the bonds or reduce the rate or extend the time
of payment of interest thereon, or reduce the amount of the principal
thereof, or reduce any premium payable on the redemption thereof,
without the consent of the holder of each bond so affected, or (2)
permit the creation of any lien, not otherwise permitted, prior to or
on a parity with the lien of this Indenture, without the consent of the
holders of all the bonds then outstanding, or (3) reduce the aforesaid
percentage of the principal amount of bonds the holders of which are
required to approve any such supplemental indenture, without the
consent of the holders of all the bonds then outstanding. For the
purposes of this Section, bonds shall be deemed to be affected by a
supplemental indenture if such supplemental indenture adversely affects
or diminishes the rights of holders thereof against the Company or
against its property. The Trustee may in its discretion determine
whether or not, in accordance with the foregoing, bonds of any
particular series would be affected by any supplemental indenture and
any such determination shall be conclusive upon the holders of bonds of
such series and all other series. Subject to the provisions of Sections
16.02 and 16.03 hereof, the Trustee shall not be liable for any
determination made in good faith in connection herewith.
Upon the written request of the Company, accompanied by a
resolution authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the
consent of bondholders as aforesaid (the instrument or instruments
evidencing such consent to be dated within one year of such request),
the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion but shall
not be obligated to enter into such supplemental indenture.
It shall not be necessary for the consent of the bondholders
under this Section to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
The Company and the Trustee, if they so elect, and either
before or after such consent has been obtained, may require the holder
of any bond consenting to the execution of any such supplemental
indenture to submit his bond to the Trustee or to ask such bank, banker
or trust company as may be designated by the Trustee
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for the purpose, for the notation thereon of the fact that the holder
of such bond has consented to the execution of such supplemental
indenture, and in such case such notation, in form satisfactory to the
Trustee, shall be made upon all bonds so submitted, and such bonds
bearing such notation shall forthwith be returned to the persons
entitled thereto.
Prior to the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the
Company shall publish a notice, setting forth in general terms the
substance of such supplemental indenture, at least once in one daily
newspaper of general circulation in each city in which the principal of
any of the bonds shall be payable, or, if all bonds outstanding shall
be registered bonds without coupons or coupon bonds registered as to
principal, such notice shall be sufficiently given if mailed, first
class, postage prepaid, and registered if the Company so elects, to
each registered holder of bonds at the last address of such holder
appearing on the registry books, such publication or mailing, as the
case may be, to be made not less than thirty days prior to such
execution. Any failure of the Company to give such notice, or any
defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.
SECTION 5. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.
SECTION 6. Nothing contained in this Supplemental Indenture shall, or
shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, as supplemented and amended as above set forth, the
Company, the Trustee and the Agent, for the benefit of the Banks (as such term
is defined in the Term Loan Agreement), any right or interest to avail himself
of any benefit under any provision of the Indenture, as so supplemented and
amended.
SECTION 7. The Trustee assumes no responsibility for or in respect of
the validity or sufficiency of this Supplemental Indenture or of the Indenture
as hereby supplemented or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein (other than those
contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.
SECTION 8. This Supplemental Indenture may be simultaneously executed
in several counterparts and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.
SECTION 9. In the event the date of any notice required or permitted
hereunder shall not be a Business Day, then (notwithstanding any other provision
of the Indenture or of any supplemental indenture thereto) such notice 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 fixed for such notice.
"Business Day" means, with respect to this Section 9, any day, other than a
Saturday or Sunday, on which banks generally are open in New York, New York and
Dallas,
- 12 -
Texas for the conduct of substantially all of their commercial lending
activities and on which interbank wire transfers can be made on the Fedwire
system.
SECTION 10. This Supplemental Indenture and the 2009 Collateral Series
Bonds shall be governed by and deemed to be a contract under, and construed in
accordance with, the laws of the State of Michigan, and for all purposes shall
be construed in accordance with the laws of such state, except as may otherwise
be required by mandatory provisions of law.
SECTION 11. Detailed Description of Property Mortgaged:
I.
ELECTRIC GENERATING PLANTS AND DAMS
All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.
II.
ELECTRIC TRANSMISSION LINES
All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including towers, poles, pole lines, wires, switches, switch racks,
switchboards, insulators and other appliances and equipment, and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.
III.
ELECTRIC DISTRIBUTION SYSTEMS
All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including substations, transformers, switchboards,
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towers, poles, wires, insulators, subways, trenches, conduits, manholes, cables,
meters and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or enjoyed in
connection with such distribution systems or any of them or adjacent thereto;
together with all real property, rights of way, easements, permits, privileges,
franchises, grants and rights, for or relating to the construction, maintenance
or operation thereof, through, over, under or upon any private property or any
public streets or highways within as well as without the corporate limits of any
municipal corporation.
IV.
ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES
All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, for transforming, regulating, converting or distributing or
otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.
V.
GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS, DESULPHURIZATION STATIONS,
METERING STATIONS, ODORIZING STATIONS, REGULATORS AND SITES
All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, for compressing, processing, desulphurizing, metering,
odorizing and regulating manufactured or natural gas at any of its plants and
elsewhere, together with all buildings, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of such
purposes, with sites to be used for such purposes.
VI.
GAS STORAGE FIELDS
The natural gas rights and interests of the Company, including wells
and well lines (but not including natural gas, oil and minerals), the gas
gathering system, the underground gas storage rights, the underground gas
storage wells and injection and withdrawal system used in connection therewith,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture: In the Overisel Gas Storage Field, located in the Township of
Overisel, Allegan County, and in the Township of Zeeland, Ottawa County,
Michigan; in the Northville Gas Storage Field located
- 14 -
in the Township of Salem, Washtenaw County, Township of Lyon, Oakland County,
and the Townships of Northville and Plymouth and City of Plymouth, Wayne County,
Michigan; in the Salem Gas Storage Field, located in the Township of Salem,
Allegan County, and in the Township of Jamestown, Ottawa County, Michigan; in
the Ray Gas Storage Field, located in the Townships of Ray and Armada, Macomb
County, Michigan; in the Lenox Gas Storage Field, located in the Townships of
Lenox and Chesterfield, Macomb County, Michigan; in the Ira Gas Storage Field,
located in the Township of Ira, St. Clair County, Michigan; in the Puttygut Gas
Storage Field, located in the Township of Casco, St. Clair County, Michigan; in
the Four Corners Gas Storage Field, located in the Townships of Casco, China,
Cottrellville and Ira, St. Clair County, Michigan; in the Swan Creek Gas Storage
Field, located in the Township of Casco and Ira, St. Clair County, Michigan; and
in the Hessen Gas Storage Field, located in the Townships of Casco and Columbus,
St. Clair, Michigan.
VII.
GAS TRANSMISSION LINES
All the gas transmission lines of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
gas mains, pipes, pipelines, gates, valves, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements, permits, privileges, franchises and rights
for or relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways,
within as well as without the corporate limits of any municipal corporation.
VIII.
GAS DISTRIBUTION SYSTEMS
All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including tunnels, conduits, gas mains and pipes, service pipes, fittings,
gates, valves, connections, meters and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such distribution systems or any of them
or adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises, grants and rights, for or relating to the
construction, maintenance or operation thereof, through, over, under or upon any
private property or any public streets or highways within as well as without the
corporate limits of any municipal corporation.
- 15 -
IX.
OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.
All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise acquired by
it and not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the lien of the Indenture, together with the land
on which the same are situated and all easements, rights of way and
appurtenances to said lands, together with all furniture and fixtures located in
said buildings.
X.
TELEPHONE PROPERTIES AND
RADIO COMMUNICATION EQUIPMENT
All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, used or available for use in the operation of its
properties, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such telephone
properties or any of them or adjacent thereto; together with all real estate,
rights of way, easements, permits, privileges, franchises, property, devices or
rights related to the dispatch, transmission, reception or reproduction of
messages, communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment installed in
buildings used as general and regional offices, substations and generating
stations and all telephone lines erected on towers and poles; and all radio
communication equipment of the Company, together with all property, real or
personal (except any in the Indenture expressly excepted), fixed stations,
towers, auxiliary radio buildings and equipment, and all appurtenances used in
connection therewith, wherever located, in the State of Michigan.
XI.
OTHER REAL PROPERTY
All other real property of the Company and all interests therein, of
every nature and description (except any in the Indenture expressly excepted)
wherever located, in the State of Michigan, acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the lien of the Indenture. Such real property includes but is not limited
to the following described property, such property is subject to any interests
that were excepted or reserved in the conveyance to the Company:
ALCONA COUNTY
Certain land in Caledonia Township, Alcona County, Michigan described
as:
The East 330 feet of the South 660 feet of the SW 1/4 of the
SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South
330 feet thereof; said land being more particularly described as
follows: To find the place of
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beginning of this description, commence at the Southwest corner of said
section, run thence East along the South line of said section 1243 feet
to the place of beginning of this description, thence continuing East
along said South line of said section 66 feet to the West 1/8 line of
said section, thence N 02 degrees 09' 30" E along the said West 1/8
line of said section 660 feet, thence West 330 feet, thence S 02
degrees 09' 30" W, 330 feet, thence East 264 feet, thence S 02 degrees
09' 30" W, 330 feet to the place of beginning.
ALLEGAN COUNTY
Certain land in Lee Township, Allegan County, Michigan described as:
The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.
ALPENA COUNTY
Certain land in Wilson and Green Townships, Alpena County, Michigan
described as:
All that part of the S'ly 1/2 of the former Boyne City-Gaylord
and Alpena Railroad right of way, being the Southerly 50 feet of a 100
foot strip of land formerly occupied by said Railroad, running from the
East line of Section 31, T31N, R7E, Southwesterly across said Section
31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2
of Section 9, except the West 1646 feet thereof, all in T30N, R6E.
ANTRIM COUNTY
Certain land in Mancelona Township, Antrim County, Michigan described
as:
The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
therefrom all mineral, coal, oil and gas and such other rights as were
reserved unto the State of Michigan in that certain deed running from
the State of Michigan to August W. Schack and Emma H. Schack, his wife,
dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on
page 682 of Antrim County Records.
ARENAC COUNTY
Certain land in Standish Township, Arenac County, Michigan described
as:
A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
T18N, R4E, described as follows: To find the place of beginning of said
parcel of land, commence at the Northwest corner of Section 12, T18N,
R4E; run thence South along the West line of said section, said West
line of said section being also the center line of East City Limits
Road 2642.15 feet to the W 1/4 post of said section and the place of
beginning of said parcel of land; running thence N 88 degrees 26' 00" E
along the East and West 1/4 line of said section, 660.0 feet; thence
North parallel with the West line of said section, 310.0 feet; thence S
88 degrees 26' 00"
- 17 -
W, 330.0 feet; thence South parallel with the West line of said
section, 260.0 feet; thence S 88 degrees 26' 00" W, 330.0 feet to the
West line of said section and the center line of East City Limits Road;
thence South along the said West line of said section, 50.0 feet to the
place of beginning.
BARRY COUNTY
Certain land in Johnstown Township, Barry County, Michigan described
as:
A strip of land 311 feet in width across the SW 1/4 of the NE
1/4 of Section 31, T1N, R8W, described as follows: To find the place of
beginning of this description, commence at the E 1/4 post of said
section; run thence N 00 degrees 55' 00" E along the East line of said
section, 555.84 feet; thence N 59 degrees 36' 20" W, 1375.64 feet;
thence N 88 degrees 30' 00" W, 130 feet to a point on the East 1/8 line
of said section and the place of beginning of this description; thence
continuing N 88 degrees 30' 00" W, 1327.46 feet to the North and South
1/4 line of said section; thence S 00 degrees 39'35" W along said North
and South 1/4 line of said section, 311.03 feet to a point, which said
point is 952.72 feet distant N'ly from the East and West 1/4 line of
said section as measured along said North and South 1/4 line of said
section; thence S 88 degrees 30' 00" E, 1326.76 feet to the East 1/8
line of said section; thence N 00 degrees 47' 20" E along said East 1/8
line of said section, 311.02 feet to the place of beginning.
BAY COUNTY
Certain land in Frankenlust Township, Bay County, Michigan described
as:
The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
the SE 1/4 of Section 9, T13N, R4E.
BENZIE COUNTY
Certain land in Benzonia Township, Benzie County, Michigan described
as:
A parcel of land in the Northeast 1/4 of Section 7, Township
26 North, Range 14 West, described as beginning at a point on the East
line of said Section 7, said point being 320 feet North measured along
the East line of said section from the East 1/4 post; running thence
West 165 feet; thence North parallel with the East line of said section
165 feet; thence East 165 feet to the East line of said section; thence
South 165 feet to the place of beginning.
BRANCH COUNTY
Certain land in Girard Township, Branch County, Michigan described as:
A parcel of land in the NE 1/4 of Section 23 T5S, R6W,
described a beginning at a point on the North and South quarter line of
said section at a point
- 18 -
1278.27 feet distant South of the North quarter post of said section,
said distance being measured along the North and South quarter line of
said section, running thence S89 degrees21'E 250 feet, thence North
along a line parallel with the said North and South quarter line of
said section 200 feet, thence N89 degrees21'W 250 feet to the North and
South quarter line of said section, thence South along said North and
South quarter line of said section 200 feet to the place of beginning.
CALHOUN COUNTY
Certain land in Convis Township, Calhoun County, Michigan described as:
A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
T1S, R6W, described as follows: To find the place of beginning of this
description, commence at the Southeast corner of said section; run
thence North along the East line of said section 1034.32 feet to the
place of beginning of this description; running thence N 89 degrees 39'
52" W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of
said section; thence S 89 degrees 39' 52" E along said South 1/8 line
of said section 333.0 feet to the East line of said section; thence
South along said East line of said section 290.0 feet to the place of
beginning. (Bearings are based on the East line of Section 32, T1S,
R6W, from the Southeast corner of said section to the Northeast corner
of said section assumed as North.)
CASS COUNTY
Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:
The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
R13W.
CHARLEVOIX COUNTY
Certain land in South Arm Township, Charlevoix County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
described as follows: Beginning at the Southwest corner of said section
and running thence North along the West line of said section 788.25
feet to a point which is 528 feet distant South of the South 1/8 line
of said section as measured along the said West line of said section;
thence N 89 degrees 30' 19" E, parallel with said South 1/8 line of
said section 442.1 feet; thence South 788.15 feet to the South line of
said section; thence S 89 degrees 29' 30" W, along said South line of
said section 442.1 feet to the place of beginning.
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CHEBOYGAN COUNTY
Certain land in Inverness Township, Cheboygan County, Michigan
described as:
A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
described as beginning at the Northwest corner of the SW frl 1/4,
running thence East on the East and West quarter line of said Section,
40 rods, thence South parallel to the West line of said Section 40
rods, thence West 40 rods to the West line of said Section, thence
North 40 rods to the place of beginning.
CLARE COUNTY
Certain land in Frost Township, Clare County, Michigan described as:
The East 150 feet of the North 225 feet of the NW 1/4 of the
NW 1/4 of Section 15, T20N, R4W.
CLINTON COUNTY
Certain land in Watertown Township, Clinton County, Michigan described
as:
The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
T5N, R3W.
CRAWFORD COUNTY
Certain land in Lovells Township, Crawford County, Michigan described
as:
A parcel of land in Section 1, T28N, R1W, described as:
Commencing at NW corner said section; thence South 89 degrees53'30"
East along North section line 105.78 feet to point of beginning; thence
South 89 degrees53'30" East along North section line 649.64 feet;
thence South 55 degrees 42'30" East 340.24 feet; thence South 55
degrees 44' 37"" East 5,061.81 feet to the East section line; thence
South 00 degrees 00' 08"" West along East section line 441.59 feet;
thence North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
degrees 42'30" West 877.76 feet to point of beginning.
EATON COUNTY
Certain land in Eaton Township, Eaton County, Michigan described as:
A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section; run
thence N 89 degrees 51' 30" E along the South line of said section 400
feet to the place of beginning of this description; thence continuing N
89 degrees 51' 30" E, 500 feet; thence N 00 degrees 50' 00" W, 600
feet; thence S 89 degrees 51' 30" W parallel with the South line of
said
- 20 -
section 500 feet; thence S 00 degrees 50' 00" E, 600 feet to the place
of beginning.
EMMET COUNTY
Certain land in Wawatam Township, Emmet County, Michigan described as:
The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
Section 23, T39N, R4W.
GENESEE COUNTY
Certain land in Argentine Township, Genesee County, Michigan described
as:
A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
being more particularly described as follows:
Beginning at a point of the West line of Duffield Road, 100
feet wide, (as now established) distant 829.46 feet measured N01
degrees42'56"W and 50 feet measured S88 degrees14'04"W` from the South
quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a
distance of 550 feet; thence N01 degrees42'56"W a distance of 500 feet
to a point on the North line of the South half of the Southwest quarter
of said Section 8; thence N88 degrees14'04"E along the North line of
South half of the Southwest quarter of said Section 8 a distance 550
feet to a point on the West line of Duffield Road, 100 feet wide (as
now established); thence S01 degrees42'56"E along the West line of said
Duffield Road a distance of 500 feet to the point of beginning.
GLADWIN COUNTY
Certain land in Secord Township, Gladwin County, Michigan described as:
The East 400 feet of the South 450 feet of Section 2, T19N,
R1E.
GRAND TRAVERSE COUNTY
Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:
A parcel of land in the Northwest 1/4 of Section 3, T25N,
R11W, described as follows: Commencing at the Northwest corner of said
section, running thence S 89 degrees19'15" E along the North line of
said section and the center line of Clouss Road 225 feet, thence South
400 feet, thence N 89 degrees19'15" W 225 feet to the West line of said
section and the center line of Hannah Road, thence North along the West
line of said section and the center line of Hannah Road 400 feet to the
place of beginning for this description.
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GRATIOT COUNTY
Certain land in Fulton Township, Gratiot County, Michigan described as:
A parcel of land in the NE 1/4 of Section 7, Township 9 North,
Range 3 West, described as beginning at a point on the North line of
George Street in the Village of Middleton, which is 542 feet East of
the North and South one-quarter (1/4) line of said Section 7; thence
North 100 feet; thence East 100 feet; thence South 100 feet to the
North line of George Street; thence West along the North line of George
Street 100 feet to place of beginning.
HILLSDALE COUNTY
Certain land in Litchfield Village, Hillsdale County, Michigan
described as:
Lot 238 of Assessors Plat of the Village of Litchfield.
HURON COUNTY
Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:
The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.
INGHAM COUNTY
Certain land in Vevay Township, Ingham County, Michigan described as:
A parcel of land 660 feet wide in the Southwest 1/4 of Section
7 lying South of the centerline of Sitts Road as extended to the
North-South 1/4 line of said Section 7, T2N, R1W, more particularly
described as follows: Commence at the Southwest corner of said Section
7, thence North along the West line of said Section 2502.71 feet to the
centerline of Sitts Road; thence South 89 degrees54'45" East along said
centerline 2282.38 feet to the place of beginning of this description;
thence continuing South 89 degrees54'45" East along said centerline and
said centerline extended 660.00 feet to the North-South 1/4 line of
said section; thence South 00 degrees07'20" West 1461.71 feet; thence
North 89 degrees34'58" West 660.00 feet; thence North 00 degrees07'20"
East 1457.91 feet to the centerline of Sitts Road and the place of
beginning.
IONIA COUNTY
Certain land in Sebewa Township, Ionia County, Michigan described as:
A strip of land 280 feet wide across that part of the SW 1/4
of the NE 1/4 of Section 15, T5N, R6W, described as follows:
- 22 -
To find the place of beginning of this description commence at
the E 1/4 corner of said section; run thence N 00 degrees 05' 38" W
along the East line of said section, 1218.43 feet; thence S 67 degrees
18' 24" W, 1424.45 feet to the East 1/8 line of said section and the
place of beginning of this description; thence continuing S 67 degrees
18' 24" W, 1426.28 feet to the North and South 1/4 line of said section
at a point which said point is 105.82 feet distant N'ly of the center
of said section as measured along said North and South 1/4 line of said
section; thence N 00 degrees 04' 47" E along said North and South 1/4
line of said section, 303.67 feet; thence N 67 degrees 18' 24" E,
1425.78 feet to the East 1/8 line of said section; thence S 00 degrees
00' 26" E along said East 1/8 line of said section, 303.48 feet to the
place of beginning. (Bearings are based on the East line of Section 15,
T5N, R6W, from the E 1/4 corner of said section to the Northeast corner
of said section assumed as N 00 degrees 05' 38" W.)
IOSCO COUNTY
Certain land in Alabaster Township, Iosco County, Michigan described
as:
A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run thence
South along the North and South 1/4 line of said section, 1354.40 feet
to the place of beginning of this description; thence continuing South
along the said North and South 1/4 line of said section, 165.00 feet to
a point on the said North and South 1/4 line of said section which said
point is 1089.00 feet distant North of the center of said section;
thence West 440.00 feet; thence North 165.00 feet; thence East 440.00
feet to the said North and South 1/4 line of said section and the place
of beginning.
ISABELLA COUNTY
Certain land in Chippewa Township, Isabella County, Michigan described
as:
The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
T14N, R3W.
JACKSON COUNTY
Certain land in Waterloo Township, Jackson County, Michigan described
as:
A parcel of land in the North fractional part of the N
fractional 1/2 of Section 2, T1S, R2E, described as follows: To find
the place of beginning of this description commence at the E 1/4 post
of said section; run thence N 01 degrees 03' 40" E along the East line
of said section 1335.45 feet to the North 1/8 line of said section and
the place of beginning of this description; thence N 89 degrees 32' 00"
W, 2677.7 feet to the North and South 1/4 line of said section; thence
S 00 degrees 59' 25" W along the North and South 1/4 line of said
section 22.38 feet to the North 1/8 line of said section; thence S 89
degrees 59' 10" W along the North 1/8 line of said section 2339.4 feet
to the center line of State Trunkline Highway M-52; thence N 53 degrees
46' 00" W along the center line of said State
- 23 -
Trunkline Highway 414.22 feet to the West line of said section; thence
N 00 degrees 55' 10" E along the West line of said section 74.35 feet;
thence S 89 degrees 32' 00" E, 5356.02 feet to the East line of said
section; thence S 01 degrees 03' 40" W along the East line of said
section 250 feet to the place of beginning.
KALAMAZOO COUNTY
Certain land in Alamo Township, Kalamazoo County, Michigan described
as:
The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
T1S, R12W, being more particularly described as follows: To find the
place of beginning of this description, commence at the Northwest
corner of said section; run thence S 00 degrees 36' 55" W along the
West line of said section 971.02 feet to the place of beginning of this
description; thence continuing S 00 degrees 36' 55" W along said West
line of said section 350.18 feet to the North 1/8 line of said section;
thence S 87 degrees 33' 40" E along the said North 1/8 line of said
section 1325.1 feet to the West 1/8 line of said section; thence N 00
degrees 38' 25" E along the said West 1/8 line of said section 350.17
feet; thence N 87 degrees 33' 40" W, 1325.25 feet to the place of
beginning.
KALKASKA COUNTY
Certain land in Kalkaska Township, Kalkaska County, Michigan described
as:
The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
therefrom all mineral, coal, oil and gas and such other rights as were
reserved unto the State of Michigan in that certain deed running from
the Department of Conservation for the State of Michigan to George
Welker and Mary Welker, his wife, dated October 9, 1934 and recorded
December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records,
and subject to easement for pipeline purposes as granted to Michigan
Consolidated Gas Company by first party herein on April 4, 1963 and
recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County
Records.
KENT COUNTY
Certain land in Caledonia Township, Kent County, Michigan described as:
A parcel of land in the Northwest fractional 1/4 of Section
15, T5N, R10W, described as follows: To find the place of beginning of
this description commence at the North 1/4 corner of said section, run
thence S 0 degrees 59' 26" E along the North and South 1/4 line of said
section 2046.25 feet to the place of beginning of this description,
thence continuing S 0 degrees 59' 26" E along said North and South 1/4
line of said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90
feet to a point herein designated "Point A" on the East bank of the
Thornapple River, thence continuing S 88 degrees 53' 30" W to the
center thread of the Thornapple River, thence NW'ly along the center
thread of said Thornapple
- 24 -
River to a point which said point is S 88 degrees 58' 30" W of a point
on the East bank of the Thornapple River herein designated "Point B",
said "Point B" being N 23 degrees 41' 35" W 360.75 feet from said
above-described "Point A", thence N 88 degrees 58' 30" E to said "Point
B", thence continuing N 88 degrees 58' 30" E 2650.13 feet to the place
of beginning. (Bearings are based on the East line of Section 15, T5N,
R10W between the East 1/4 corner of said section and the Northeast
corner of said section assumed as N 0 degrees 59' 55" W.)
LAKE COUNTY
Certain land in Pinora and Cherry Valley Townships, Lake County,
Michigan described as:
A strip of land 50 feet wide East and West along and adjoining
the West line of highway on the East side of the North 1/2 of Section
13 T18N, R12W. Also a strip of land 100 feet wide East and West along
and adjoining the East line of the highway on the West side of
following described land: The South 1/2 of NW 1/4, and the South 1/2 of
the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.
LAPEER COUNTY
Certain land in Hadley Township, Lapeer County, Michigan described as:
The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
T6N, R9E, except the West 1064 feet thereof.
LEELANAU COUNTY
Certain land in Cleveland Township, Leelanau County, Michigan described
as:
The North 200 feet of the West 180 feet of the SW 1/4 of the
SE 1/4 of Section 35, T29N, R13W.
LENAWEE COUNTY
Certain land in Madison Township, Lenawee County, Michigan described
as:
A strip of land 165 feet wide off the West side of the
following described premises: The E 1/2 of the SE 1/4 of Section 12.
The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13,
being all in T7S, R3E, excepting therefrom a parcel of land in the E
1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest
corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4
rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to
the place of beginning.
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LIVINGSTON COUNTY
Certain land in Cohoctah Township, Livingston County, Michigan
described as:
Parcel 1
The East 390 feet of the East 50 rods of the SW 1/4 of Section
30, T4N, R4E.
Parcel 2
A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run thence N 89
degrees 13' 06" W along the North line of said section, 330 feet to the
place of beginning of this description; running thence S 00 degrees 52'
49" W, 2167.87 feet; thence N 88 degrees 59' 49" W, 60 feet; thence N
00 degrees 52' 49" E, 2167.66 feet to the North line of said section;
thence S 89 degrees 13' 06" E along said North line of said section, 60
feet to the place of beginning.
MACOMB COUNTY
Certain land in Macomb Township, Macomb County, Michigan described as:
A parcel of land commencing on the West line of the E 1/2 of
the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of
said E 1/2 of the NW 1/4 of Section 6; thence South on said West line
and the East line of A. Henry Kotner's Hayes Road Subdivision #15,
according to the recorded plat thereof, as recorded in Liber 24 of
Plats, on page 7, 24.36 chains to the East and West 1/4 line of said
Section 6; thence East on said East and West 1/4 line 8.93 chains;
thence North parallel with the said West line of the E 1/2 of the NW
1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of
beginning, all in T3N, R13E.
MANISTEE COUNTY
Certain land in Manistee Township, Manistee County, Michigan described
as:
A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
described as follows: To find the place of beginning of this
description, commence at the Southwest corner of said section; run
thence East along the South line of said section 832.2 feet to the
place of beginning of this description; thence continuing East along
said South line of said section 132 feet; thence North 198 feet; thence
West 132 feet; thence South 198 feet to the place of beginning,
excepting therefrom the South 2 rods thereof which was conveyed to
Manistee Township for highway purposes by a Quitclaim Deed dated June
13, 1919 and recorded July [11], 1919 in Liber 88 of Deeds on page 638
of Manistee County Records.
- 26 -
MASON COUNTY
Certain land in Riverton Township, Mason County, Michigan described as:
Parcel 1
The South 10 acres of the West 20 acres of the S 1/2 of the NE
1/4 of Section 22, T17N, R17W.
Parcel 2
A parcel of land containing 4 acres of the West side of
highway, said parcel of land being described as commencing 16 rods
South of the Northwest corner of the NW 1/4 of the SW 1/4 of Section
22, T17N, R17W, running thence South 64 rods, thence NE'ly and N'ly and
NW'ly along the W'ly line of said highway to the place of beginning,
together with any and all right, title, and interest of Howard C.
Wicklund and Katherine E. Wicklund in and to that portion of the
hereinbefore mentioned highway lying adjacent to the E'ly line of said
above described land.
MECOSTA COUNTY
Certain land in Wheatland Township, Mecosta County, Michigan described
as:
A parcel of land in the SW 1/4 of the SW 1/4 of Section 16,
T14N, R7W, described as beginning at the Southwest corner of said
section; thence East along the South line of Section 133 feet; thence
North parallel to the West section line 133 feet; thence West 133 feet
to the West line of said Section; thence South 133 feet to the place of
beginning.
MIDLAND COUNTY
Certain land in Ingersoll Township, Midland County, Michigan described
as:
The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
T13N, R2E.
MISSAUKEE COUNTY
Certain land in Norwich Township, Missaukee County, Michigan described
as:
A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
T24N, R6W, described as follows: Commencing at the Northwest corner of
said section, running thence N 89 degrees 01' 45" E along the North
line of said section 233.00 feet; thence South 233.00 feet; thence S 89
degrees 01' 45" W, 233.00 feet to the West line of said section; thence
North along said West line of said section 233.00 feet to the place of
beginning. (Bearings are based on the West line of Section 16, T24N,
R6W, between the Southwest and Northwest corners of said section
assumed as North.)
- 27 -
MONROE COUNTY
Certain land in Whiteford Township, Monroe County, Michigan described
as:
A parcel of land in the SW1/4 of Section 20, T8S, R6E,
described as follows: To find the place of beginning of this
description commence at the S 1/4 post of said section; run thence West
along the South line of said section 1269.89 feet to the place of
beginning of this description; thence continuing West along said South
line of said section 100 feet; thence N 00 degrees 50' 35" E, 250 feet;
thence East 100 feet; thence S 00 degrees 50' 35" W parallel with and
16.5 feet distant W'ly of as measured perpendicular to the West 1/8
line of said section, as occupied, a distance of 250 feet to the place
of beginning.
MONTCALM COUNTY
Certain land in Crystal Township, Montcalm County, Michigan described
as:
The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.
MONTMORENCY COUNTY
Certain land in the Village of Hillman, Montmorency County, Michigan
described as:
Lot 14 of Hillman Industrial Park, being a subdivision in the
South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to
the plat thereof recorded in Liber 4 of Plats on Pages 32-34,
Montmorency County Records.
MUSKEGON COUNTY
Certain land in Casnovia Township, Muskegon County, Michigan described
as:
The West 433 feet of the North 180 feet of the South 425 feet
of the SW 1/4 of Section 3, T10N, R13W.
NEWAYGO COUNTY
Certain land in Ashland Township, Newaygo County, Michigan described
as:
The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.
OAKLAND COUNTY
Certain land in Wixcom City, Oakland County, Michigan described as:
The E 75 feet of the N 160 feet of the N 330 feet of the W
526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more
particularly described as follows: Commence at the NW corner of said
Section 8, thence N 87 degrees 14' 29" E along the North line of said
Section 8 a distance of 451.84 feet to the place
- 28 -
of beginning for this description; thence continuing N 87 degrees 14'
29" E along said North section line a distance of 75.0 feet to the East
line of the West 526.84 feet of the NW 1/4 of the NW 1/4 of said
Section 8; thence S 02 degrees 37' 09" E along said East line a
distance of 160.0 feet; thence S 87 degrees 14' 29" W a distance of
75.0 feet; thence N 02 degrees 37' 09" W a distance of 160.0 feet to
the place of beginning.
OCEANA COUNTY
Certain land in Crystal Township, Oceana County, Michigan described as:
The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.
OGEMAW COUNTY
Certain land in West Branch Township, Ogemaw County, Michigan described
as:
The South 660 feet of the East 660 feet of the NE 1/4 of the
NE 1/4 of Section 33, T22N, R2E.
OSCEOLA COUNTY
Certain land in Hersey Township, Osceola County, Michigan described as:
A parcel of land in the North 1/2 of the Northeast 1/4 of
Section 13, T17N, R9W, described as commencing at the Northeast corner
of said Section; thence West along the North Section line 999 feet to
the point of beginning of this description; thence S 01 degrees 54' 20"
E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17' 05" W
along the North 1/8 line 330.89 feet; thence N 01 degrees 54' 20" W
1331.26 feet to the North Section line; thence East along the North
Section line 331 feet to the point of beginning.
OSCODA COUNTY
Certain land in Comins Township, Oscoda County, Michigan described as:
The East 400 feet of the South 580 feet of the W 1/2 of the SW
1/4 of Section 15, T27N, R3E.
OTSEGO COUNTY
Certain land in Corwith Township, Otsego County, Michigan described as:
Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
described as: Beginning at the N 1/4 corner of said section; running
thence S 89 degrees 04' 06" E along the North line of said section,
330.00 feet; thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89
degrees 04' 06" W, 330.00 feet to the North and
- 29 -
South 1/4 line of said section; thence N 00 degrees 28' 43" W along the
said North and South 1/4 line of said section, 400.00 feet to the point
of beginning; subject to the use of the N'ly 33.00 feet thereof for
highway purposes.
OTTAWA COUNTY
Certain land in Robinson Township, Ottawa County, Michigan described
as:
The North 660 feet of the West 660 feet of the NE 1/4 of the
NW 1/4 of Section 26, T7N, R15W.
PRESQUE ISLE COUNTY
Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:
Part of the South half of the Northeast quarter, Section 24,
T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E,
more fully described as: Commencing at the East 1/4 corner of said
Section 24; thence N 00 degrees15'47" E, 507.42 feet, along the East
line of said Section 24 to the point of beginning; thence S 88
degrees15'36" W, 400.00 feet, parallel with the North 1/8 line of said
Section 24; thence N 00 degrees15'47" E, 800.00 feet, parallel with
said East line of Section 24; thence N 88 degrees15'36"E, 800.00 feet,
along said North 1/8 line of Section 24 and said line extended; thence
S 00 degrees15'47" W, 800.00 feet, parallel with said East line of
Section 24; thence S 88 degrees15'36" W, 400.00 feet, parallel with
said North 1/8 line of Section 24 to the point of beginning.
Together with a 33 foot easement along the West 33 feet of the
Northwest quarter lying North of the North 1/8 line of Section 24,
Belknap Township, extended, in Section 19, T34N, R6E.
ROSCOMMON COUNTY
Certain land in Gerrish Township, Roscommon County, Michigan described
as:
A parcel of land in the NW 1/4 of Section 19, T24N, R3W,
described as follows: To find the place of beginning of this
description commence at the Northwest corner of said section, run
thence East along the North line of said section 1,163.2 feet to the
place of beginning of this description (said point also being the place
of intersection of the West 1/8 line of said section with the North
line of said section), thence S 01 degrees 01' E along said West 1/8
line 132 feet, thence West parallel with the North line of said section
132 feet, thence N 01 degrees 01' W parallel with said West 1/8 line of
said section 132 feet to the North line of said section, thence East
along the North line of said section 132 feet to the place of
beginning.
- 30 -
SAGINAW COUNTY
Certain land in Chapin Township, Saginaw County, Michigan described as:
A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section; run
thence North along the West line of said section 1581.4 feet to the
place of beginning of this description; thence continuing North along
said West line of said section 230 feet to the center line of a creek;
thence S 70 degrees 07' 00" E along said center line of said creek
196.78 feet; thence South 163.13 feet; thence West 185 feet to the West
line of said section and the place of beginning.
SANILAC COUNTY
Certain easement rights located across land in Minden Township, Sanilac
County, Michigan described as:
The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
R14E, excepting therefrom the South 83 feet of the East 83 feet
thereof.
SHIAWASSEE COUNTY
Certain land in Burns Township, Shiawassee County, Michigan described
as:
The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
T5N, R4E.
ST. CLAIR COUNTY
Certain land in Ira Township, St. Clair County, Michigan described as:
The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.
ST. JOSEPH COUNTY
Certain land in Mendon Township, St. Joseph County, Michigan described
as:
The North 660 feet of the West 660 feet of the NW 1/4 of SW
1/4, Section 35, T5S, R10W.
TUSCOLA COUNTY
Certain land in Millington Township, Tuscola County, Michigan described
as:
A strip of land 280 feet wide across the East 96 rods of the
South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
particularly described as commencing at the Northeast corner of Section
3, T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
distance of 1398.67 feet to the South 1/8
- 31 -
line of said Section 34 and the place of beginning for this
description; thence continuing N 18 degrees 11' 50" W a distance of
349.91 feet; thence N 89 degrees 57' 01" W a distance of 294.80 feet;
thence S 18 degrees 11' 50" E a distance of 350.04 feet to the South
1/8 line of said Section 34; thence S 89 degrees 58' 29" E along the
South 1/8 line of said section a distance of 294.76 feet to the place
of beginning.
VAN BUREN COUNTY
Certain land in Covert Township, Van Buren County, Michigan described
as:
All that part of the West 20 acres of the N 1/2 of the NE
fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the
North 80 rods, being more particularly described as follows: To find
the place of beginning of this description commence at the N 1/4 post
of said section; run thence N 89 degrees 29' 20" E along the North line
of said section 280.5 feet to the place of beginning of this
description; thence continuing N 89 degrees 29' 20" E along said North
line of said section 288.29 feet; thence S 00 degrees 44' 00" E,
1531.92 feet; thence S 89 degrees 33' 30" W, 568.79 feet to the North
and South 1/4 line of said section; thence N 00 degrees 44' 00" W along
said North and South 1/4 line of said section 211.4 feet; thence N 89
degrees 29' 20" E, 280.5 feet; thence N 00 degrees 44' 00" W, 1320 feet
to the North line of said section and the place of beginning.
WASHTENAW COUNTY
Certain land in Manchester Township, Washtenaw County, Michigan
described as:
A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
T4S, R3E, described as follows: To find the place of beginning of this
description commence at the Northwest corner of said section; run
thence East along the North line of said section 1355.07 feet to the
West 1/8 line of said section; thence S 00 degrees 22' 20" E along said
West 1/8 line of said section 927.66 feet to the place of beginning of
this description; thence continuing S 00 degrees 22' 20" E along said
West 1/8 line of said section 660 feet to the North 1/8 line of said
section; thence N 86 degrees 36' 57" E along said North 1/8 line of
said section 660.91 feet; thence N 00 degrees22' 20" W, 660 feet;
thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.
WAYNE COUNTY
Certain land in Livonia City, Wayne County, Michigan described as:
Commencing at the Southeast corner of Section 6, T1S, R9E;
thence North along the East line of Section 6 a distance of 253 feet to
the point of beginning; thence continuing North along the East line of
Section 6 a distance of 50 feet; thence Westerly parallel to the South
line of Section 6, a distance of 215 feet; thence Southerly parallel to
the East line of Section 6 a distance of 50 feet;
- 32 -
thence easterly parallel with the South line of Section 6 a distance of
215 feet to the point of beginning.
WEXFORD COUNTY
Certain land in Selma Township, Wexford County, Michigan described as:
A parcel of land in the NW 1/4 of Section 7, T22N, R10W,
described as beginning on the North line of said section at a point 200
feet East of the West line of said section, running thence East along
said North section line 450 feet, thence South parallel with said West
section line 350 feet, thence West parallel with said North section
line 450 feet, thence North parallel with said West section line 350
feet to the place of beginning.
SECTION 12. The Company is a transmitting utility under Section 9501(2)
of the Michigan Uniform Commercial Code (M.C.L. 440.9501 (2)) as defined in
M.C.L. 440.9102(1)(aaaa).
IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board, President, a Vice President or its Treasurer and its corporate seal
to be hereunto affixed and to be attested by its Secretary or an Assistant
Secretary, and said JPMorgan Chase Bank, as Trustee as aforesaid, to evidence
its acceptance hereof, has caused this Supplemental Indenture to be executed in
its corporate name by a Vice President and its corporate seal to be hereunto
affixed and to be attested by a Trust Officer, in several counterparts, all as
of the day and year first above written.
- 33 -
CONSUMERS ENERGY COMPANY
/s/ Paul A. Stadnikia
(SEAL) By ----------------------------
Paul A. Stadnikia
Attest: Treasurer
/s/ Joyce H. Norkey
- ----------------------
Joyce H. Norkey
Assistant Secretary
Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of
/s/ Kimberly C. Wilson
- ----------------------
Kimberly C. Wilson
/s/ Sammie B. Dalton
- ----------------------
Sammie B. Dalton
STATE OF MICHIGAN )
ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this
26th day of March, 2003, by Paul A. Stadnikia, Treasurer of CONSUMERS ENERGY
COMPANY, a Michigan corporation, on behalf of the corporation.
/s/ Margaret Hillman
-----------------------------------
Margaret Hillman, Notary Public
[Seal] Jackson County, Michigan
My Commission Expires: June 14, 2004
S-1
JPMORGAN CHASE BANK, AS TRUSTEE
(SEAL) By /s/ L. O'Brien
----------------------------
L. O'Brien
Attest: Vice President
/s/ Virginia Dominguez
- ------------------------------
VIRGINIA DOMINGUEZ
Trust Officer [ILLEGIBLE]
Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of
/s/ Natalia Rodriguez
- ----------------------------
NATALIA RODRIGUEZ
VICE PRESIDENT
/s/ William G. Keenan
- ----------------------------
WILLIAM G. KEENAN
VICE PRESIDENT
STATE OF NEW YORK )
ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 26th
day of March, 2003, by L. O'Brien, a Vice President of JPMORGAN CHASE BANK, a
New York corporation, on behalf of the corporation.
/s/ Emily Fayan
-------------------------------------
Notary Public
[Seal] New York County, New York
My Commission Expires:
Prepared by: When recorded, return to:
Kimberly C. Wilson Consumers Energy Company
212 West Michigan Avenue Business Services Real Estate Dept.
Jackson, MI 49201 Attn: Nancy Fisher EP7-439
One Energy Plaza
Jackson, MI 49201
S-2
EXHIBIT 4(b)
EIGHTY-EIGHTH SUPPLEMENTAL INDENTURE
PROVIDING AMONG OTHER THINGS FOR
FIRST MORTGAGE BONDS,
2003 COLLATERAL SERIES (INTEREST BEARING)
and
2003 COLLATERAL SERIES (ZERO RATE)
--------------
DATED AS OF MARCH 27, 2003
--------------
CONSUMERS ENERGY COMPANY
TO
JPMORGAN CHASE BANK,
TRUSTEE
Counterpart ____ of 80
THIS EIGHTY-EIGHTH SUPPLEMENTAL INDENTURE, dated as of March 27, 2003
(herein sometimes referred to as "this Supplemental Indenture"), made and
entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized
and existing under the laws of the State of Michigan, with its principal
executive office and place of business at 212 West Michigan Avenue, in Jackson,
Jackson County, Michigan 49201, formerly known as Consumers Power Company
(hereinafter sometimes referred to as the "Company"), and JPMORGAN CHASE BANK, a
corporation organized and existing under the laws of the State of New York, with
its corporate trust offices at 4 New York Plaza, New York, New York 10004
(hereinafter sometimes referred to as the "Trustee"), as Trustee under the
Indenture dated as of September 1, 1945 between Consumers Power Company, a Maine
corporation (hereinafter sometimes referred to as the "Maine corporation"), and
City Bank Farmers Trust Company (Citibank, N.A., successor, hereinafter
sometimes referred to as the "Predecessor Trustee"), securing bonds issued and
to be issued as provided therein (hereinafter sometimes referred to as the
"Indenture"),
WHEREAS at the close of business on January 30, 1959, City Bank Farmers
Trust Company was converted into a national banking association under the title
"First National City Trust Company"; and
WHEREAS at the close of business on January 15, 1963, First National
City Trust Company was merged into First National City Bank; and
WHEREAS at the close of business on October 31, 1968, First National
City Bank was merged into The City Bank of New York, National Association, the
name of which was thereupon changed to First National City Bank; and
WHEREAS effective March 1, 1976, the name of First National City Bank
was changed to Citibank, N.A.; and
WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company
succeeded Citibank, N.A. as Trustee under the Indenture; and
WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to
Manufacturers Hanover Trust Company as Trustee under the Indenture; and
WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National
Association), merged with and into Chemical Bank which thereafter was renamed
The Chase Manhattan Bank; and
WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged
with Morgan Guaranty Trust Company of New York and the surviving corporation was
renamed JPMorgan Chase Bank; and
WHEREAS the Indenture was executed and delivered for the purpose of
securing such bonds as may from time to time be issued under and in accordance
with the terms of the Indenture, the aggregate principal amount of bonds to be
secured thereby being limited to $5,000,000,000 at any one time outstanding
(except as provided in Section 2.01 of the Indenture), and the Indenture
describes and sets forth the property conveyed thereby and is filed
in the Office of the Secretary of State of the State of Michigan and is of
record in the Office of the Register of Deeds of each county in the State of
Michigan in which this Supplemental Indenture is to be recorded; and
WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of the
Secretary of State of the State of Michigan and is of record in the Office of
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and
WHEREAS the Company and the Maine corporation entered into an Agreement
of Merger and Consolidation, dated as of February 14, 1968, which provided for
the Maine corporation to merge into the Company; and
WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was merged
into the Company and the name of the Company was changed from "Consumers Power
Company of Michigan" to "Consumers Power Company"; and
WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided,
among other things, for the assumption of the Indenture by the Company; and
WHEREAS said Sixteenth Supplemental Indenture became effective on the
effective date of such Agreement of Merger and Consolidation; and
WHEREAS the Company has succeeded to and has been substituted for the
Maine corporation under the Indenture with the same effect as if it had been
named therein as the mortgagor corporation; and
WHEREAS effective March 11, 1997, the name of Consumers Power Company
was changed to Consumers Energy Company; and
WHEREAS, the Company has entered into a Credit Agreement dated as of
March 27, 2003 (as amended or otherwise modified from time to time, the "Credit
Agreement") with various financial institutions and Bank One, NA, as
administrative agent (in such capacity, the "Agent") for the Banks (as such term
is defined in the Credit Agreement), providing for the making of certain
financial accommodations thereunder, and pursuant to such Credit Agreement the
Company has agreed to issue to the Agent, as evidence of and security for the
Obligations (as such term is defined in the Credit Agreement), two (2) new
series of bonds under the Indenture; and
WHEREAS, for such purposes the Company desires to issue: (i) a new
series of bonds, to be designated First Mortgage Bonds, 2003 Collateral Series
(Interest Bearing), each of which bonds shall also bear the descriptive title
"First Mortgage Bond" (hereinafter provided for and hereinafter sometimes
referred to as the "2003 Interest Bearing Collateral Bonds"), the bonds of which
series are to be issued as registered bonds without coupons and are to bear
interest at the rate per annum specified herein and are to mature on the
Termination Date (as such term is defined in the Credit Agreement); and (ii) a
new series of bonds, to be designated First Mortgage
-2-
Bonds, 2003 Collateral Series (Zero Rate), each of which bonds shall also bear
the descriptive title "First Mortgage Bond" (hereinafter provided for and
hereinafter sometimes referred to as the "2003 Zero Rate Collateral Bonds"), the
bonds of which series are to be issued as registered bonds without coupons and
are to mature on the Termination Date (as such term is defined in the Credit
Agreement); and
WHEREAS, each of the registered bonds without coupons of the 2003
Interest Bearing Collateral Bonds and the Trustee's Authentication Certificate
thereon and the 2003 Zero Rate Collateral Bonds and the Trustee's Authentication
Certificate thereon are to be substantially in the following forms, to wit:
-3-
[FORM OF REGISTERED BOND
OF THE 2003 INTEREST BEARING COLLATERAL BONDS]
[FACE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
2003 COLLATERAL SERIES (INTEREST BEARING)
No. 1 $37,500,000
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Bank One, NA, as
agent (in such capacity, the "Agent") for the Banks under and as defined in the
Credit Agreement dated as of March 27, 2003 among the Company, the Banks and the
Agent (as amended or otherwise modified from time to time, the "Credit
Agreement"), or registered assigns, the principal sum of Thirty-Seven Million
Five Hundred Thousand Dollars ($37,500,000) or such lesser principal amount as
shall be equal to the IB Percentage (as defined below) of the aggregate
principal amount of the Loans (as defined in the Credit Agreement) and
Reimbursement Obligations (as defined in the Credit Agreement) included in the
Obligations (as defined in the Credit Agreement) outstanding on the Termination
Date (as defined in the Credit Agreement) (the "Maturity Date"), but not in
excess, however, of the principal amount of this bond, and to pay interest
thereon at the Interest Rate (as defined below) until the principal hereof is
paid or duly made available for payment on the Maturity Date, or, in the event
of redemption of this bond, until the redemption date, or, in the event of
default in the payment of the principal hereof, until the Company's obligations
with respect to the payment of such principal shall be discharged as provided in
the Indenture (as defined on the reverse hereof). Interest on this bond shall be
payable on each Interest Payment Date (as defined below), commencing on the
first Interest Payment Date next succeeding March 27, 2003. If the Maturity Date
falls on a day which is not a Business Day, as defined below, principal and any
interest and/or fees payable with respect to the Maturity Date will be paid on
the immediately preceding Business Day. The interest payable, and punctually
paid or duly provided for, on any Interest Payment Date will, subject to certain
exceptions, be paid to the person in whose name this bond (or one or more
predecessor bonds) is registered at the close of business on the Record Date (as
defined below); provided, however, that interest payable on the Maturity Date
will be payable to the person to whom the principal hereof shall be payable.
Should the Company default in the payment of interest ("Defaulted Interest"),
the Defaulted Interest shall be paid to the person in whose name this bond (or
one or more predecessor bonds) is registered on a subsequent record date fixed
by the Company, which subsequent record date shall be fifteen (15) days prior to
the payment of such Defaulted Interest. As used herein, (A) "Business Day" shall
mean any day, other than a Saturday or Sunday, on which banks generally are open
in Chicago, Illinois and New York, New York for the conduct of substantially all
of their commercial lending activities and on which interbank wire transfers can
be made on the Fedwire system; (B) "IB Percentage" means the
-4-
difference between 100% and the ZR Percentage (as defined below); (C) "Interest
Payment Date" shall mean each date on which Obligations constituting interest
and/or fees are due and payable from time to time pursuant to the Credit
Agreement; (D) "Interest Rate" shall mean a rate of interest per annum, adjusted
as necessary, to result in an interest payment equal to the aggregate amount of
Obligations constituting interest and fees due under the Credit Agreement on the
applicable Interest Payment Date; (E) "Record Date" with respect to any Interest
Payment Date shall mean the day (whether or not a Business Day) immediately next
preceding such Interest Payment Date; and (F) "ZR Percentage" means the
percentage (rounded, if necessary, to the nearest or, if there is no nearest,
the next higher 1/10 of 1%) which (x) the Discounted Amount (as defined in the
Credit Agreement) of the outstanding Zero Rate Bonds (as defined in the Credit
Agreement) is of (y) the sum of the Discounted Amount of the outstanding Zero
Rate Bonds and the Face Amount (as defined in the Credit Agreement) of the
outstanding First Mortgage Bonds, 2003 Collateral Series (Interest Bearing).
Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City of Jackson, Michigan, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.
This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.
-5-
IN WITNESS WHEREOF, Consumers Energy Company has caused this
bond to be executed in its name by its Chairman of the Board, its President or
one of its Vice Presidents by his or her signature or a facsimile thereof, and
its corporate seal or a facsimile thereof to be affixed hereto or imprinted
hereon and attested by its Secretary or one of its Assistant Secretaries by his
or her signature or a facsimile thereof.
CONSUMERS ENERGY COMPANY
Dated:
By __________________________
Printed _____________________
Title________________________
Attest: _________________________
TRUSTEE'S AUTHENTICATION CERTIFICATE
This is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.
JPMORGAN CHASE BANK, Trustee
By ________________________________
Authorized Officer
-6-
[REVERSE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
2003 COLLATERAL SERIES (INTEREST BEARING)
This bond is one of the bonds of a series designated as First Mortgage
Bonds, 2003 Collateral Series (Interest Bearing) (sometimes herein referred to
as the "2003 Interest Bearing Collateral Bonds") issued under and in accordance
with and secured by an Indenture dated as of September 1, 1945, given by the
Company (or its predecessor, Consumers Power Company, a Maine corporation) to
City Bank Farmers Trust Company (JPMorgan Chase Bank, successor) (hereinafter
sometimes referred to as the "Trustee"), together with indentures supplemental
thereto, heretofore or hereafter executed, to which indenture and indentures
supplemental thereto (hereinafter referred to collectively as the "Indenture")
reference is hereby made for a description of the property mortgaged and
pledged, the nature and extent of the security and the rights, duties and
immunities thereunder of the Trustee and the rights of the holders of said bonds
and of the Trustee and of the Company in respect of such security, and the
limitations on such rights. By the terms of the Indenture, the bonds to be
secured thereby are issuable in series which may vary as to date, amount, date
of maturity, rate of interest and in other respects as provided in the
Indenture.
The 2003 Interest Bearing Collateral Bonds are to be issued and
delivered to the Agent in order to evidence and secure the obligation of the
Company under the Credit Agreement to make payments to the Banks under the
Credit Agreement and to provide the Banks the benefit of the lien of the
Indenture with respect to the 2003 Interest Bearing Collateral Bonds.
The obligation of the Company to make payments with respect to the
principal of 2003 Interest Bearing Collateral Bonds shall be fully or partially,
as the case may be, satisfied and discharged to the extent that, at the time
that any such payment shall be due, the then due principal of the IB Percentage
of the Loans and/or IB Percentage of the Reimbursement Obligations included in
the IB Percentage of the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the IB Percentage of the Loans and/or the IB Percentage of the Reimbursement
Obligations means that if any payment is made on the principal of the IB
Percentage of the Loans and/or the IB Percentage of the Reimbursement
Obligations, a corresponding payment obligation with respect to the principal of
the 2003 Interest Bearing Collateral Bonds shall be deemed discharged in the
same amount as the payment with respect to the IB Percentage of the Loans and/or
the IB Percentage of the Reimbursement Obligations discharges the outstanding
obligation with respect to such IB Percentage of the Loans and/or IB Percentage
of the Reimbursement Obligations. No such payment of principal shall reduce the
principal amount of the 2003 Interest Bearing Collateral Bonds.
The obligation of the Company to make payments with respect to the
interest on 2003 Interest Bearing Collateral Bonds shall be fully or partially,
as the case may be, satisfied and discharged to the extent that, at the time
that any such payment shall be due, the IB Percentage of the then due interest
and/or fees under the Credit Agreement shall have been fully or partially
-7-
paid. Satisfaction of any obligation to the extent that payment is made with
respect to the IB Percentage of the interest and/or fees under the Credit
Agreement means that if any payment is made on the interest and/or fees under
the Credit Agreement, a corresponding payment obligation with respect to the
interest on the 2003 Interest Bearing Collateral Bonds shall be deemed
discharged in the same amount as the payment with respect to the IB Percentage
of the Loans and/or the IB Percentage of the Reimbursement Obligations
discharges the outstanding obligation with respect to such IB Percentage of the
Loans and/or IB Percentage of the Reimbursement Obligations.
The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on this bond, so far as such payments at the time have become due, has
been fully satisfied and discharged unless and until the Trustee shall have
received a written notice from the Agent stating (i) that timely payment of
principal and interest on the 2003 Interest Bearing Collateral Bonds has not
been made, (ii) that the Company is in arrears as to the payments required to be
made by it to the Agent in connection with the Obligations pursuant to the
Credit Agreement, and (iii) the IB Percentage of the amount of the arrearage.
If an Event of Default (as defined in the Credit Agreement) with
respect to the payment of the principal of the Loans and/or the Reimbursement
Obligations shall have occurred, it shall be deemed to be a default for purposes
of Section 11.01 of the Indenture in the payment of the principal of the 2003
Interest Bearing Collateral Bonds equal to the IB Percentage of the amount of
such unpaid principal or Reimbursement Obligations (but in no event in excess of
the principal amount of the 2003 Interest Bearing Collateral Bonds). If an Event
of Default (as defined in the Credit Agreement) with respect to the payment of
interest on the Loans and/or the Reimbursement Obligations or any fees shall
have occurred, it shall be deemed to be a default for purposes of Section 11.01
of the Indenture in the payment of the interest on the 2003 Interest Bearing
Collateral Bonds equal to the IB Percentage of the amount of such unpaid
interest or fees.
This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Credit Agreement and
the acceleration of the Obligations, as provided in Section 9.2 of the Credit
Agreement. This bond is not redeemable by the operation of the improvement fund
or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.
In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less
-8-
than sixty per centum in principal amount of each series affected, to effect, by
an indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the Indenture, or (c) reduce
the percentage of the principal amount of the bonds the holders of which are
required to approve any such supplemental indenture.
The Company reserves the right, without any consent, vote or other
action by holders of the 2003 Interest Bearing Collateral Bonds or any other
series created after the Sixty-eighth Supplemental Indenture, to amend the
Indenture to reduce the percentage of the principal amount of bonds the holders
of which are required to approve any supplemental indenture (other than any
supplemental indenture which is subject to the proviso contained in the
immediately preceding sentence) (a) from not less than seventy-five per centum
(including sixty per centum of each series affected) to not less than a majority
in principal amount of the bonds at the time outstanding or (b) in case fewer
than all series are affected, not less than a majority in principal amount of
the bonds of all affected series, voting together.
No recourse shall be had for the payment of the principal of or
interest on this bond, or for any claim based hereon, or otherwise in respect
hereof or of the Indenture, to or against any incorporator, stockholder,
director or officer, past, present or future, as such, of the Company, or of any
predecessor or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and owner hereof by
the acceptance of this bond and being likewise waived and released by the terms
of the Indenture.
This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.
The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Loans and Reimbursement Obligations arising
under the Credit Agreement, and all of the fees payable pursuant to the Credit
Agreement with respect to the Obligations shall have been duly paid, and the
Credit Agreement shall have been terminated.
[END OF FORM OF REGISTERED BOND
OF THE 2003 INTEREST BEARING COLLATERAL BONDS]
-9-
[FORM OF REGISTERED BOND
OF THE 2003 ZERO RATE COLLATERAL BONDS]
[FACE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
2003 COLLATERAL SERIES (ZERO RATE)
No. 1 $227,500,000
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Bank One, NA, as
agent (in such capacity, the "Agent") for the Banks under and as defined in the
Credit Agreement dated as of March 27, 2003 among the Company, the Banks and the
Agent (as amended or otherwise modified from time to time, the "Credit
Agreement"), or registered assigns, the principal sum of Two Hundred
Twenty-Seven Million Five Hundred Thousand Dollars ($227,500,000) or such lesser
principal amount as shall be equal to the ZR Percentage (as defined below) of
the aggregate Obligations (as defined in the Credit Agreement) consisting of (x)
the principal amount of the Loans (as defined in the Credit Agreement), (y) the
Reimbursement Obligations (as defined in the Credit Agreement) and (z) unpaid
interest and fees under the Credit Agreement. Such amount shall be payable on or
before the Termination Date (as defined in the Credit Agreement) (the "Maturity
Date"). Any payment of interest and/or fees under the Credit Agreement shall be
considered a reduction of the principal amount hereof in an amount equal to the
ZR Percentage of such interest and/or fees and shall reduce the principal amount
hereof by such amount. If the Maturity Date falls on a day which is not a
Business Day, as defined below, all amounts payable on the Maturity Date will be
paid on the immediately preceding Business Day. As used herein, (A) "Business
Day" shall mean any day, other than a Saturday or Sunday, on which banks
generally are open in Chicago, Illinois and New York, New York for the conduct
of substantially all of their commercial lending activities and on which
interbank wire transfers can be made on the Fedwire system; (B) "ZR Percentage"
means the percentage (rounded, if necessary, to the nearest or, if there is no
nearest, the next higher 1/10 of 1%) which (x) the Discounted Amount (as defined
in the Credit Agreement) of the outstanding First Mortgage Bonds, 2003
Collateral Series (Zero Rate) is of (y) the sum of the Discounted Amount of the
outstanding First Mortgage Bonds, 2003 Collateral Series (Zero Rate) and the
Face Amount (as defined in the Credit Agreement) of the outstanding First
Mortgage Bonds, 2003 Collateral Series (Interest Bearing).
Payment of the principal of this bond will be made in immediately
available funds at the office or agency of the Company maintained for that
purpose in the City of Jackson, Michigan, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts. In the event the Company shall fail to pay the
principal amount of this bond at maturity, whether by acceleration or otherwise,
such principal amount
-10-
shall bear interest until paid in full at a rate per annum equal to the Floating
Rate (as defined in the Credit Agreement) plus 1%.
The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.
This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.
IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to be
executed in its name by its Chairman of the Board, its President or one of its
Vice Presidents by his or her signature or a facsimile thereof, and its
corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon
and attested by its Secretary or one of its Assistant Secretaries by his or her
signature or a facsimile thereof.
CONSUMERS ENERGY COMPANY
Dated:
By __________________________
Printed _____________________
Title _______________________
Attest: _________________________
TRUSTEE'S AUTHENTICATION CERTIFICATE
This is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.
JPMORGAN CHASE BANK, Trustee
By ________________________________
Authorized Officer
-11-
[REVERSE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
2003 COLLATERAL SERIES (ZERO RATE)
This bond is one of the bonds of a series designated as First Mortgage
Bonds, 2003 Collateral Series (Zero Rate) (sometimes herein referred to as the
"2003 Zero Rate Collateral Bonds") issued under and in accordance with and
secured by an Indenture dated as of September 1, 1945, given by the Company (or
its predecessor, Consumers Power Company, a Maine corporation) to City Bank
Farmers Trust Company (JPMorgan Chase Bank, successor) (hereinafter sometimes
referred to as the "Trustee"), together with indentures supplemental thereto,
heretofore or hereafter executed, to which indenture and indentures supplemental
thereto (hereinafter referred to collectively as the "Indenture") reference is
hereby made for a description of the property mortgaged and pledged, the nature
and extent of the security and the rights, duties and immunities thereunder of
the Trustee and the rights of the holders of said bonds and of the Trustee and
of the Company in respect of such security, and the limitations on such rights.
By the terms of the Indenture, the bonds to be secured thereby are issuable in
series which may vary as to date, amount, date of maturity, rate of interest and
in other respects as provided in the Indenture.
The 2003 Zero Rate Collateral Bonds are to be issued and delivered to
the Agent in order to evidence and secure the obligation of the Company under
the Credit Agreement to make payments to the Banks and to provide the Banks the
benefit of the lien of the Indenture with respect to the 2003 Zero Rate
Collateral Bonds.
The obligation of the Company to make payments with respect to the
principal of 2003 Zero Rate Collateral Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the ZR Percentage of the
Loans and/or the ZR Percentage of the Reimbursement Obligations, and the
then-due ZR Percentage of payment obligations with respect to interest and/or
fees under the Credit Agreement, shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the ZR Percentage of the Loans, the ZR Percentage of the Reimbursement
Obligations, or the ZR Percentage of interest and/or fees under the Credit
Agreement means that if any payment is made on the principal of the ZR
Percentage of the Loans and/or the ZR Percentage of the Reimbursement
Obligations, or if any payment is made on the ZR Percentage of the interest
and/or fees under the Credit Agreement, a corresponding payment obligation with
respect to the principal of the 2003 Zero Rate Collateral Bonds shall be deemed
discharged in the same amount as the payment with respect to the ZR Percentage
of the Loans, the ZR Percentage of the Reimbursement Obligations, or the ZR
Percentage of the interest and/or fees discharges the outstanding obligation
with respect to such ZR Percentage of the Loans, ZR Percentage of the
Reimbursement Obligations, or the ZR Percentage of the interest and/or fees. No
payment of principal of the 2003 Zero Rate Collateral Bonds attributable to any
payment of the principal of Loans or Reimbursement Obligations shall reduce the
principal amount of the 2003 Zero Rate Collateral Bonds, but any payment of
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principal of the 2003 Zero Rate Collateral Bonds attributable to any payment of
interest or fees under the Credit Agreement shall reduce the principal of the
2003 Zero Rate Collateral Bonds.
The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of this
bond, so far as such payments at the time have become due, has been fully
satisfied and discharged unless and until the Trustee shall have received a
written notice from the Agent stating (i) that timely payment of principal on
the 2003 Zero Rate Collateral Bonds has not been made, (ii) that the Company is
in arrears as to the payments required to be made by it to the Agent in
connection with the Obligations pursuant to the Credit Agreement, and (iii) the
ZR Percentage of the amount of the arrearage.
If an Event of Default (as defined in the Credit Agreement) with
respect to the payment of the principal of the Loans and/or the Reimbursement
Obligations and/or any interest or fees shall have occurred, it shall be deemed
to be a default for purposes of Section 11.01 of the Indenture in the payment of
the principal of the 2003 Zero Rate Collateral Bonds equal to the ZR Percentage
of the amount of such unpaid principal, Reimbursement Obligations, interest
and/or fees (but in no event in excess of the principal amount of the 2003 Zero
Rate Collateral Bonds).
This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Credit Agreement and
the acceleration of the Obligations, as provided in Section 9.2 of the Credit
Agreement. This bond is not redeemable by the operation of the improvement fund
or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.
In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the
amount of the principal hereof, or (b) permit the creation of any lien, not
otherwise permitted, prior to or on a parity with the lien of the Indenture, or
(c) reduce the percentage of the principal amount of the bonds the holders of
which are required to approve any such supplemental indenture.
The Company reserves the right, without any consent, vote or other
action by holders of the 2003 Zero Rate Collateral Bonds or any other series
created after the Sixty-eighth Supplemental Indenture, to amend the Indenture to
reduce the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than
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any supplemental indenture which is subject to the proviso contained in the
immediately preceding sentence) (a) from not less than seventy-five per centum
(including sixty per centum of each series affected) to not less than a majority
in principal amount of the bonds at the time outstanding or (b) in case fewer
than all series are affected, not less than a majority in principal amount of
the bonds of all affected series, voting together.
No recourse shall be had for the payment of the principal on this bond,
or for any claim based hereon, or otherwise in respect hereof or of the
Indenture, to or against any incorporator, stockholder, director or officer,
past, present or future, as such, of the Company, or of any predecessor or
successor company, either directly or through the Company, or such predecessor
or successor company, or otherwise, under any constitution or statute or rule of
law, or by the enforcement of any assessment or penalty, or otherwise, all such
liability of incorporators, stockholders, directors and officers, as such, being
waived and released by the holder and owner hereof by the acceptance of this
bond and being likewise waived and released by the terms of the Indenture.
This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.
The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Loans and Reimbursement Obligations arising
under the Credit Agreement, and all of the fees payable pursuant to the Credit
Agreement with respect to the Obligations shall have been duly paid, and the
Credit Agreement shall have been terminated.
[END OF FORM OF REGISTERED BOND
OF THE 2003 ZERO RATE COLLATERAL BONDS]
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AND WHEREAS all acts and things necessary to make the 2003 Interest
Bearing Collateral Bonds and the 2003 Zero Rate Collateral Bonds (collectively
referred to herein as, the "Collateral Bonds"), when duly executed by the
Company and authenticated by the Trustee or its agent and issued as prescribed
in the Indenture, as heretofore supplemented and amended, and this Supplemental
Indenture provided, the valid, binding and legal obligations of the Company, and
to constitute the Indenture, as supplemented and amended as aforesaid, as well
as by this Supplemental Indenture, a valid, binding and legal instrument for the
security thereof, have been done and performed, and the creation, execution and
delivery of this Supplemental Indenture and the creation, execution and issuance
of bonds subject to the terms hereof and of the Indenture, as so supplemented
and amended, have in all respects been duly authorized;
NOW, THEREFORE, in consideration of the premises, of the acceptance and
purchase by the holders thereof of the bonds issued and to be issued under the
Indenture, as supplemented and amended as above set forth, and of the sum of One
Dollar duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$37,500,000 principal amount of the 2003 Interest Bearing Collateral Bonds and
the $227,500,000 principal amount of the 2003 Zero Rate Collateral Bonds and all
other bonds which shall be issued under the Indenture, as supplemented and
amended from time to time, and for the purpose of securing the faithful
performance and observance of all covenants and conditions therein, and in any
indenture supplemental thereto, set forth, the Company has given, granted,
bargained, sold, released, transferred, assigned, hypothecated, pledged,
mortgaged, confirmed, set over, warranted, alienated and conveyed and by these
presents does give, grant, bargain, sell, release, transfer, assign,
hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto
JPMorgan Chase Bank, as Trustee, as provided in the Indenture, and its successor
or successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and to all
the property, described in Section 11 hereof, together (subject to the
provisions of Article X of the Indenture) with the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, excepting, however, the
property, interests and rights specifically excepted from the lien of the
Indenture as set forth in the Indenture.
TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises, property,
franchises and rights, or any thereof, referred to in the foregoing granting
clause, with the reversion and reversions, remainder and remainders and (subject
to the provisions of Article X of the Indenture) the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, and all the estate,
right, title and interest and claim whatsoever, at law as well as in equity,
which the Company now has or may hereafter acquire in and to the aforesaid
premises, property, franchises and rights and every part and parcel thereof.
SUBJECT, HOWEVER, with respect to such premises, property, franchises
and rights, to excepted encumbrances as said term is defined in Section 1.02 of
the Indenture, and subject also to all defects and limitations of title and to
all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all
said premises, property, franchises and rights hereby conveyed,
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assigned, pledged or mortgaged, or intended so to be, unto the Trustee, its
successor or successors in trust and their assigns forever;
BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or hereafter
authenticated and delivered under and secured by the Indenture and interest
coupons appurtenant thereto, pursuant to the provisions of the Indenture and of
any supplemental indenture, and for the enforcement of the payment of said bonds
and coupons when payable and the performance of and compliance with the
covenants and conditions of the Indenture and of any supplemental indenture,
without any preference, distinction or priority as to lien or otherwise of any
bond or bonds over others by reason of the difference in time of the actual
authentication, delivery, issue, sale or negotiation thereof or for any other
reason whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and premium,
if any, and interest on every such bond shall, subject to the terms thereof, be
equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the execution
and delivery thereof.
AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as supplemented
and amended as above set forth, are to be issued, authenticated and delivered,
and all said premises, property, franchises and rights hereby and by the
Indenture and indentures supplemental thereto conveyed, assigned, pledged or
mortgaged, or intended so to be, are to be dealt with and disposed of under,
upon and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes expressed in the Indenture, as supplemented and
amended as above set forth, and the parties hereto mutually agree as follows:
SECTION 1. There is hereby created two (2) series of bonds (the "2003
Interest Bearing Collateral Bonds" and the "2003 Zero Rate Collateral Bonds")
designated as hereinabove provided, both of which shall also bear the
descriptive title "First Mortgage Bond", and the forms thereof shall be
substantially as hereinbefore set forth (collectively, the "Sample Bonds"). The
2003 Interest Bearing Collateral Bonds shall be issued in the aggregate
principal amount of $37,500,000, shall mature on the Termination Date (as such
term is defined in the Credit Agreement) and shall be issued only as registered
bonds without coupons in denominations of $1,000 and any multiple thereof. The
2003 Zero Rate Collateral Bonds shall be issued in the aggregate principal
amount of $227,500,000, shall mature on the Termination Date (as such term is
defined in the Credit Agreement) and shall be issued only as registered bonds
without coupons in denominations of $1,000 and any multiple thereof. The serial
numbers of the Collateral Bonds shall be such as may be approved by any officer
of the Company, the execution thereof by any such officer either manually or by
facsimile signature to be conclusive evidence of such approval. The Collateral
Bonds are to be issued to and registered in the name of the Agent under the
Credit Agreement (as such terms are defined in the Sample Bonds) to evidence and
secure any and all Obligations (as such term is defined in the Credit Agreement)
of the Company under the Credit Agreement.
The 2003 Interest Bearing Collateral Bonds shall bear interest as set
forth in the Form of Registered Bond of the 2003 Interest Bearing Collateral
Bonds hereinbefore set forth (the
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"Interest Bearing Sample Bond"). The principal of and the interest on said bonds
shall be payable as set forth in the Interest Bearing Sample Bond. The principal
of the 2003 Zero Rate Collateral Bonds shall be payable as set forth in the Form
of Registered Bond of the 2003 Zero Rate Collateral Bonds hereinbefore set forth
(the "Zero Rate Sample Bond"). All payments of interest with respect to the
Obligations shall be applied to the Collateral Bonds according to the IB
Percentage (in the case of the 2003 Interest Bearing Collateral Bonds) or the ZR
Percentage (in the case of the 2003 Zero Rate Collateral Bonds), as applicable.
"IB Percentage" and "ZR Percentage" shall have the meanings assigned to such
terms in the Interest Bearing Sample Bond and the Zero Rate Sample Bond,
respectively.
The obligation of the Company to make payments with respect to the
principal of 2003 Interest Bearing Collateral Bonds shall be fully or partially,
as the case may be, satisfied and discharged to the extent that, at the time
that any such payment shall be due, the then due principal of the IB Percentage
of the Loans and/or IB Percentage of the Reimbursement Obligations included in
the IB Percentage of the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the IB Percentage of the Loans and/or the IB Percentage of the Reimbursement
Obligations means that if any payment is made on the principal of the IB
Percentage of the Loans and/or the IB Percentage of the Reimbursement
Obligations, a corresponding payment obligation with respect to the principal of
the 2003 Interest Bearing Collateral Bonds shall be deemed discharged in the
same amount as the payment with respect to the IB Percentage of the Loans and/or
the IB Percentage of the Reimbursement Obligations discharges the outstanding
obligation with respect to such IB Percentage of the Loans and/or IB Percentage
of the Reimbursement Obligations. No such payment of principal shall reduce the
principal amount of the 2003 Interest Bearing Collateral Bonds.
The obligation of the Company to make payments with respect to the
interest on 2003 Interest Bearing Collateral Bonds shall be fully or partially,
as the case may be, satisfied and discharged to the extent that, at the time
that any such payment shall be due, the IB Percentage of the then due interest
and/or fees under the Credit Agreement shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the IB Percentage of the interest and/or fees under the Credit Agreement
means that if any payment is made on the interest and/or fees under the Credit
Agreement, a corresponding payment obligation with respect to the interest on
the 2003 Interest Bearing Collateral Bonds shall be deemed discharged in the
same amount as the payment with respect to the IB Percentage of the Loans and/or
the IB Percentage of the Reimbursement Obligations discharges the outstanding
obligation with respect to such IB Percentage of the Loans and/or IB Percentage
of the Reimbursement Obligations.
The obligation of the Company to make payments with respect to the
principal of 2003 Zero Rate Collateral Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the ZR Percentage of the
Loans and/or the ZR Percentage of the Reimbursement Obligations, and the
then-due ZR Percentage of payment obligations with respect to interest and/or
fees under the Credit Agreement, shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the ZR Percentage of the Loans, the ZR Percentage of the Reimbursement
Obligations, or the ZR Percentage of interest and/or
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fees under the Credit Agreement means that if any payment is made on the
principal of the ZR Percentage of the Loans and/or the ZR Percentage of the
Reimbursement Obligations, or if any payment is made on the ZR Percentage of the
interest and/or fees under the Credit Agreement, a corresponding payment
obligation with respect to the principal of the 2003 Zero Rate Collateral Bonds
shall be deemed discharged in the same amount as the payment with respect to the
ZR Percentage of the Loans, the ZR Percentage of the Reimbursement Obligations,
or the ZR Percentage of the interest and/or fees discharges the outstanding
obligation with respect to such ZR Percentage of the Loans, ZR Percentage of the
Reimbursement Obligations, or the ZR Percentage of the interest and/or fees. No
payment of principal of the 2003 Zero Rate Collateral Bonds attributable to any
payment of the principal of Loans or Reimbursement Obligations shall reduce the
principal amount of the 2003 Zero Rate Collateral Bonds, but any payment of
principal of the 2003 Zero Rate Collateral Bonds attributable to any payment of
interest or fees under the Credit Agreement shall be applied to reduce the
principal of the 2003 Zero Rate Collateral Bonds.
The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on the Collateral Bonds, so far as such payments at the time have
become due, has been fully satisfied and discharged unless and until the Trustee
shall have received a written notice from the Agent stating (i) that timely
payment of principal and interest on the 2003 Interest Bearing Collateral Bonds
has not been made or that timely payment of principal on the 2003 Zero Rate
Collateral Bonds has not been made, (ii) that the Company is in arrears as to
the payments required to be made by it to the Agent pursuant to the Credit
Agreement, and (iii) the amount of the arrearage.
The Collateral Bonds shall be exchangeable for other registered bonds
of the same series, in the manner and upon the conditions prescribed in the
Indenture, upon the surrender of such bonds at the Investor Services Department
of the Company, as transfer agent. However, notwithstanding the provisions of
Section 2.05 of the Indenture, no charge shall be made upon any registration of
transfer or exchange of bonds of said series other than for any tax or taxes or
other governmental charge required to be paid by the Company.
SECTION 2. The Collateral Bonds are not redeemable by the operation of
the maintenance and replacement provisions of this Indenture or with the
proceeds of released property.
SECTION 3. Upon the occurrence of an Event of Default under the Credit
Agreement and the acceleration of the Obligations, the Collateral Bonds shall be
redeemable in whole upon receipt by the Trustee of a written demand from the
Agent stating that there has occurred under the Credit Agreement both an Event
of Default and a declaration of acceleration of the Obligations and demanding
redemption of the Collateral Bonds (including a description of the amount of
principal, interest and fees which comprise such Obligations). The Company
waives any right it may have to prior notice of such redemption under the
Indenture. Upon surrender of the Collateral Bonds by the Agent to the Trustee,
the Collateral Bonds shall be redeemed at a redemption price equal to the
aggregate amount of the Obligations.
SECTION 4. The Company reserves the right, without any consent, vote or
other action by the holder of the Collateral Bonds or of any subsequent series
of bonds issued under the
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Indenture, to make such amendments to the Indenture, as supplemented, as shall
be necessary in order to amend Section 17.02 to read as follows:
SECTION 17.02. With the consent of the holders of not less
than a majority in principal amount of the bonds at the time
outstanding or their attorneys-in-fact duly authorized, or, if fewer
than all series are affected, not less than a majority in principal
amount of the bonds at the time outstanding of each series the rights
of the holders of which are affected, voting together, the Company,
when authorized by a resolution, and the Trustee may from time to time
and at any time enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Indenture or of any
supplemental indenture or modifying the rights and obligations of the
Company and the rights of the holders of any of the bonds and coupons;
provided, however, that no such supplemental indenture shall (1) extend
the maturity of any of the bonds or reduce the rate or extend the time
of payment of interest thereon, or reduce the amount of the principal
thereof, or reduce any premium payable on the redemption thereof,
without the consent of the holder of each bond so affected, or (2)
permit the creation of any lien, not otherwise permitted, prior to or
on a parity with the lien of this Indenture, without the consent of the
holders of all the bonds then outstanding, or (3) reduce the aforesaid
percentage of the principal amount of bonds the holders of which are
required to approve any such supplemental indenture, without the
consent of the holders of all the bonds then outstanding. For the
purposes of this Section, bonds shall be deemed to be affected by a
supplemental indenture if such supplemental indenture adversely affects
or diminishes the rights of holders thereof against the Company or
against its property. The Trustee may in its discretion determine
whether or not, in accordance with the foregoing, bonds of any
particular series would be affected by any supplemental indenture and
any such determination shall be conclusive upon the holders of bonds of
such series and all other series. Subject to the provisions of Sections
16.02 and 16.03 hereof, the Trustee shall not be liable for any
determination made in good faith in connection herewith.
Upon the written request of the Company, accompanied by a
resolution authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the
consent of bondholders as aforesaid (the instrument or instruments
evidencing such consent to be dated within one year of such request),
the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion but shall
not be obligated to enter into such supplemental indenture.
It shall not be necessary for the consent of the bondholders
under this Section to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
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The Company and the Trustee, if they so elect, and either
before or after such consent has been obtained, may require the holder
of any bond consenting to the execution of any such supplemental
indenture to submit his bond to the Trustee or to ask such bank, banker
or trust company as may be designated by the Trustee for the purpose,
for the notation thereon of the fact that the holder of such bond has
consented to the execution of such supplemental indenture, and in such
case such notation, in form satisfactory to the Trustee, shall be made
upon all bonds so submitted, and such bonds bearing such notation shall
forthwith be returned to the persons entitled thereto.
Prior to the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the
Company shall publish a notice, setting forth in general terms the
substance of such supplemental indenture, at least once in one daily
newspaper of general circulation in each city in which the principal of
any of the bonds shall be payable, or, if all bonds outstanding shall
be registered bonds without coupons or coupon bonds registered as to
principal, such notice shall be sufficiently given if mailed, first
class, postage prepaid, and registered if the Company so elects, to
each registered holder of bonds at the last address of such holder
appearing on the registry books, such publication or mailing, as the
case may be, to be made not less than thirty days prior to such
execution. Any failure of the Company to give such notice, or any
defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.
SECTION 5. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.
SECTION 6. Nothing contained in this Supplemental Indenture shall, or
shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, as supplemented and amended as above set forth, the
Company, the Trustee and the Agent, for the benefit of the Banks (as such term
is defined in the Credit Agreement), any right or interest to avail himself of
any benefit under any provision of the Indenture, as so supplemented and
amended.
SECTION 7. The Trustee assumes no responsibility for or in respect of
the validity or sufficiency of this Supplemental Indenture or of the Indenture
as hereby supplemented or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein (other than those
contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.
SECTION 8. This Supplemental Indenture may be simultaneously executed
in several counterparts and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.
SECTION 9. In the event the date of any notice required or permitted
hereunder shall not be a Business Day, then (notwithstanding any other provision
of the Indenture or of any supplemental indenture thereto) such notice need not
be made on such date, but may be made on
-20-
the next succeeding Business Day with the same force and effect as if made on
the date fixed for such notice. "Business Day" means, with respect to this
Section 9, any day, other than a Saturday or Sunday, on which banks generally
are open in Chicago, Illinois and New York, New York for the conduct of
substantially all of their commercial lending activities and on which interbank
wire transfers can be made on the Fedwire system.
SECTION 10. This Supplemental Indenture and the Collateral Bonds shall
be governed by and deemed to be a contract under, and construed in accordance
with, the laws of the State of Michigan, and for all purposes shall be construed
in accordance with the laws of such state, except as may otherwise be required
by mandatory provisions of law.
SECTION 11. Detailed Description of Property Mortgaged:
I.
ELECTRIC GENERATING PLANTS AND DAMS
All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.
II.
ELECTRIC TRANSMISSION LINES
All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including towers, poles, pole lines, wires, switches, switch racks,
switchboards, insulators and other appliances and equipment, and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.
-21-
III.
ELECTRIC DISTRIBUTION SYSTEMS
All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including substations, transformers, switchboards, towers, poles, wires,
insulators, subways, trenches, conduits, manholes, cables, meters and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
distribution systems or any of them or adjacent thereto; together with all real
property, rights of way, easements, permits, privileges, franchises, grants and
rights, for or relating to the construction, maintenance or operation thereof,
through, over, under or upon any private property or any public streets or
highways within as well as without the corporate limits of any municipal
corporation.
IV.
ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES
All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, for transforming, regulating, converting or distributing or
otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.
V.
GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS, DESULPHURIZATION
STATIONS, METERING STATIONS, ODORIZING STATIONS, REGULATORS AND
SITES
All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, for compressing, processing, desulphurizing, metering,
odorizing and regulating manufactured or natural gas at any of its plants and
elsewhere, together with all buildings, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of such
purposes, with sites to be used for such purposes.
-22-
VI.
GAS STORAGE FIELDS
The natural gas rights and interests of the Company, including wells
and well lines (but not including natural gas, oil and minerals), the gas
gathering system, the underground gas storage rights, the underground gas
storage wells and injection and withdrawal system used in connection therewith,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture: In the Overisel Gas Storage Field, located in the Township of
Overisel, Allegan County, and in the Township of Zeeland, Ottawa County,
Michigan; in the Northville Gas Storage Field located in the Township of Salem,
Washtenaw County, Township of Lyon, Oakland County, and the Townships of
Northville and Plymouth and City of Plymouth, Wayne County, Michigan; in the
Salem Gas Storage Field, located in the Township of Salem, Allegan County, and
in the Township of Jamestown, Ottawa County, Michigan; in the Ray Gas Storage
Field, located in the Townships of Ray and Armada, Macomb County, Michigan; in
the Lenox Gas Storage Field, located in the Townships of Lenox and Chesterfield,
Macomb County, Michigan; in the Ira Gas Storage Field, located in the Township
of Ira, St. Clair County, Michigan; in the Puttygut Gas Storage Field, located
in the Township of Casco, St. Clair County, Michigan; in the Four Corners Gas
Storage Field, located in the Townships of Casco, China, Cottrellville and Ira,
St. Clair County, Michigan; in the Swan Creek Gas Storage Field, located in the
Township of Casco and Ira, St. Clair County, Michigan; and in the Hessen Gas
Storage Field, located in the Townships of Casco and Columbus, St. Clair,
Michigan.
VII.
GAS TRANSMISSION LINES
All the gas transmission lines of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
gas mains, pipes, pipelines, gates, valves, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements, permits, privileges, franchises and rights
for or relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways,
within as well as without the corporate limits of any municipal corporation.
VIII.
GAS DISTRIBUTION SYSTEMS
All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including tunnels, conduits, gas mains and pipes, service pipes, fittings,
gates, valves, connections, meters and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such distribution systems or any of them
or adjacent thereto; together with all
-23-
real property, rights of way, easements, permits, privileges, franchises, grants
and rights, for or relating to the construction, maintenance or operation
thereof, through, over, under or upon any private property or any public streets
or highways within as well as without the corporate limits of any municipal
corporation.
IX.
OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.
All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise acquired by
it and not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the lien of the Indenture, together with the land
on which the same are situated and all easements, rights of way and
appurtenances to said lands, together with all furniture and fixtures located in
said buildings.
X.
TELEPHONE PROPERTIES AND RADIO COMMUNICATION EQUIPMENT
All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, used or available for use in the operation of its
properties, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such telephone
properties or any of them or adjacent thereto; together with all real estate,
rights of way, easements, permits, privileges, franchises, property, devices or
rights related to the dispatch, transmission, reception or reproduction of
messages, communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment installed in
buildings used as general and regional offices, substations and generating
stations and all telephone lines erected on towers and poles; and all radio
communication equipment of the Company, together with all property, real or
personal (except any in the Indenture expressly excepted), fixed stations,
towers, auxiliary radio buildings and equipment, and all appurtenances used in
connection therewith, wherever located, in the State of Michigan.
XI.
OTHER REAL PROPERTY
All other real property of the Company and all interests therein, of
every nature and description (except any in the Indenture expressly excepted)
wherever located, in the State of Michigan, acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the lien of the Indenture. Such real property includes but is not limited
to the following described property, such property is subject to any interests
that were excepted or reserved in the conveyance to the Company:
-24-
ALCONA COUNTY
Certain land in Caledonia Township, Alcona County, Michigan described
as:
The East 330 feet of the South 660 feet of the SW 1/4 of the
SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South
330 feet thereof; said land being more particularly described as
follows: To find the place of beginning of this description, commence
at the Southwest corner of said section, run thence East along the
South line of said section 1243 feet to the place of beginning of this
description, thence continuing East along said South line of said
section 66 feet to the West 1/8 line of said section, thence N 02
degrees 09' 30" E along the said West 1/8 line of said section 660
feet, thence West 330 feet, thence S 02 degrees 09' 30" W, 330 feet,
thence East 264 feet, thence S 02 degrees 09' 30" W, 330 feet to the
place of beginning.
ALLEGAN COUNTY
Certain land in Lee Township, Allegan County, Michigan described as:
The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.
ALPENA COUNTY
Certain land in Wilson and Green Townships, Alpena County, Michigan
described as:
All that part of the S'ly 1/2 of the former Boyne City-Gaylord
and Alpena Railroad right of way, being the Southerly 50 feet of a 100
foot strip of land formerly occupied by said Railroad, running from the
East line of Section 31, T31N, R7E, Southwesterly across said Section
31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2
of Section 9, except the West 1646 feet thereof, all in T30N, R6E.
ANTRIM COUNTY
Certain land in Mancelona Township, Antrim County, Michigan described
as:
The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
therefrom all mineral, coal, oil and gas and such other rights as were
reserved unto the State of Michigan in that certain deed running from
the State of Michigan to August W. Schack and Emma H. Schack, his wife,
dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on
page 682 of Antrim County Records.
ARENAC COUNTY
Certain land in Standish Township, Arenac County, Michigan described
as:
A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
T18N, R4E, described as follows: To find the place of beginning of said
parcel of land,
-25-
commence at the Northwest corner of Section 12, T18N, R4E; run thence
South along the West line of said section, said West line of said
section being also the center line of East City Limits Road 2642.15
feet to the W 1/4 post of said section and the place of beginning of
said parcel of land; running thence N 88 degrees 26' 00" E along the
East and West 1/4 line of said section, 660.0 feet; thence North
parallel with the West line of said section, 310.0 feet; thence S 88
degrees 26' 00" W, 330.0 feet; thence South parallel with the West line
of said section, 260.0 feet; thence S 88 degrees 26' 00" W, 330.0 feet
to the West line of said section and the center line of East City
Limits Road; thence South along the said West line of said section,
50.0 feet to the place of beginning.
BARRY COUNTY
Certain land in Johnstown Township, Barry County, Michigan described
as:
A strip of land 311 feet in width across the SW 1/4 of the NE
1/4 of Section 31, T1N, R8W, described as follows: To find the place of
beginning of this description, commence at the E 1/4 post of said
section; run thence N 00 degrees 55' 00" E along the East line of said
section, 555.84 feet; thence N 59 degrees 36' 20" W, 1375.64 feet;
thence N 88 degrees 30' 00" W, 130 feet to a point on the East 1/8 line
of said section and the place of beginning of this description; thence
continuing N 88 degrees 30' 00" W, 1327.46 feet to the North and South
1/4 line of said section; thence S 00 degrees 39'35" W along said North
and South 1/4 line of said section, 311.03 feet to a point, which said
point is 952.72 feet distant N'ly from the East and West 1/4 line of
said section as measured along said North and South 1/4 line of said
section; thence S 88 degrees 30' 00" E, 1326.76 feet to the East 1/8
line of said section; thence N 00 degrees 47' 20" E along said East 1/8
line of said section, 311.02 feet to the place of beginning.
BAY COUNTY
Certain land in Frankenlust Township, Bay County, Michigan described
as:
The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
the SE 1/4 of Section 9, T13N, R4E.
BENZIE COUNTY
Certain land in Benzonia Township, Benzie County, Michigan described
as:
A parcel of land in the Northeast 1/4 of Section 7, Township
26 North, Range 14 West, described as beginning at a point on the East
line of said Section 7, said point being 320 feet North measured along
the East line of said section from the East 1/4 post; running thence
West 165 feet; thence North parallel with the East line of said section
165 feet; thence East 165 feet to the East line of said section; thence
South 165 feet to the place of beginning.
-26-
BRANCH COUNTY
Certain land in Girard Township, Branch County, Michigan described as:
A parcel of land in the NE 1/4 of Section 23 T5S, R6W,
described as beginning at a point on the North and South quarter line
of said section at a point 1278.27 feet distant South of the North
quarter post of said section, said distance being measured along the
North and South quarter line of said section, running thence S89
degrees21'E 250 feet, thence North along a line parallel with the said
North and South quarter line of said section 200 feet, thence N89
degrees21'W 250 feet to the North and South quarter line of said
section, thence South along said North and South quarter line of said
section 200 feet to the place of beginning.
CALHOUN COUNTY
Certain land in Convis Township, Calhoun County, Michigan described as:
A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
T1S, R6W, described as follows: To find the place of beginning of this
description, commence at the Southeast corner of said section; run
thence North along the East line of said section 1034.32 feet to the
place of beginning of this description; running thence N 89 degrees 39'
52" W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of
said section; thence S 89 degrees 39' 52" E along said South 1/8 line
of said section 333.0 feet to the East line of said section; thence
South along said East line of said section 290.0 feet to the place of
beginning. (Bearings are based on the East line of Section 32, T1S,
R6W, from the Southeast corner of said section to the Northeast corner
of said section assumed as North.)
CASS COUNTY
Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:
The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
R13W.
CHARLEVOIX COUNTY
Certain land in South Arm Township, Charlevoix County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
described as follows: Beginning at the Southwest corner of said section
and running thence North along the West line of said section 788.25
feet to a point which is 528 feet distant South of the South 1/8 line
of said section as measured along the said West line of said section;
thence N 89 degrees 30' 19" E, parallel with said South 1/8 line of
said section 442.1 feet; thence South 788.15 feet to the South line of
said section; thence S 89 degrees 29' 30" W, along said South line of
said section 442.1 feet to the place of beginning.
-27-
CHEBOYGAN COUNTY
Certain land in Inverness Township, Cheboygan County, Michigan
described as:
A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
described as beginning at the Northwest corner of the SW frl 1/4,
running thence East on the East and West quarter line of said Section,
40 rods, thence South parallel to the West line of said Section 40
rods, thence West 40 rods to the West line of said Section, thence
North 40 rods to the place of beginning.
CLARE COUNTY
Certain land in Frost Township, Clare County, Michigan described as:
The East 150 feet of the North 225 feet of the NW 1/4 of the
NW 1/4 of Section 15, T20N, R4W.
CLINTON COUNTY
Certain land in Watertown Township, Clinton County, Michigan described
as:
The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
T5N, R3W.
CRAWFORD COUNTY
Certain land in Lovells Township, Crawford County, Michigan described
as:
A parcel of land in Section 1, T28N, R1W, described as:
Commencing at NW corner said section; thence South 89 degrees53'30"
East along North section line 105.78 feet to point of beginning; thence
South 89 degrees53'30" East along North section line 649.64 feet;
thence South 55 degrees 42'30" East 340.24 feet; thence South 55
degrees 44' 37"" East 5,061.81 feet to the East section line; thence
South 00 degrees 00' 08"" West along East section line 441.59 feet;
thence North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
degrees 42'30" West 877.76 feet to point of beginning.
EATON COUNTY
Certain land in Eaton Township, Eaton County, Michigan described as:
A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section; run
thence N 89 degrees 51' 30" E along the South line of said section 400
feet to the place of beginning of this description; thence continuing N
89 degrees 51' 30" E, 500 feet; thence N 00 degrees 50' 00" W, 600
feet; thence S 89 degrees 51' 30" W parallel with the South line of
said section 500 feet; thence S 00 degrees 50' 00" E, 600 feet to the
place of beginning.
-28-
EMMET COUNTY
Certain land in Wawatam Township, Emmet County, Michigan described as:
The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
Section 23, T39N, R4W.
GENESEE COUNTY
Certain land in Argentine Township, Genesee County, Michigan described
as:
A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
being more particularly described as follows:
Beginning at a point of the West line of Duffield Road, 100
feet wide, (as now established) distant 829.46 feet measured N01
degrees42'56"W and 50 feet measured S88 degrees14'04"W from the South
quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a
distance of 550 feet; thence N01 degrees42'56"W a distance of 500 feet
to a point on the North line of the South half of the Southwest quarter
of said Section 8; thence N88 degrees14'04"E along the North line of
South half of the Southwest quarter of said Section 8 a distance 550
feet to a point on the West line of Duffield Road, 100 feet wide (as
now established); thence S01 degrees42'56"E along the West line of said
Duffield Road a distance of 500 feet to the point of beginning.
GLADWIN COUNTY
Certain land in Secord Township, Gladwin County, Michigan described as:
The East 400 feet of the South 450 feet of Section 2, T19N,
R1E.
GRAND TRAVERSE COUNTY
Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:
A parcel of land in the Northwest 1/4 of Section 3, T25N,
R11W, described as follows: Commencing at the Northwest corner of said
section, running thence S 89 degrees19'15" E along the North line of
said section and the center line of Clouss Road 225 feet, thence South
400 feet, thence N 89 degrees19'15" W 225 feet to the West line of said
section and the center line of Hannah Road, thence North along the West
line of said section and the center line of Hannah Road 400 feet to the
place of beginning for this description.
-29-
GRATIOT COUNTY
Certain land in Fulton Township, Gratiot County, Michigan described as:
A parcel of land in the NE 1/4 of Section 7, Township 9 North,
Range 3 West, described as beginning at a point on the North line of
George Street in the Village of Middleton, which is 542 feet East of
the North and South one-quarter (1/4) line of said Section 7; thence
North 100 feet; thence East 100 feet; thence South 100 feet to the
North line of George Street; thence West along the North line of George
Street 100 feet to place of beginning.
HILLSDALE COUNTY
Certain land in Litchfield Village, Hillsdale County, Michigan
described as:
Lot 238 of Assessors Plat of the Village of Litchfield.
HURON COUNTY
Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:
The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.
INGHAM COUNTY
Certain land in Vevay Township, Ingham County, Michigan described as:
A parcel of land 660 feet wide in the Southwest 1/4 of Section
7 lying South of the centerline of Sitts Road as extended to the
North-South 1/4 line of said Section 7, T2N, R1W, more particularly
described as follows: Commence at the Southwest corner of said Section
7, thence North along the West line of said Section 2502.71 feet to the
centerline of Sitts Road; thence South 89 degrees54'45" East along said
centerline 2282.38 feet to the place of beginning of this description;
thence continuing South 89 degrees54'45" East along said centerline and
said centerline extended 660.00 feet to the North-South 1/4 line of
said section; thence South 00 degrees07'20" West 1461.71 feet; thence
North 89 degrees34'58" West 660.00 feet; thence North 00 degrees07'20"
East 1457.91 feet to the centerline of Sitts Road and the place of
beginning.
IONIA COUNTY
Certain land in Sebewa Township, Ionia County, Michigan described as:
A strip of land 280 feet wide across that part of the SW 1/4
of the NE 1/4 of Section 15, T5N, R6W, described as follows:
To find the place of beginning of this description commence at
the E 1/4 corner of said section; run thence N 00 degrees 05' 38" W
along the East line of
-30-
said section, 1218.43 feet; thence S 67 degrees 18' 24" W, 1424.45 feet
to the East 1/8 line of said section and the place of beginning of this
description; thence continuing S 67 degrees 18' 24" W, 1426.28 feet to
the North and South 1/4 line of said section at a point which said
point is 105.82 feet distant N'ly of the center of said section as
measured along said North and South 1/4 line of said section; thence N
00 degrees 04' 47" E along said North and South 1/4 line of said
section, 303.67 feet; thence N 67 degrees 18' 24" E, 1425.78 feet to
the East 1/8 line of said section; thence S 00 degrees 00' 26" E along
said East 1/8 line of said section, 303.48 feet to the place of
beginning. (Bearings are based on the East line of Section 15, T5N,
R6W, from the E 1/4 corner of said section to the Northeast corner of
said section assumed as N 00 degrees 05' 38" W.)
IOSCO COUNTY
Certain land in Alabaster Township, Iosco County, Michigan described
as:
A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run thence
South along the North and South 1/4 line of said section, 1354.40 feet
to the place of beginning of this description; thence continuing South
along the said North and South 1/4 line of said section, 165.00 feet to
a point on the said North and South 1/4 line of said section which said
point is 1089.00 feet distant North of the center of said section;
thence West 440.00 feet; thence North 165.00 feet; thence East 440.00
feet to the said North and South 1/4 line of said section and the place
of beginning.
ISABELLA COUNTY
Certain land in Chippewa Township, Isabella County, Michigan described
as:
The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
T14N, R3W.
JACKSON COUNTY
Certain land in Waterloo Township, Jackson County, Michigan described
as:
A parcel of land in the North fractional part of the N
fractional 1/2 of Section 2, T1S, R2E, described as follows: To find
the place of beginning of this description commence at the E 1/4 post
of said section; run thence N 01 degrees 03' 40" E along the East line
of said section 1335.45 feet to the North 1/8 line of said section and
the place of beginning of this description; thence N 89 degrees 32' 00"
W, 2677.7 feet to the North and South 1/4 line of said section; thence
S 00 degrees 59' 25" W along the North and South 1/4 line of said
section 22.38 feet to the North 1/8 line of said section; thence S 89
degrees 59' 10" W along the North 1/8 line of said section 2339.4 feet
to the center line of State Trunkline Highway M-52; thence N 53 degrees
46' 00" W along the center line of said State Trunkline Highway 414.22
feet to the West line of said section; thence N 00 degrees 55' 10" E
along the West line of said section 74.35 feet; thence S 89
-31-
degrees 32' 00" E, 5356.02 feet to the East line of said section;
thence S 01 degrees 03' 40" W along the East line of said section 250
feet to the place of beginning.
KALAMAZOO COUNTY
Certain land in Alamo Township, Kalamazoo County, Michigan described
as:
The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
T1S, R12W, being more particularly described as follows: To find the
place of beginning of this description, commence at the Northwest
corner of said section; run thence S 00 degrees 36' 55" W along the
West line of said section 971.02 feet to the place of beginning of this
description; thence continuing S 00 degrees 36' 55" W along said West
line of said section 350.18 feet to the North 1/8 line of said section;
thence S 87 degrees 33' 40" E along the said North 1/8 line of said
section 1325.1 feet to the West 1/8 line of said section; thence N 00
degrees 38' 25" E along the said West 1/8 line of said section 350.17
feet; thence N 87 degrees 33' 40" W, 1325.25 feet to the place of
beginning.
KALKASKA COUNTY
Certain land in Kalkaska Township, Kalkaska County, Michigan described
as:
The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
therefrom all mineral, coal, oil and gas and such other rights as were
reserved unto the State of Michigan in that certain deed running from
the Department of Conservation for the State of Michigan to George
Welker and Mary Welker, his wife, dated October 9, 1934 and recorded
December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records,
and subject to easement for pipeline purposes as granted to Michigan
Consolidated Gas Company by first party herein on April 4, 1963 and
recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County
Records.
KENT COUNTY
Certain land in Caledonia Township, Kent County, Michigan described as:
A parcel of land in the Northwest fractional 1/4 of Section
15, T5N, R10W, described as follows: To find the place of beginning of
this description commence at the North 1/4 corner of said section, run
thence S 0 degrees 59' 26" E along the North and South 1/4 line of said
section 2046.25 feet to the place of beginning of this description,
thence continuing S 0 degrees 59' 26" E along said North and South 1/4
line of said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90
feet to a point herein designated "Point A" on the East bank of the
Thornapple River, thence continuing S 88 degrees 53' 30" W to the
center thread of the Thornapple River, thence NW'ly along the center
thread of said Thornapple River to a point which said point is S 88
degrees 58' 30" W of a point on the East bank of the Thornapple River
herein designated "Point B", said "Point B" being N
-32-
23 degrees 41' 35" W 360.75 feet from said above-described "Point A",
thence N 88 degrees 58' 30" E to said "Point B", thence continuing N 88
degrees 58' 30" E 2650.13 feet to the place of beginning. (Bearings are
based on the East line of Section 15, T5N, R10W between the East 1/4
corner of said section and the Northeast corner of said section assumed
as N 0 degrees 59' 55" W.)
LAKE COUNTY
Certain land in Pinora and Cherry Valley Townships, Lake County,
Michigan described as:
A strip of land 50 feet wide East and West along and adjoining
the West line of highway on the East side of the North 1/2 of Section
13 T18N, R12W. Also a strip of land 100 feet wide East and West along
and adjoining the East line of the highway on the West side of
following described land: The South 1/2 of NW 1/4, and the South 1/2 of
the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.
LAPEER COUNTY
Certain land in Hadley Township, Lapeer County, Michigan described as:
The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
T6N, R9E, except the West 1064 feet thereof.
LEELANAU COUNTY
Certain land in Cleveland Township, Leelanau County, Michigan described
as:
The North 200 feet of the West 180 feet of the SW 1/4 of the
SE 1/4 of Section 35, T29N, R13W.
LENAWEE COUNTY
Certain land in Madison Township, Lenawee County, Michigan described
as:
A strip of land 165 feet wide off the West side of the
following described premises: The E 1/2 of the SE 1/4 of Section 12.
The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13,
being all in T7S, R3E, excepting therefrom a parcel of land in the E
1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest
corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4
rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to
the place of beginning.
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LIVINGSTON COUNTY
Certain land in Cohoctah Township, Livingston County, Michigan
described as:
Parcel 1
The East 390 feet of the East 50 rods of the SW 1/4 of Section
30, T4N, R4E.
Parcel 2
A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run thence N 89
degrees 13' 06" W along the North line of said section, 330 feet to the
place of beginning of this description; running thence S 00 degrees 52'
49" W, 2167.87 feet; thence N 88 degrees 59' 49" W, 60 feet; thence N
00 degrees 52' 49" E, 2167.66 feet to the North line of said section;
thence S 89 degrees 13' 06" E along said North line of said section, 60
feet to the place of beginning.
MACOMB COUNTY
Certain land in Macomb Township, Macomb County, Michigan described as:
A parcel of land commencing on the West line of the E 1/2 of
the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of
said E 1/2 of the NW 1/4 of Section 6; thence South on said West line
and the East line of A. Henry Kotner's Hayes Road Subdivision #15,
according to the recorded plat thereof, as recorded in Liber 24 of
Plats, on page 7, 24.36 chains to the East and West 1/4 line of said
Section 6; thence East on said East and West 1/4 line 8.93 chains;
thence North parallel with the said West line of the E 1/2 of the NW
1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of
beginning, all in T3N, R13E.
MANISTEE COUNTY
Certain land in Manistee Township, Manistee County, Michigan described
as:
A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
described as follows: To find the place of beginning of this
description, commence at the Southwest corner of said section; run
thence East along the South line of said section 832.2 feet to the
place of beginning of this description; thence continuing East along
said South line of said section 132 feet; thence North 198 feet; thence
West 132 feet; thence South 198 feet to the place of beginning,
excepting therefrom the South 2 rods thereof which was conveyed to
Manistee Township for highway purposes by a Quitclaim Deed dated June
13, 1919 and recorded July 11, 1919 in Liber 88 of Deeds on page 638 of
Manistee County Records.
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MASON COUNTY
Certain land in Riverton Township, Mason County, Michigan described as:
Parcel 1
The South 10 acres of the West 20 acres of the S 1/2 of the NE
1/4 of Section 22, T17N, R17W.
Parcel 2
A parcel of land containing 4 acres of the West side of
highway, said parcel of land being described as commencing 16 rods
South of the Northwest corner of the NW 1/4 of the SW 1/4 of Section
22, T17N, R17W, running thence South 64 rods, thence NE'ly and N'ly and
NW'ly along the W'ly line of said highway to the place of beginning,
together with any and all right, title, and interest of Howard C.
Wicklund and Katherine E. Wicklund in and to that portion of the
hereinbefore mentioned highway lying adjacent to the E'ly line of said
above described land.
MECOSTA COUNTY
Certain land in Wheatland Township, Mecosta County, Michigan described
as:
A parcel of land in the SW 1/4 of the SW 1/4 of Section 16,
T14N, R7W, described as beginning at the Southwest corner of said
section; thence East along the South line of Section 133 feet; thence
North parallel to the West section line 133 feet; thence West 133 feet
to the West line of said Section; thence South 133 feet to the place of
beginning.
MIDLAND COUNTY
Certain land in Ingersoll Township, Midland County, Michigan described
as:
The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
T13N, R2E.
MISSAUKEE COUNTY
Certain land in Norwich Township, Missaukee County, Michigan described
as:
A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
T24N, R6W, described as follows: Commencing at the Northwest corner of
said section, running thence N 89 degrees 01' 45" E along the North
line of said section 233.00 feet; thence South 233.00 feet; thence S 89
degrees 01' 45" W, 233.00 feet to the West line of said section; thence
North along said West line of said section 233.00 feet to the place of
beginning. (Bearings are based on the West line of Section 16, T24N,
R6W, between the Southwest and Northwest corners of said section
assumed as North.)
-35-
MONROE COUNTY
Certain land in Whiteford Township, Monroe County, Michigan described
as:
A parcel of land in the SW 1/4 of Section 20, T8S, R6E,
described as follows: To find the place of beginning of this
description commence at the S 1/4 post of said section; run thence West
along the South line of said section 1269.89 feet to the place of
beginning of this description; thence continuing West along said South
line of said section 100 feet; thence N 00 degrees 50' 35" E, 250 feet;
thence East 100 feet; thence S 00 degrees 50' 35" W parallel with and
16.5 feet distant W'ly of as measured perpendicular to the West 1/8
line of said section, as occupied, a distance of 250 feet to the place
of beginning.
MONTCALM COUNTY
Certain land in Crystal Township, Montcalm County, Michigan described
as:
The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.
MONTMORENCY COUNTY
Certain land in the Village of Hillman, Montmorency County, Michigan
described as:
Lot 14 of Hillman Industrial Park, being a subdivision in the
South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to
the plat thereof recorded in Liber 4 of Plats on Pages 32-34,
Montmorency County Records.
MUSKEGON COUNTY
Certain land in Casnovia Township, Muskegon County, Michigan described
as:
The West 433 feet of the North 180 feet of the South 425 feet
of the SW 1/4 of Section 3, T10N, R13W.
NEWAYGO COUNTY
Certain land in Ashland Township, Newaygo County, Michigan described
as:
The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.
OAKLAND COUNTY
Certain land in Wixcom City, Oakland County, Michigan described as:
The E 75 feet of the N 160 feet of the N 330 feet of the W
526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more
particularly described as follows: Commence at the NW corner of said
Section 8, thence N 87 degrees 14' 29" E along the North line of said
Section 8 a distance of 451.84 feet to the place of beginning for this
description; thence continuing N 87 degrees 14' 29" E along
-36-
said North section line a distance of 75.0 feet to the East
line of the West 526.84 feet of the NW 1/4 of the NW 1/4 of said
Section 8; thence S 02 degrees 37' 09" E along said East line a
distance of 160.0 feet; thence S 87 degrees 14' 29" W a distance of
75.0 feet; thence N 02 degrees 37' 09" W a distance of 160.0 feet to
the place of beginning.
OCEANA COUNTY
Certain land in Crystal Township, Oceana County, Michigan described as:
The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.
OGEMAW COUNTY
Certain land in West Branch Township, Ogemaw County, Michigan described
as:
The South 660 feet of the East 660 feet of the NE 1/4 of the
NE 1/4 of Section 33, T22N, R2E.
OSCEOLA COUNTY
Certain land in Hersey Township, Osceola County, Michigan described as:
A parcel of land in the North 1/2 of the Northeast 1/4 of
Section 13, T17N, R9W, described as commencing at the Northeast corner
of said Section; thence West along the North Section line 999 feet to
the point of beginning of this description; thence S 01 degrees 54' 20"
E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17' 05" W
along the North 1/8 line 330.89 feet; thence N 01 degrees 54' 20" W
1331.26 feet to the North Section line; thence East along the North
Section line 331 feet to the point of beginning.
OSCODA COUNTY
Certain land in Comins Township, Oscoda County, Michigan described as:
The East 400 feet of the South 580 feet of the W 1/2 of the SW
1/4 of Section 15, T27N, R3E.
OTSEGO COUNTY
Certain land in Corwith Township, Otsego County, Michigan described as:
Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
described as: Beginning at the N 1/4 corner of said section; running
thence S 89 degrees 04' 06" E along the North line of said section,
330.00 feet; thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89
degrees 04' 06" W, 330.00 feet to the North and South 1/4 line of said
section; thence N 00 degrees 28' 43" W along the said
-37-
North and South 1/4 line of said section, 400.00 feet to the point of
beginning; subject to the use of the N'ly 33.00 feet thereof for
highway purposes.
OTTAWA COUNTY
Certain land in Robinson Township, Ottawa County, Michigan described
as:
The North 660 feet of the West 660 feet of the NE 1/4 of the
NW 1/4 of Section 26, T7N, R15W.
PRESQUE ISLE COUNTY
Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:
Part of the South half of the Northeast quarter, Section 24,
T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E,
more fully described as: Commencing at the East 1/4 corner of said
Section 24; thence N 00 degrees15'47" E, 507.42 feet, along the East
line of said Section 24 to the point of beginning; thence S 88
degrees15'36" W, 400.00 feet, parallel with the North 1/8 line of said
Section 24; thence N 00 degrees15'47" E, 800.00 feet, parallel with
said East line of Section 24; thence N 88 degrees15'36"E, 800.00 feet,
along said North 1/8 line of Section 24 and said line extended; thence
S 00 degrees15'47" W, 800.00 feet, parallel with said East line of
Section 24; thence S 88 degrees15'36" W, 400.00 feet, parallel with
said North 1/8 line of Section 24 to the point of beginning.
Together with a 33 foot easement along the West 33 feet of the
Northwest quarter lying North of the North 1/8 line of Section 24,
Belknap Township, extended, in Section 19, T34N, R6E.
ROSCOMMON COUNTY
Certain land in Gerrish Township, Roscommon County, Michigan described
as:
A parcel of land in the NW 1/4 of Section 19, T24N, R3W,
described as follows: To find the place of beginning of this
description commence at the Northwest corner of said section, run
thence East along the North line of said section 1,163.2 feet to the
place of beginning of this description (said point also being the place
of intersection of the West 1/8 line of said section with the North
line of said section), thence S 01 degrees 01' E along said West 1/8
line 132 feet, thence West parallel with the North line of said section
132 feet, thence N 01 degrees 01' W parallel with said West 1/8 line of
said section 132 feet to the North line of said section, thence East
along the North line of said section 132 feet to the place of
beginning.
-38-
SAGINAW COUNTY
Certain land in Chapin Township, Saginaw County, Michigan described as:
A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section; run
thence North along the West line of said section 1581.4 feet to the
place of beginning of this description; thence continuing North along
said West line of said section 230 feet to the center line of a creek;
thence S 70 degrees 07' 00" E along said center line of said creek
196.78 feet; thence South 163.13 feet; thence West 185 feet to the West
line of said section and the place of beginning.
SANILAC COUNTY
Certain easement rights located across land in Minden Township, Sanilac
County, Michigan described as:
The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
R14E, excepting therefrom the South 83 feet of the East 83 feet
thereof.
SHIAWASSEE COUNTY
Certain land in Burns Township, Shiawassee County, Michigan described
as:
The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
T5N, R4E.
ST. CLAIR COUNTY
Certain land in Ira Township, St. Clair County, Michigan described as:
The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.
ST. JOSEPH COUNTY
Certain land in Mendon Township, St. Joseph County, Michigan described
as:
The North 660 feet of the West 660 feet of the NW 1/4 of SW
1/4, Section 35, T5S, R10W.
TUSCOLA COUNTY
Certain land in Millington Township, Tuscola County, Michigan described
as:
A strip of land 280 feet wide across the East 96 rods of the
South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
particularly described as commencing at the Northeast corner of Section
3, T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
distance of 1398.67 feet to the South 1/8
-39-
line of said Section 34 and the place of beginning for this
description; thence continuing N 18 degrees 11' 50" W a distance of
349.91 feet; thence N 89 degrees 57' 01" W a distance of 294.80 feet;
thence S 18 degrees 11' 50" E a distance of 350.04 feet to the South
1/8 line of said Section 34; thence S 89 degrees 58' 29" E along the
South 1/8 line of said section a distance of 294.76 feet to the place
of beginning.
VAN BUREN COUNTY
Certain land in Covert Township, Van Buren County, Michigan described
as:
All that part of the West 20 acres of the N 1/2 of the NE
fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the
North 80 rods, being more particularly described as follows: To find
the place of beginning of this description commence at the N 1/4 post
of said section; run thence N 89 degrees 29' 20" E along the North line
of said section 280.5 feet to the place of beginning of this
description; thence continuing N 89 degrees 29' 20" E along said North
line of said section 288.29 feet; thence S 00 degrees 44' 00" E,
1531.92 feet; thence S 89 degrees 33' 30" W, 568.79 feet to the North
and South 1/4 line of said section; thence N 00 degrees 44' 00" W along
said North and South 1/4 line of said section 211.4 feet; thence N 89
degrees 29' 20" E, 280.5 feet; thence N 00 degrees 44' 00" W, 1320 feet
to the North line of said section and the place of beginning.
WASHTENAW COUNTY
Certain land in Manchester Township, Washtenaw County, Michigan
described as:
A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
T4S, R3E, described as follows: To find the place of beginning of this
description commence at the Northwest corner of said section; run
thence East along the North line of said section 1355.07 feet to the
West 1/8 line of said section; thence S 00 degrees 22' 20" E along said
West 1/8 line of said section 927.66 feet to the place of beginning of
this description; thence continuing S 00 degrees 22' 20" E along said
West 1/8 line of said section 660 feet to the North 1/8 line of said
section; thence N 86 degrees 36' 57" E along said North 1/8 line of
said section 660.91 feet; thence N 00 degrees22' 20" W, 660 feet;
thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.
WAYNE COUNTY
Certain land in Livonia City, Wayne County, Michigan described as:
Commencing at the Southeast corner of Section 6, T1S, R9E;
thence North along the East line of Section 6 a distance of 253 feet to
the point of beginning; thence continuing North along the East line of
Section 6 a distance of 50 feet; thence Westerly parallel to the South
line of Section 6, a distance of 215 feet; thence Southerly parallel to
the East line of Section 6 a distance of 50 feet;
-40-
thence easterly parallel with the South line of Section 6 a distance of
215 feet to the point of beginning.
WEXFORD COUNTY
Certain land in Selma Township, Wexford County, Michigan described as:
A parcel of land in the NW 1/4 of Section 7, T22N, R10W,
described as beginning on the North line of said section at a point 200
feet East of the West line of said section, running thence East along
said North section line 450 feet, thence South parallel with said West
section line 350 feet, thence West parallel with said North section
line 450 feet, thence North parallel with said West section line 350
feet to the place of beginning.
SECTION 12. The Company is a transmitting utility under Section 9501(2)
of the Michigan Uniform Commercial Code (M.C.L. 440.9501(2)) as defined in
M.C.L. 440.9102(1)(aaaa).
IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board, President, a Vice President or its Treasurer and its corporate seal
to be hereunto affixed and to be attested by its Secretary or an Assistant
Secretary, and said JPMorgan Chase Bank, as Trustee as aforesaid, to evidence
its acceptance hereof, has caused this Supplemental Indenture to be executed in
its corporate name by a Vice President and its corporate seal to be hereunto
affixed and to be attested by a Trust Officer, in several counterparts, all as
of the day and year first above written.
-41-
CONSUMERS ENERGY COMPANY
(SEAL) By /s/ Paul A. Stadnikia
------------------------
Paul A. Stadnikia
Attest: Treasurer
/s/ Joyce H. Norkey
- ----------------------------
Joyce H. Norkey
Assistant Secretary
Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of
/s/ Kimberly C. Wilson
- ----------------------------
Kimberly C. Wilson
/s/ Sammie B. Dalton
- ----------------------------
Sammie B. Dalton
STATE OF MICHIGAN )
ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this 27th
day of March, 2003, by Paul A. Stadnikia, Treasurer of CONSUMERS ENERGY COMPANY,
a Michigan corporation, on behalf of the corporation.
/s/ Margaret Hillman
----------------------------------------
Margaret Hillman, Notary Public
[Seal] Jackson County, Michigan
My Commission Expires: June 14, 2004
S-1
JPMORGAN CHASE BANK, AS TRUSTEE
(SEAL) By /s/ L. O'Brien
-------------------------------------
L. O'Brien
Attest: Vice President
/s/ Rosa Ciallia
- -----------------------------
Rosa Ciallia
Trust Officer
Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of
/s/ James D. Heaney
- -----------------------------
James D. Heaney
Vice President
/s/ William G. Keenan
- -----------------------------
William G. Keenan
Vice President
STATE OF NEW YORK )
ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 27th
of March, 2003, by L. O'Brien, a Vice President of JPMORGAN CHASE BANK, a New
York corporation, on behalf of the corporation.
/s/ Emily Fayan
--------------------------------------
Notary Public
[Seal] New York County, New York
My Commission Expires:
Prepared by: When recorded, return to:
Kimberly C. Wilson Consumers Energy Company
212 West Michigan Avenue Business Services Real Estate Dept.
Jackson, MI 49201 Attn: Nancy Fisher EP7-439
One Energy Plaza
Jackson, MI 49201
S-2
EXHIBIT 4(c)
EIGHTY-NINTH SUPPLEMENTAL INDENTURE
PROVIDING AMONG OTHER THINGS FOR
FIRST MORTGAGE BONDS,
COLLATERAL SERIES DUE 2006
--------------
DATED AS OF MARCH 28, 2003
--------------
CONSUMERS ENERGY COMPANY
TO
JPMORGAN CHASE BANK,
TRUSTEE
Counterpart _____ of 80
THIS EIGHTY-NINTH SUPPLEMENTAL INDENTURE, dated as of March 28, 2003
(herein sometimes referred to as "this Supplemental Indenture"), made and
entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized
and existing under the laws of the State of Michigan, with its principal
executive office and place of business at 212 West Michigan Avenue, in Jackson,
Jackson County, Michigan 49201, formerly known as Consumers Power Company
(hereinafter sometimes referred to as the "Company"), and JPMORGAN CHASE BANK, a
corporation organized and existing under the laws of the State of New York, with
its corporate trust offices at 4 New York Plaza, New York, New York 10004
(hereinafter sometimes referred to as the "Trustee"), as Trustee under the
Indenture dated as of September 1, 1945 between Consumers Power Company, a Maine
corporation (hereinafter sometimes referred to as the "Maine corporation"), and
City Bank Farmers Trust Company (Citibank, N.A., successor, hereinafter
sometimes referred to as the "Predecessor Trustee"), securing bonds issued and
to be issued as provided therein (hereinafter sometimes referred to as the
"Indenture"),
WHEREAS at the close of business on January 30, 1959, City Bank Farmers
Trust Company was converted into a national banking association under the title
"First National City Trust Company"; and
WHEREAS at the close of business on January 15, 1963, First National
City Trust Company was merged into First National City Bank; and
WHEREAS at the close of business on October 31, 1968, First National
City Bank was merged into The City Bank of New York, National Association, the
name of which was thereupon changed to First National City Bank; and
WHEREAS effective March 1, 1976, the name of First National City Bank
was changed to Citibank, N.A.; and
WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company
succeeded Citibank, N.A. as Trustee under the Indenture; and
WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to
Manufacturers Hanover Trust Company as Trustee under the Indenture; and
WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National
Association), merged with and into Chemical Bank which thereafter was renamed
The Chase Manhattan Bank; and
WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged
with Morgan Guaranty Trust Company of New York and the surviving corporation was
renamed JPMorgan Chase Bank; and
WHEREAS the Indenture was executed and delivered for the purpose of
securing such bonds as may from time to time be issued under and in accordance
with the terms of the Indenture, the aggregate principal amount of bonds to be
secured thereby being limited to $5,000,000,000 at any one time outstanding
(except as provided in Section 2.01 of the Indenture), and the Indenture
describes and sets forth the property conveyed thereby and is filed in the
Office of the Secretary of State of the State of Michigan and is of record in
the Office of
-1-
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and
WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of the
Secretary of State of the State of Michigan and is of record in the Office of
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and
WHEREAS the Company and the Maine corporation entered into an Agreement
of Merger and Consolidation, dated as of February 14, 1968, which provided for
the Maine corporation to merge into the Company; and
WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was merged
into the Company and the name of the Company was changed from "Consumers Power
Company of Michigan" to "Consumers Power Company"; and
WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided,
among other things, for the assumption of the Indenture by the Company; and
WHEREAS said Sixteenth Supplemental Indenture became effective on the
effective date of such Agreement of Merger and Consolidation; and
WHEREAS the Company has succeeded to and has been substituted for the
Maine corporation under the Indenture with the same effect as if it had been
named therein as the mortgagor corporation; and
WHEREAS effective March 11, 1997, the name of Consumers Power Company
was changed to Consumers Energy Company; and
WHEREAS, the Company has entered into a Term Loan Agreement dated as of
March 28, 2003 (the "Term Loan Agreement") with various financial institutions
and Citicorp North America, Inc., as administrative agent (in such capacity, the
"Agent") for the Banks (as such term is defined in the Term Loan Agreement)
providing for the making of certain financial accommodations thereunder, and
pursuant to such Term Loan Agreement the Company has agreed to issue to the
Agent, as evidence of and security for the Obligations (as such term is defined
in the Term Loan Agreement), a new series of bonds under the Indenture; and
WHEREAS, for such purposes the Company desires to issue a new series of
bonds, to be designated First Mortgage Bonds, Collateral Series due 2006, each
of which bonds shall also bear the descriptive title "First Mortgage Bond"
(hereinafter provided for and hereinafter sometimes referred to as the "2006
Collateral Series Bonds"), the bonds of which series are to be issued as
registered bonds without coupons and are to bear interest at the rate per annum
specified herein and are to mature March 28, 2006; and
WHEREAS, each of the registered bonds without coupons of the 2006
Collateral Series Bonds and the Trustee's Authentication Certificate thereon are
to be substantially in the following form, to wit:
-2-
[FORM OF REGISTERED BOND OF THE 2006 COLLATERAL SERIES BONDS]
[FACE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
COLLATERAL SERIES DUE 2006
No. 1 $150,000,000
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Citicorp North
America, Inc., as agent (in such capacity, the "Agent") for the Banks under and
as defined in the Amended and Restated Term Loan Agreement dated as of March 28,
2003 among the Company, the Banks and the Agent (the "Term Loan Agreement"), or
registered assigns, the principal sum of One Hundred Fifty Million Dollars
($150,000,000) or such lesser principal amount as shall be equal to the
aggregate principal amount of the Term Loans (as defined in the Term Loan
Agreement) included in the Obligations (as defined in the Term Loan Agreement)
outstanding on March 28, 2006 (the "Maturity Date"), but not in excess, however,
of the principal amount of this bond, and to pay interest thereon at the
Interest Rate (as defined below) until the principal hereof is paid or duly made
available for payment on the Maturity Date, or, in the event of redemption of
this bond, until the redemption date, or, in the event of default in the payment
of the principal hereof, until the Company's obligations with respect to the
payment of such principal shall be discharged as provided in the Indenture (as
defined on the reverse hereof). Interest on this bond shall be payable on each
Interest Payment Date (as defined below), commencing on the first Interest
Payment Date next succeeding March 28, 2003. If the Maturity Date falls on a day
which is not a Business Day, as defined below, principal and any interest and/or
fees payable with respect to the Maturity Date will be paid on the immediately
preceding Business Day. The interest payable, and punctually paid or duly
provided for, on any Interest Payment Date will, subject to certain exceptions,
be paid to the person in whose name this bond (or one or more predecessor bonds)
is registered at the close of business on the Record Date (as defined below);
provided, however, that interest payable on the Maturity Date will be payable to
the person to whom the principal hereof shall be payable. Should the Company
default in the payment of interest ("Defaulted Interest"), the Defaulted
Interest shall be paid to the person in whose name this bond (or one or more
predecessor bonds) is registered on a subsequent record date fixed by the
Company, which subsequent record date shall be fifteen (15) days prior to the
payment of such Defaulted Interest. As used herein, (A) "Business Day" shall
mean any day, other than a Saturday or Sunday, on which banks generally are open
in New York, New York for the conduct of substantially all of their commercial
lending activities and on which interbank wire transfers can be made on the
Fedwire system; (B) "Interest Payment Date" shall mean each date on which
interest and/or fees under the Term Loan Agreement are due and payable from time
to time pursuant to the Term Loan Agreement; (C) "Interest Rate" shall mean a
rate of interest per annum, adjusted as necessary, to result in an interest
payment equal to the aggregate amount of interest and fees due under the Term
Loan Agreement on the applicable Interest Payment Date; and (D) "Record Date"
with respect to any Interest Payment Date shall mean the day (whether or not a
Business Day) immediately next preceding such Interest Payment Date.
- 3 -
Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City of Jackson, Michigan, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.
This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.
IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to be
executed in its name by its Chairman of the Board, its President or one of its
Vice Presidents by his or her signature or a facsimile thereof, and its
corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon
and attested by its Secretary or one of its Assistant Secretaries by his or her
signature or a facsimile thereof.
CONSUMERS ENERGY COMPANY
Dated:
By: _______________________________
Printed: __________________________
Title: ____________________________
Attest: _________________________
TRUSTEE'S AUTHENTICATION CERTIFICATE
This is one of the bonds, of the series designated therein, described
in the within- mentioned Indenture.
JPMORGAN CHASE BANK, Trustee
By__________________________________
Authorized Officer
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[REVERSE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
COLLATERAL SERIES DUE 2006
This bond is one of the bonds of a series designated as First Mortgage
Bonds, Collateral Series due 2006 (sometimes herein referred to as the "2006
Collateral Series Bonds") issued under and in accordance with and secured by an
Indenture dated as of September 1, 1945, given by the Company (or its
predecessor, Consumers Power Company, a Maine corporation) to City Bank Farmers
Trust Company (JPMorgan Chase Bank, successor) (hereinafter sometimes referred
to as the "Trustee"), together with indentures supplemental thereto, heretofore
or hereafter executed, to which indenture and indentures supplemental thereto
(hereinafter referred to collectively as the "Indenture") reference is hereby
made for a description of the property mortgaged and pledged, the nature and
extent of the security and the rights, duties and immunities thereunder of the
Trustee and the rights of the holders of said bonds and of the Trustee and of
the Company in respect of such security, and the limitations on such rights. By
the terms of the Indenture, the bonds to be secured thereby are issuable in
series which may vary as to date, amount, date of maturity, rate of interest and
in other respects as provided in the Indenture.
The 2006 Collateral Series Bonds are to be issued and delivered to the
Agent in order evidence and secure the obligation of the Company under the Term
Loan Agreement to make payments to the Banks under the Term Loan Agreement and
to provide the Banks the benefit of the lien of the Indenture with respect to
the 2006 Collateral Series Bonds.
The obligation of the Company to make payments with respect to the
principal of 2006 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2006
Collateral Series Bonds shall be deemed discharged in the same amount as the
payment with respect to the Term Loans discharges the outstanding obligation
with respect to such Term Loans.
The obligation of the Company to make payments with respect to the
interest on 2006 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2006 Collateral Series
- 5 -
Bonds shall be deemed discharged in the same amount as the payment with respect
to the Term Loans discharges the outstanding obligation with respect to such
Term Loans.
The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on this bond, so far as such payments at the time have become due, has
been fully satisfied and discharged unless and until the Trustee shall have
received a written notice from the Agent stating (i) that timely payment of
principal and interest on the 2006 Collateral Series Bonds has not been made,
(ii) that the Company is in arrears as to the payments required to be made by it
to the Agent pursuant to the Term Loan Agreement, and (iii) the amount of the
arrearage.
If an Event of Default (as defined in the Term Loan Agreement) with
respect to the payment of the principal of any Term Loans shall have occurred,
it shall be deemed to be a default for purposes of Section 11.01 of the
Indenture in the payment of the principal of the 2006 Collateral Series Bonds
equal to the amount of such unpaid principal (but in no event in excess of the
principal amount of the 2006 Collateral Series Bonds). If an Event of Default
(as defined in the Term Loan Agreement) with respect to the payment of interest
on any Term Loans or fees shall have occurred, it shall be deemed to be a
default for purposes of Section 11.01 of the Indenture in the payment of the
interest on the 2006 Collateral Series Bonds equal to the amount of such unpaid
interest or fees.
This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Term Loan Agreement
and the acceleration of the Obligations, as provided in Section 9.2 of the Term
Loan Agreement. This bond is not redeemable by the operation of the improvement
fund or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.
In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the Indenture, or (c) reduce
the percentage of the principal amount of the bonds the holders of which are
required to approve any such supplemental indenture.
- 6 -
The Company reserves the right, without any consent, vote or other
action by holders of the 2006 Collateral Series Bonds or any other series
created after the Sixty-eighth Supplemental Indenture to amend the Indenture to
reduce the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than any supplemental
indenture which is subject to the proviso contained in the immediately preceding
sentence) (a) from not less than seventy-five per centum (including sixty per
centum of each series affected) to not less than a majority in principal amount
of the bonds at the time outstanding or (b) in case fewer than all series are
affected, not less than a majority in principal amount of the bonds of all
affected series, voting together.
No recourse shall be had for the payment of the principal of or
interest on this bond, or for any claim based hereon, or otherwise in respect
hereof or of the Indenture, to or against any incorporator, stockholder,
director or officer, past, present or future, as such, of the Company, or of any
predecessor or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and owner hereof by
the acceptance of this bond and being likewise waived and released by the terms
of the Indenture.
This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.
The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Term Loans arising under the Term Loan
Agreement, and all of the fees payable pursuant to the Term Loan Agreement,
shall have been duly paid, and the Term Loan Agreement shall have been
terminated.
[END OF FORM OF REGISTERED BOND OF THE 2006 COLLATERAL SERIES BONDS]
- 7 -
AND WHEREAS all acts and things necessary to make the 2006 Collateral
Series Bonds, when duly executed by the Company and authenticated by the Trustee
or its agent and issued as prescribed in the Indenture, as heretofore
supplemented and amended, and this Supplemental Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute the Indenture,
as supplemented and amended as aforesaid, as well as by this Supplemental
Indenture, a valid, binding and legal instrument for the security thereof, have
been done and performed, and the creation, execution and delivery of this
Supplemental Indenture and the creation, execution and issuance of bonds subject
to the terms hereof and of the Indenture, as so supplemented and amended, have
in all respects been duly authorized;
NOW, THEREFORE, in consideration of the premises, of the acceptance and
purchase by the holders thereof of the bonds issued and to be issued under the
Indenture, as supplemented and amended as above set forth, and of the sum of One
Dollar duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$150,000,000 principal amount of the 2006 Collateral Series Bonds proposed to be
issued initially and all other bonds which shall be issued under the Indenture,
as supplemented and amended from time to time, and for the purpose of securing
the faithful performance and observance of all covenants and conditions therein,
and in any indenture supplemental thereto, set forth, the Company has given,
granted, bargained, sold, released, transferred, assigned, hypothecated,
pledged, mortgaged, confirmed, set over, warranted, alienated and conveyed and
by these presents does give, grant, bargain, sell, release, transfer, assign,
hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto
JPMorgan Chase Bank, as Trustee, as provided in the Indenture, and its successor
or successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and to all
the property, described in Section 11 hereof, together (subject to the
provisions of Article X of the Indenture) with the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, excepting, however, the
property, interests and rights specifically excepted from the lien of the
Indenture as set forth in the Indenture;
TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises, property,
franchises and rights, or any thereof, referred to in the foregoing granting
clause, with the reversion and reversions, remainder and remainders and (subject
to the provisions of Article X of the Indenture) the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, and all the estate,
right, title and interest and claim whatsoever, at law as well as in equity,
which the Company now has or may hereafter acquire in and to the aforesaid
premises, property, franchises and rights and every part and parcel thereof;
SUBJECT, HOWEVER, with respect to such premises, property, franchises
and rights, to excepted encumbrances as said term is defined in Section 1.02 of
the Indenture, and subject also to all defects and limitations of title and to
all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all
said premises, property, franchises and rights hereby conveyed, assigned,
pledged or mortgaged, or intended so to be, unto the Trustee, its successor or
successors in trust and their assigns forever;
- 8 -
BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or hereafter
authenticated and delivered under and secured by the Indenture and interest
coupons appurtenant thereto, pursuant to the provisions of the Indenture and of
any supplemental indenture, and for the enforcement of the payment of said bonds
and coupons when payable and the performance of and compliance with the
covenants and conditions of the Indenture and of any supplemental indenture,
without any preference, distinction or priority as to lien or otherwise of any
bond or bonds over others by reason of the difference in time of the actual
authentication, delivery, issue, sale or negotiation thereof or for any other
reason whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and premium,
if any, and interest on every such bond shall, subject to the terms thereof, be
equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the execution
and delivery thereof;
AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as supplemented
and amended as above set forth, are to be issued, authenticated and delivered,
and all said premises, property, franchises and rights hereby and by the
Indenture and indentures supplemental thereto conveyed, assigned, pledged or
mortgaged, or intended so to be, are to be dealt with and disposed of under,
upon and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes expressed in the Indenture, as supplemented and
amended as above set forth, and the parties hereto mutually agree as follows:
SECTION 1. There is hereby created one series of bonds (the "2006
Collateral Series Bonds") designated as hereinabove provided, which shall also
bear the descriptive title "First Mortgage Bond", and the form thereof shall be
substantially as hereinbefore set forth (the "Sample Bond"). The 2006 Collateral
Series Bonds shall be issued in the aggregate principal amount of $150,000,000,
shall mature on March 28, 2006 and shall be issued only as registered bonds
without coupons in denominations of $1,000 and any multiple thereof. The serial
numbers of the 2006 Collateral Series Bonds shall be such as may be approved by
any officer of the Company, the execution thereof by any such officer either
manually or by facsimile signature to be conclusive evidence of such approval.
The 2006 Collateral Series Bonds are to be issued to and registered in the name
of the Agent under the Term Loan Agreement (as such terms are defined in the
Sample Bond) to evidence and secure any and all Obligations (as such term is
defined in the Term Loan Agreement) of the Company under the Term Loan
Agreement.
The 2006 Collateral Series Bonds shall bear interest as set forth in
the Sample Bond. The principal of and the interest on said bonds shall be
payable as set forth in the Sample Bond.
The obligation of the Company to make payments with respect to the
principal of 2006 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2006
Collateral Series Bonds shall be deemed discharged in the
- 9 -
same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.
The obligation of the Company to make payments with respect to the
interest on 2006 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2006 Collateral Series Bonds shall be deemed discharged in the
same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.
The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on the 2006 Collateral Series Bonds, so far as such payments at the
time have become due, has been fully satisfied and discharged unless and until
the Trustee shall have received a written notice from the Agent stating (i) that
timely payment of principal and interest on the 2006 Collateral Series Bonds has
not been made, (ii) that the Company is in arrears as to the payments required
to be made by it to the Agent pursuant to the Term Loan Agreement, and (iii) the
amount of the arrearage.
The 2006 Collateral Series Bonds shall be exchangeable for other
registered bonds of the same series, in the manner and upon the conditions
prescribed in the Indenture, upon the surrender of such bonds at the Investor
Services Department of the Company, as transfer agent. However, notwithstanding
the provisions of Section 2.05 of the Indenture, no charge shall be made upon
any registration of transfer or exchange of bonds of said series other than for
any tax or taxes or other governmental charge required to be paid by the
Company.
SECTION 2. The 2006 Collateral Series Bonds are not redeemable by the
operation of the maintenance and replacement provisions of this Indenture or
with the proceeds of released property.
SECTION 3. Upon the occurrence of an Event of Default under the Term
Loan Agreement and the acceleration of the Obligations, the 2006 Collateral
Series Bonds shall be redeemable in whole upon receipt by the Trustee of a
written demand from the Agent stating that there has occurred under the Term
Loan Agreement both an Event of Default and a declaration of acceleration of the
Obligations and demanding redemption of the 2006 Collateral Series Bonds
(including a description of the amount of principal, interest and fees which
comprise such Obligations). The Company waives any right it may have to prior
notice of such redemption under the Indenture. Upon surrender of the 2006
Collateral Series Bonds by the Agent to the Trustee, the 2006 Collateral Series
Bonds shall be redeemed at a redemption price equal to the aggregate amount of
the Obligations.
SECTION 4. The Company reserves the right, without any consent, vote or
other action by the holder of the 2006 Collateral Series Bonds or of any
subsequent series of bonds issued under the Indenture, to make such amendments
to the Indenture, as supplemented, as shall be necessary in order to amend
Section 17.02 to read as follows:
- 10 -
SECTION 17.02. With the consent of the holders of not less than a
majority in principal amount of the bonds at the time outstanding or their
attorneys-in-fact duly authorized, or, if fewer than all series are affected,
not less than a majority in principal amount of the bonds at the time
outstanding of each series the rights of the holders of which are affected,
voting together, the Company, when authorized by a resolution, and the Trustee
may from time to time and at any time enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of any
supplemental indenture or modifying the rights and obligations of the Company
and the rights of the holders of any of the bonds and coupons; provided,
however, that no such supplemental indenture shall (1) extend the maturity of
any of the bonds or reduce the rate or extend the time of payment of interest
thereon, or reduce the amount of the principal thereof, or reduce any premium
payable on the redemption thereof, without the consent of the holder of each
bond so affected, or (2) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of this Indenture, without the
consent of the holders of all the bonds then outstanding, or (3) reduce the
aforesaid percentage of the principal amount of bonds the holders of which are
required to approve any such supplemental indenture, without the consent of the
holders of all the bonds then outstanding. For the purposes of this Section,
bonds shall be deemed to be affected by a supplemental indenture if such
supplemental indenture adversely affects or diminishes the rights of holders
thereof against the Company or against its property. The Trustee may in its
discretion determine whether or not, in accordance with the foregoing, bonds of
any particular series would be affected by any supplemental indenture and any
such determination shall be conclusive upon the holders of bonds of such series
and all other series. Subject to the provisions of Sections 16.02 and 16.03
hereof, the Trustee shall not be liable for any determination made in good faith
in connection herewith.
Upon the written request of the Company, accompanied by a resolution
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of bondholders as aforesaid
(the instrument or instruments evidencing such consent to be dated within one
year of such request), the Trustee shall join with the Company in the execution
of such supplemental indenture unless such supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise, in
which case the Trustee may in its discretion but shall not be obligated to enter
into such supplemental indenture.
It shall not be necessary for the consent of the bondholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such consent shall approve the substance thereof.
The Company and the Trustee, if they so elect, and either before or
after such consent has been obtained, may require the holder of any bond
consenting to the execution of any such supplemental indenture to submit his
bond to the Trustee or to ask such bank, banker or trust company as may be
designated by the Trustee
- 11 -
for the purpose, for the notation thereon of the fact that the holder
of such bond has consented to the execution of such supplemental
indenture, and in such case such notation, in form satisfactory to the
Trustee, shall be made upon all bonds so submitted, and such bonds
bearing such notation shall forthwith be returned to the persons
entitled thereto.
Prior to the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the
Company shall publish a notice, setting forth in general terms the
substance of such supplemental indenture, at least once in one daily
newspaper of general circulation in each city in which the principal of
any of the bonds shall be payable, or, if all bonds outstanding shall
be registered bonds without coupons or coupon bonds registered as to
principal, such notice shall be sufficiently given if mailed, first
class, postage prepaid, and registered if the Company so elects, to
each registered holder of bonds at the last address of such holder
appearing on the registry books, such publication or mailing, as the
case may be, to be made not less than thirty days prior to such
execution. Any failure of the Company to give such notice, or any
defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.
SECTION 5. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.
SECTION 6. Nothing contained in this Supplemental Indenture shall, or
shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, as supplemented and amended as above set forth, the
Company, the Trustee and the Agent, for the benefit of the Banks (as such term
is defined in the Term Loan Agreement), any right or interest to avail himself
of any benefit under any provision of the Indenture, as so supplemented and
amended.
SECTION 7. The Trustee assumes no responsibility for or in respect of
the validity or sufficiency of this Supplemental Indenture or of the Indenture
as hereby supplemented or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein (other than those
contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.
SECTION 8. This Supplemental Indenture may be simultaneously executed
in several counterparts and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.
SECTION 9. In the event the date of any notice required or permitted
hereunder shall not be a Business Day, then (notwithstanding any other provision
of the Indenture or of any supplemental indenture thereto) such notice 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 fixed for such notice.
"Business Day" means, with respect to this Section 9, any day, other than a
Saturday or Sunday, on which banks generally are open in New York, New York for
the conduct
- 12 -
of substantially all of their commercial lending activities and on which
interbank wire transfers can be made on the Fedwire system.
SECTION 10. This Supplemental Indenture and the 2006 Collateral Series
Bonds shall be governed by and deemed to be a contract under, and construed in
accordance with, the laws of the State of Michigan, and for all purposes shall
be construed in accordance with the laws of such state, except as may otherwise
be required by mandatory provisions of law.
SECTION 11. Detailed Description of Property Mortgaged:
I.
ELECTRIC GENERATING PLANTS AND DAMS
All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.
II.
ELECTRIC TRANSMISSION LINES
All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including towers, poles, pole lines, wires, switches, switch racks,
switchboards, insulators and other appliances and equipment, and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.
III.
ELECTRIC DISTRIBUTION SYSTEMS
All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including substations, transformers, switchboards,
- 13 -
towers, poles, wires, insulators, subways, trenches, conduits, manholes, cables,
meters and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or enjoyed in
connection with such distribution systems or any of them or adjacent thereto;
together with all real property, rights of way, easements, permits, privileges,
franchises, grants and rights, for or relating to the construction, maintenance
or operation thereof, through, over, under or upon any private property or any
public streets or highways within as well as without the corporate limits of any
municipal corporation.
IV.
ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES
All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, for transforming, regulating, converting or distributing or
otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.
V.
GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS, DESULPHURIZATION STATIONS,
METERING STATIONS, ODORIZING STATIONS, REGULATORS AND SITES
All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, for compressing, processing, desulphurizing, metering,
odorizing and regulating manufactured or natural gas at any of its plants and
elsewhere, together with all buildings, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of such
purposes, with sites to be used for such purposes.
VI.
GAS STORAGE FIELDS
The natural gas rights and interests of the Company, including wells
and well lines (but not including natural gas, oil and minerals), the gas
gathering system, the underground gas storage rights, the underground gas
storage wells and injection and withdrawal system used in connection therewith,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture: In the Overisel Gas Storage Field, located in the Township of
Overisel, Allegan County, and in the Township of Zeeland, Ottawa County,
Michigan; in the Northville Gas Storage Field located
- 14 -
in the Township of Salem, Washtenaw County, Township of Lyon, Oakland County,
and the Townships of Northville and Plymouth and City of Plymouth, Wayne County,
Michigan; in the Salem Gas Storage Field, located in the Township of Salem,
Allegan County, and in the Township of Jamestown, Ottawa County, Michigan; in
the Ray Gas Storage Field, located in the Townships of Ray and Armada, Macomb
County, Michigan; in the Lenox Gas Storage Field, located in the Townships of
Lenox and Chesterfield, Macomb County, Michigan; in the Ira Gas Storage Field,
located in the Township of Ira, St. Clair County, Michigan; in the Puttygut Gas
Storage Field, located in the Township of Casco, St. Clair County, Michigan; in
the Four Corners Gas Storage Field, located in the Townships of Casco, China,
Cottrellville and Ira, St. Clair County, Michigan; in the Swan Creek Gas Storage
Field, located in the Township of Casco and Ira, St. Clair County, Michigan; and
in the Hessen Gas Storage Field, located in the Townships of Casco and Columbus,
St. Clair, Michigan.
VII.
GAS TRANSMISSION LINES
All the gas transmission lines of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
gas mains, pipes, pipelines, gates, valves, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements, permits, privileges, franchises and rights
for or relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways,
within as well as without the corporate limits of any municipal corporation.
VIII.
GAS DISTRIBUTION SYSTEMS
All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including tunnels, conduits, gas mains and pipes, service pipes, fittings,
gates, valves, connections, meters and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such distribution systems or any of them
or adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises, grants and rights, for or relating to the
construction, maintenance or operation thereof, through, over, under or upon any
private property or any public streets or highways within as well as without the
corporate limits of any municipal corporation.
- 15 -
IX.
OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.
All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise acquired by
it and not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the lien of the Indenture, together with the land
on which the same are situated and all easements, rights of way and
appurtenances to said lands, together with all furniture and fixtures located in
said buildings.
X.
TELEPHONE PROPERTIES AND
RADIO COMMUNICATION EQUIPMENT
All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, used or available for use in the operation of its
properties, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such telephone
properties or any of them or adjacent thereto; together with all real estate,
rights of way, easements, permits, privileges, franchises, property, devices or
rights related to the dispatch, transmission, reception or reproduction of
messages, communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment installed in
buildings used as general and regional offices, substations and generating
stations and all telephone lines erected on towers and poles; and all radio
communication equipment of the Company, together with all property, real or
personal (except any in the Indenture expressly excepted), fixed stations,
towers, auxiliary radio buildings and equipment, and all appurtenances used in
connection therewith, wherever located, in the State of Michigan.
XI.
OTHER REAL PROPERTY
All other real property of the Company and all interests therein, of
every nature and description (except any in the Indenture expressly excepted)
wherever located, in the State of Michigan, acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the lien of the Indenture. Such real property includes but is not limited
to the following described property, such property is subject to any interests
that were excepted or reserved in the conveyance to the Company:
ALCONA COUNTY
Certain land in Caledonia Township, Alcona County, Michigan described
as:
The East 330 feet of the South 660 feet of the SW 1/4 of the
SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South
330 feet thereof; said land being more particularly described as
follows: To find the place of
- 16 -
beginning of this description, commence at the Southwest corner of said
section, run thence East along the South line of said section 1243 feet
to the place of beginning of this description, thence continuing East
along said South line of said section 66 feet to the West 1/8 line of
said section, thence N 02 degrees 09' 30" E along the said West 1/8
line of said section 660 feet, thence West 330 feet, thence S 02
degrees 09' 30" W, 330 feet, thence East 264 feet, thence S 02 degrees
09' 30" W, 330 feet to the place of beginning.
ALLEGAN COUNTY
Certain land in Lee Township, Allegan County, Michigan described as:
The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.
ALPENA COUNTY
Certain land in Wilson and Green Townships, Alpena County, Michigan
described as:
All that part of the S'ly 1/2 of the former Boyne City-Gaylord
and Alpena Railroad right of way, being the Southerly 50 feet of a 100
foot strip of land formerly occupied by said Railroad, running from the
East line of Section 31, T31N, R7E, Southwesterly across said Section
31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2
of Section 9, except the West 1646 feet thereof, all in T30N, R6E.
ANTRIM COUNTY
Certain land in Mancelona Township, Antrim County, Michigan described
as:
The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
therefrom all mineral, coal, oil and gas and such other rights as were
reserved unto the State of Michigan in that certain deed running from
the State of Michigan to August W. Schack and Emma H. Schack, his wife,
dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on
page 682 of Antrim County Records.
ARENAC COUNTY
Certain land in Standish Township, Arenac County, Michigan described
as:
A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
T18N, R4E, described as follows: To find the place of beginning of said
parcel of land, commence at the Northwest corner of Section 12, T18N,
R4E; run thence South along the West line of said section, said West
line of said section being also the center line of East City Limits
Road 2642.15 feet to the W 1/4 post of said section and the place of
beginning of said parcel of land; running thence N 88 degrees 26' 00" E
along the East and West 1/4 line of said section, 660.0 feet; thence
North parallel with the West line of said section, 310.0 feet; thence S
88 degrees 26' 00"
- 17 -
W, 330.0 feet; thence South parallel with the West line of said
section, 260.0 feet; thence S 88 degrees 26' 00" W, 330.0 feet to the
West line of said section and the center line of East City Limits Road;
thence South along the said West line of said section, 50.0 feet to the
place of beginning.
BARRY COUNTY
Certain land in Johnstown Township, Barry County, Michigan described
as:
A strip of land 311 feet in width across the SW 1/4 of the NE
1/4 of Section 31, T1N, R8W, described as follows: To find the place of
beginning of this description, commence at the E 1/4 post of said
section; run thence N 00 degrees 55' 00" E along the East line of said
section, 555.84 feet; thence N 59 degrees 36' 20" W, 1375.64 feet;
thence N 88 degrees 30' 00" W, 130 feet to a point on the East 1/8 line
of said section and the place of beginning of this description; thence
continuing N 88 degrees 30' 00" W, 1327.46 feet to the North and South
1/4 line of said section; thence S 00 degrees 39'35" W along said North
and South 1/4 line of said section, 311.03 feet to a point, which said
point is 952.72 feet distant N'ly from the East and West 1/4 line of
said section as measured along said North and South 1/4 line of said
section; thence S 88 degrees 30' 00" E, 1326.76 feet to the East 1/8
line of said section; thence N 00 degrees 47' 20" E along said East 1/8
line of said section, 311.02 feet to the place of beginning.
BAY COUNTY
Certain land in Frankenlust Township, Bay County, Michigan described
as:
The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
the SE 1/4 of Section 9, T13N, R4E.
BENZIE COUNTY
Certain land in Benzonia Township, Benzie County, Michigan described
as:
A parcel of land in the Northeast 1/4 of Section 7, Township
26 North, Range 14 West, described as beginning at a point on the East
line of said Section 7, said point being 320 feet North measured along
the East line of said section from the East 1/4 post; running thence
West 165 feet; thence North parallel with the East line of said section
165 feet; thence East 165 feet to the East line of said section; thence
South 165 feet to the place of beginning.
BRANCH COUNTY
Certain land in Girard Township, Branch County, Michigan described as:
A parcel of land in the NE 1/4 of Section 23 T5S, R6W,
described as beginning at a point on the North and South quarter line
of said section at a point
- 18 -
1278.27 feet distant South of the North quarter post of said section,
said distance being measured along the North and South quarter line of
said section, running thence S89 degrees21'E 250 feet, thence North
along a line parallel with the said North and South quarter line of
said section 200 feet, thence N89 degrees21'W 250 feet to the North and
South quarter line of said section, thence South along said North and
South quarter line of said section 200 feet to the place of beginning.
CALHOUN COUNTY
Certain land in Convis Township, Calhoun County, Michigan described as:
A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
T1S, R6W, described as follows: To find the place of beginning of this
description, commence at the Southeast corner of said section; run
thence North along the East line of said section 1034.32 feet to the
place of beginning of this description; running thence N 89 degrees 39'
52" W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of
said section; thence S 89 degrees 39' 52" E along said South 1/8 line
of said section 333.0 feet to the East line of said section; thence
South along said East line of said section 290.0 feet to the place of
beginning. (Bearings are based on the East line of Section 32, T1S,
R6W, from the Southeast corner of said section to the Northeast corner
of said section assumed as North.)
CASS COUNTY
Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:
The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
R13W.
CHARLEVOIX COUNTY
Certain land in South Arm Township, Charlevoix County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
described as follows: Beginning at the Southwest corner of said section
and running thence North along the West line of said section 788.25
feet to a point which is 528 feet distant South of the South 1/8 line
of said section as measured along the said West line of said section;
thence N 89 degrees 30' 19" E, parallel with said South 1/8 line of
said section 442.1 feet; thence South 788.15 feet to the South line of
said section; thence S 89 degrees 29' 30" W, along said South line of
said section 442.1 feet to the place of beginning.
- 19 -
CHEBOYGAN COUNTY
Certain land in Inverness Township, Cheboygan County, Michigan
described as:
A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
described as beginning at the Northwest corner of the SW frl 1/4,
running thence East on the East and West quarter line of said Section,
40 rods, thence South parallel to the West line of said Section 40
rods, thence West 40 rods to the West line of said Section, thence
North 40 rods to the place of beginning.
CLARE COUNTY
Certain land in Frost Township, Clare County, Michigan described as:
The East 150 feet of the North 225 feet of the NW 1/4 of the
NW 1/4 of Section 15, T20N, R4W.
CLINTON COUNTY
Certain land in Watertown Township, Clinton County, Michigan described
as:
The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
T5N, R3W.
CRAWFORD COUNTY
Certain land in Lovells Township, Crawford County, Michigan described
as:
A parcel of land in Section 1, T28N, R1W, described as:
Commencing at NW corner said section; thence South 89 degrees53'30"
East along North section line 105.78 feet to point of beginning; thence
South 89 degrees53'30" East along North section line 649.64 feet;
thence South 55 degrees 42'30" East 340.24 feet; thence South 55
degrees 44' 37"" East 5,061.81 feet to the East section line; thence
South 00 degrees 00' 08"" West along East section line 441.59 feet;
thence North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
degrees 42'30" West 877.76 feet to point of beginning.
EATON COUNTY
Certain land in Eaton Township, Eaton County, Michigan described as:
A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section; run
thence N 89 degrees 51' 30" E along the South line of said section 400
feet to the place of beginning of this description; thence continuing N
89 degrees 51' 30" E, 500 feet; thence N 00 degrees 50' 00" W, 600
feet; thence S 89 degrees 51' 30" W parallel with the South line of
said
- 20 -
section 500 feet; thence S 00 degrees 50' 00" E, 600 feet to the place
of beginning.
EMMET COUNTY
Certain land in Wawatam Township, Emmet County, Michigan described as:
The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
Section 23, T39N, R4W.
GENESEE COUNTY
Certain land in Argentine Township, Genesee County, Michigan described
as:
A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
being more particularly described as follows:
Beginning at a point of the West line of Duffield Road, 100
feet wide, (as now established) distant 829.46 feet measured N01
degrees42'56"W and 50 feet measured S88 degrees14'04"W` from the South
quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a
distance of 550 feet; thence N01 degrees42'56"W a distance of 500 feet
to a point on the North line of the South half of the Southwest quarter
of said Section 8; thence N88 degrees14'04"E along the North line of
South half of the Southwest quarter of said Section 8 a distance 550
feet to a point on the West line of Duffield Road, 100 feet wide (as
now established); thence S01 degrees42'56"E along the West line of said
Duffield Road a distance of 500 feet to the point of beginning.
GLADWIN COUNTY
Certain land in Secord Township, Gladwin County, Michigan described as:
The East 400 feet of the South 450 feet of Section 2, T19N,
R1E.
GRAND TRAVERSE COUNTY
Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:
A parcel of land in the Northwest 1/4 of Section 3, T25N,
R11W, described as follows: Commencing at the Northwest corner of said
section, running thence S 89 degrees19'15" E along the North line of
said section and the center line of Clouss Road 225 feet, thence South
400 feet, thence N 89 degrees19'15" W 225 feet to the West line of said
section and the center line of Hannah Road, thence North along the West
line of said section and the center line of Hannah Road 400 feet to the
place of beginning for this description.
- 21 -
GRATIOT COUNTY
Certain land in Fulton Township, Gratiot County, Michigan described as:
A parcel of land in the NE 1/4 of Section 7, Township 9 North,
Range 3 West, described as beginning at a point on the North line of
George Street in the Village of Middleton, which is 542 feet East of
the North and South one-quarter (1/4) line of said Section 7; thence
North 100 feet; thence East 100 feet; thence South 100 feet to the
North line of George Street; thence West along the North line of George
Street 100 feet to place of beginning.
HILLSDALE COUNTY
Certain land in Litchfield Village, Hillsdale County, Michigan
described as:
Lot 238 of Assessors Plat of the Village of Litchfield.
HURON COUNTY
Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:
The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.
INGHAM COUNTY
Certain land in Vevay Township, Ingham County, Michigan described as:
A parcel of land 660 feet wide in the Southwest 1/4 of Section
7 lying South of the centerline of Sitts Road as extended to the
North-South 1/4 line of said Section 7, T2N, R1W, more particularly
described as follows: Commence at the Southwest corner of said Section
7, thence North along the West line of said Section 2502.71 feet to the
centerline of Sitts Road; thence South 89 degrees54'45" East along said
centerline 2282.38 feet to the place of beginning of this description;
thence continuing South 89 degrees54'45" East along said centerline and
said centerline extended 660.00 feet to the North-South 1/4 line of
said section; thence South 00 degrees07'20" West 1461.71 feet; thence
North 89 degrees34'58" West 660.00 feet; thence North 00 degrees07'20"
East 1457.91 feet to the centerline of Sitts Road and the place of
beginning.
IONIA COUNTY
Certain land in Sebewa Township, Ionia County, Michigan described as:
A strip of land 280 feet wide across that part of the SW 1/4
of the NE 1/4 of Section 15, T5N, R6W, described as follows:
- 22 -
To find the place of beginning of this description commence at
the E 1/4 corner of said section; run thence N 00 degrees 05' 38" W
along the East line of said section, 1218.43 feet; thence S 67 degrees
18' 24" W, 1424.45 feet to the East 1/8 line of said section and the
place of beginning of this description; thence continuing S 67 degrees
18' 24" W, 1426.28 feet to the North and South 1/4 line of said section
at a point which said point is 105.82 feet distant N'ly of the center
of said section as measured along said North and South 1/4 line of said
section; thence N 00 degrees 04' 47" E along said North and South 1/4
line of said section, 303.67 feet; thence N 67 degrees 18' 24" E,
1425.78 feet to the East 1/8 line of said section; thence S 00 degrees
00' 26" E along said East 1/8 line of said section, 303.48 feet to the
place of beginning. (Bearings are based on the East line of Section 15,
T5N, R6W, from the E 1/4 corner of said section to the Northeast corner
of said section assumed as N 00 degrees 05' 38" W.)
IOSCO COUNTY
Certain land in Alabaster Township, Iosco County, Michigan described
as:
A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run thence
South along the North and South 1/4 line of said section, 1354.40 feet
to the place of beginning of this description; thence continuing South
along the said North and South 1/4 line of said section, 165.00 feet to
a point on the said North and South 1/4 line of said section which said
point is 1089.00 feet distant North of the center of said section;
thence West 440.00 feet; thence North 165.00 feet; thence East 440.00
feet to the said North and South 1/4 line of said section and the place
of beginning.
ISABELLA COUNTY
Certain land in Chippewa Township, Isabella County, Michigan described
as:
The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
T14N, R3W.
JACKSON COUNTY
Certain land in Waterloo Township, Jackson County, Michigan described
as:
A parcel of land in the North fractional part of the N
fractional 1/2 of Section 2, T1S, R2E, described as follows: To find
the place of beginning of this description commence at the E 1/4 post
of said section; run thence N 01 degrees 03' 40" E along the East line
of said section 1335.45 feet to the North 1/8 line of said section and
the place of beginning of this description; thence N 89 degrees 32' 00"
W, 2677.7 feet to the North and South 1/4 line of said section; thence
S 00 degrees 59' 25" W along the North and South 1/4 line of said
section 22.38 feet to the North 1/8 line of said section; thence S 89
degrees 59' 10" W along the North 1/8 line of said section 2339.4 feet
to the center line of State Trunkline Highway M-52; thence N 53 degrees
46' 00" W along the center line of said State
- 23 -
Trunkline Highway 414.22 feet to the West line of said section; thence
N 00 degrees 55' 10" E along the West line of said section 74.35 feet;
thence S 89 degrees 32' 00" E, 5356.02 feet to the East line of said
section; thence S 01 degrees 03' 40" W along the East line of said
section 250 feet to the place of beginning.
KALAMAZOO COUNTY
Certain land in Alamo Township, Kalamazoo County, Michigan described
as:
The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
T1S, R12W, being more particularly described as follows: To find the
place of beginning of this description, commence at the Northwest
corner of said section; run thence S 00 degrees 36' 55" W along the
West line of said section 971.02 feet to the place of beginning of this
description; thence continuing S 00 degrees 36' 55" W along said West
line of said section 350.18 feet to the North 1/8 line of said section;
thence S 87 degrees 33' 40" E along the said North 1/8 line of said
section 1325.1 feet to the West 1/8 line of said section; thence N 00
degrees 38' 25" E along the said West 1/8 line of said section 350.17
feet; thence N 87 degrees 33' 40" W, 1325.25 feet to the place of
beginning.
KALKASKA COUNTY
Certain land in Kalkaska Township, Kalkaska County, Michigan described
as:
The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
therefrom all mineral, coal, oil and gas and such other rights as were
reserved unto the State of Michigan in that certain deed running from
the Department of Conservation for the State of Michigan to George
Welker and Mary Welker, his wife, dated October 9, 1934 and recorded
December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records,
and subject to easement for pipeline purposes as granted to Michigan
Consolidated Gas Company by first party herein on April 4, 1963 and
recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County
Records.
KENT COUNTY
Certain land in Caledonia Township, Kent County, Michigan described as:
A parcel of land in the Northwest fractional 1/4 of Section
15, T5N, R10W, described as follows: To find the place of beginning of
this description commence at the North 1/4 corner of said section, run
thence S 0 degrees 59' 26" E along the North and South 1/4 line of said
section 2046.25 feet to the place of beginning of this description,
thence continuing S 0 degrees 59' 26" E along said North and South 1/4
line of said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90
feet to a point herein designated "Point A" on the East bank of the
Thornapple River, thence continuing S 88 degrees 53' 30" W to the
center thread of the Thornapple River, thence NW'ly along the center
thread of said Thornapple
- 24 -
River to a point which said point is S 88 degrees 58' 30" W of a point
on the East bank of the Thornapple River herein designated "Point B",
said "Point B" being N 23 degrees 41' 35" W 360.75 feet from said
above-described "Point A", thence N 88 degrees 58' 30" E to said "Point
B", thence continuing N 88 degrees 58' 30" E 2650.13 feet to the place
of beginning. (Bearings are based on the East line of Section 15, T5N,
R10W between the East 1/4 corner of said section and the Northeast
corner of said section assumed as N 0 degrees 59' 55" W.)
LAKE COUNTY
Certain land in Pinora and Cherry Valley Townships, Lake County,
Michigan described as:
A strip of land 50 feet wide East and West along and adjoining
the West line of highway on the East side of the North 1/2 of Section
13 T18N, R12W. Also a strip of land 100 feet wide East and West along
and adjoining the East line of the highway on the West side of
following described land: The South 1/2 of NW 1/4, and the South 1/2 of
the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.
LAPEER COUNTY
Certain land in Hadley Township, Lapeer County, Michigan described as:
The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
T6N, R9E, except the West 1064 feet thereof.
LEELANAU COUNTY
Certain land in Cleveland Township, Leelanau County, Michigan described
as:
The North 200 feet of the West 180 feet of the SW 1/4 of the
SE 1/4 of Section 35, T29N, R13W.
LENAWEE COUNTY
Certain land in Madison Township, Lenawee County, Michigan described
as:
A strip of land 165 feet wide off the West side of the
following described premises: The E 1/2 of the SE 1/4 of Section 12.
The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13,
being all in T7S, R3E, excepting therefrom a parcel of land in the E
1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest
corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4
rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to
the place of beginning.
- 25 -
LIVINGSTON COUNTY
Certain land in Cohoctah Township, Livingston County, Michigan
described as:
Parcel 1
The East 390 feet of the East 50 rods of the SW 1/4 of Section
30, T4N, R4E.
Parcel 2
A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run thence N 89
degrees 13' 06" W along the North line of said section, 330 feet to the
place of beginning of this description; running thence S 00 degrees 52'
49" W, 2167.87 feet; thence N 88 degrees 59' 49" W, 60 feet; thence N
00 degrees 52' 49" E, 2167.66 feet to the North line of said section;
thence S 89 degrees 13' 06" E along said North line of said section, 60
feet to the place of beginning.
MACOMB COUNTY
Certain land in Macomb Township, Macomb County, Michigan described as:
A parcel of land commencing on the West line of the E 1/2 of
the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of
said E 1/2 of the NW 1/4 of Section 6; thence South on said West line
and the East line of A. Henry Kotner's Hayes Road Subdivision #15,
according to the recorded plat thereof, as recorded in Liber 24 of
Plats, on page 7, 24.36 chains to the East and West 1/4 line of said
Section 6; thence East on said East and West 1/4 line 8.93 chains;
thence North parallel with the said West line of the E 1/2 of the NW
1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of
beginning, all in T3N, R13E.
MANISTEE COUNTY
Certain land in Manistee Township, Manistee County, Michigan described
as:
A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
described as follows: To find the place of beginning of this
description, commence at the Southwest corner of said section; run
thence East along the South line of said section 832.2 feet to the
place of beginning of this description; thence continuing East along
said South line of said section 132 feet; thence North 198 feet; thence
West 132 feet; thence South 198 feet to the place of beginning,
excepting therefrom the South 2 rods thereof which was conveyed to
Manistee Township for highway purposes by a Quitclaim Deed dated June
13, 1919 and recorded July [11], 1919 in Liber 88 of Deeds on page 638
of Manistee County Records.
- 26 -
MASON COUNTY
Certain land in Riverton Township, Mason County, Michigan described as:
Parcel 1
The South 10 acres of the West 20 acres of the S 1/2 of the NE
1/4 of Section 22, T17N, R17W.
Parcel 2
A parcel of land containing 4 acres of the West side of
highway, said parcel of land being described as commencing 16 rods
South of the Northwest corner of the NW 1/4 of the SW 1/4 of Section
22, T17N, R17W, running thence South 64 rods, thence NE'ly and N'ly and
NW'ly along the W'ly line of said highway to the place of beginning,
together with any and all right, title, and interest of Howard C.
Wicklund and Katherine E. Wicklund in and to that portion of the
hereinbefore mentioned highway lying adjacent to the E'ly line of said
above described land.
MECOSTA COUNTY
Certain land in Wheatland Township, Mecosta County, Michigan described
as:
A parcel of land in the SW 1/4 of the SW 1/4 of Section 16,
T14N, R7W, described as beginning at the Southwest corner of said
section; thence East along the South line of Section 133 feet; thence
North parallel to the West section line 133 feet; thence West 133 feet
to the West line of said Section; thence South 133 feet to the place of
beginning.
MIDLAND COUNTY
Certain land in Ingersoll Township, Midland County, Michigan described
as:
The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
T13N, R2E.
MISSAUKEE COUNTY
Certain land in Norwich Township, Missaukee County, Michigan described
as:
A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
T24N, R6W, described as follows: Commencing at the Northwest corner of
said section, running thence N 89 degrees 01' 45" E along the North
line of said section 233.00 feet; thence South 233.00 feet; thence S 89
degrees 01' 45" W, 233.00 feet to the West line of said section; thence
North along said West line of said section 233.00 feet to the place of
beginning. (Bearings are based on the West line of Section 16, T24N,
R6W, between the Southwest and Northwest corners of said section
assumed as North.)
- 27 -
MONROE COUNTY
Certain land in Whiteford Township, Monroe County, Michigan described
as:
A parcel of land in the SW1/4 of Section 20, T8S, R6E,
described as follows: To find the place of beginning of this
description commence at the S 1/4 post of said section; run thence West
along the South line of said section 1269.89 feet to the place of
beginning of this description; thence continuing West along said South
line of said section 100 feet; thence N 00 degrees 50' 35" E, 250 feet;
thence East 100 feet; thence S 00 degrees 50' 35" W parallel with and
16.5 feet distant W'ly of as measured perpendicular to the West 1/8
line of said section, as occupied, a distance of 250 feet to the place
of beginning.
MONTCALM COUNTY
Certain land in Crystal Township, Montcalm County, Michigan described
as:
The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.
MONTMORENCY COUNTY
Certain land in the Village of Hillman, Montmorency County, Michigan
described as:
Lot 14 of Hillman Industrial Park, being a subdivision in the
South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to
the plat thereof recorded in Liber 4 of Plats on Pages 32-34,
Montmorency County Records.
MUSKEGON COUNTY
Certain land in Casnovia Township, Muskegon County, Michigan described
as:
The West 433 feet of the North 180 feet of the South 425 feet
of the SW 1/4 of Section 3, T10N, R13W.
NEWAYGO COUNTY
Certain land in Ashland Township, Newaygo County, Michigan described
as:
The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.
OAKLAND COUNTY
Certain land in Wixcom City, Oakland County, Michigan described as:
The E 75 feet of the N 160 feet of the N 330 feet of the W
526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more
particularly described as follows: Commence at the NW corner of said
Section 8, thence N 87 degrees 14' 29" E along the North line of said
Section 8 a distance of 451.84 feet to the place
- 28 -
of beginning for this description; thence continuing N 87 degrees 14'
29" E along said North section line a distance of 75.0 feet to the East
line of the West 526.84 feet of the NW 1/4 of the NW 1/4 of said
Section 8; thence S 02 degrees 37' 09" E along said East line a
distance of 160.0 feet; thence S 87 degrees 14' 29" W a distance of
75.0 feet; thence N 02 degrees 37' 09" W a distance of 160.0 feet to
the place of beginning.
OCEANA COUNTY
Certain land in Crystal Township, Oceana County, Michigan described as:
The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.
OGEMAW COUNTY
Certain land in West Branch Township, Ogemaw County, Michigan described
as:
The South 660 feet of the East 660 feet of the NE 1/4 of the
NE 1/4 of Section 33, T22N, R2E.
OSCEOLA COUNTY
Certain land in Hersey Township, Osceola County, Michigan described as:
A parcel of land in the North 1/2 of the Northeast 1/4 of
Section 13, T17N, R9W, described as commencing at the Northeast corner
of said Section; thence West along the North Section line 999 feet to
the point of beginning of this description; thence S 01 degrees 54' 20"
E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17' 05" W
along the North 1/8 line 330.89 feet; thence N 01 degrees 54' 20" W
1331.26 feet to the North Section line; thence East along the North
Section line 331 feet to the point of beginning.
OSCODA COUNTY
Certain land in Comins Township, Oscoda County, Michigan described as:
The East 400 feet of the South 580 feet of the W 1/2 of the SW
1/4 of Section 15, T27N, R3E.
OTSEGO COUNTY
Certain land in Corwith Township, Otsego County, Michigan described as:
Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
described as: Beginning at the N 1/4 corner of said section; running
thence S 89 degrees 04' 06" E along the North line of said section,
330.00 feet; thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89
degrees 04' 06" W, 330.00 feet to the North and
- 29 -
South 1/4 line of said section; thence N 00 degrees 28' 43" W along the
said North and South 1/4 line of said section, 400.00 feet to the point
of beginning; subject to the use of the N'ly 33.00 feet thereof for
highway purposes.
OTTAWA COUNTY
Certain land in Robinson Township, Ottawa County, Michigan described
as:
The North 660 feet of the West 660 feet of the NE 1/4 of the
NW 1/4 of Section 26, T7N, R15W.
PRESQUE ISLE COUNTY
Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:
Part of the South half of the Northeast quarter, Section 24,
T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E,
more fully described as: Commencing at the East 1/4 corner of said
Section 24; thence N 00 degrees15'47" E, 507.42 feet, along the East
line of said Section 24 to the point of beginning; thence S 88
degrees15'36" W, 400.00 feet, parallel with the North 1/8 line of said
Section 24; thence N 00 degrees15'47" E, 800.00 feet, parallel with
said East line of Section 24; thence N 88 degrees15'36"E, 800.00 feet,
along said North 1/8 line of Section 24 and said line extended; thence
S 00 degrees15'47" W, 800.00 feet, parallel with said East line of
Section 24; thence S 88 degrees15'36" W, 400.00 feet, parallel with
said North 1/8 line of Section 24 to the point of beginning.
Together with a 33 foot easement along the West 33 feet of the
Northwest quarter lying North of the North 1/8 line of Section 24,
Belknap Township, extended, in Section 19, T34N, R6E.
ROSCOMMON COUNTY
Certain land in Gerrish Township, Roscommon County, Michigan described
as:
A parcel of land in the NW 1/4 of Section 19, T24N, R3W,
described as follows: To find the place of beginning of this
description commence at the Northwest corner of said section, run
thence East along the North line of said section 1,163.2 feet to the
place of beginning of this description (said point also being the place
of intersection of the West 1/8 line of said section with the North
line of said section), thence S 01 degrees 01' E along said West 1/8
line 132 feet, thence West parallel with the North line of said section
132 feet, thence N 01 degrees 01' W parallel with said West 1/8 line of
said section 132 feet to the North line of said section, thence East
along the North line of said section 132 feet to the place of
beginning.
- 30 -
SAGINAW COUNTY
Certain land in Chapin Township, Saginaw County, Michigan described as:
A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section; run
thence North along the West line of said section 1581.4 feet to the
place of beginning of this description; thence continuing North along
said West line of said section 230 feet to the center line of a creek;
thence S 70 degrees 07' 00" E along said center line of said creek
196.78 feet; thence South 163.13 feet; thence West 185 feet to the West
line of said section and the place of beginning.
SANILAC COUNTY
Certain easement rights located across land in Minden Township, Sanilac
County, Michigan described as:
The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
R14E, excepting therefrom the South 83 feet of the East 83 feet
thereof.
SHIAWASSEE COUNTY
Certain land in Burns Township, Shiawassee County, Michigan described
as:
The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
T5N, R4E.
ST. CLAIR COUNTY
Certain land in Ira Township, St. Clair County, Michigan described as:
The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.
ST. JOSEPH COUNTY
Certain land in Mendon Township, St. Joseph County, Michigan described
as:
The North 660 feet of the West 660 feet of the NW 1/4 of SW
1/4, Section 35, T5S, R10W.
TUSCOLA COUNTY
Certain land in Millington Township, Tuscola County, Michigan described
as:
A strip of land 280 feet wide across the East 96 rods of the
South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
particularly described as commencing at the Northeast corner of Section
3, T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
distance of 1398.67 feet to the South 1/8
- 31 -
line of said Section 34 and the place of beginning for this
description; thence continuing N 18 degrees 11' 50" W a distance of
349.91 feet; thence N 89 degrees 57' 01" W a distance of 294.80 feet;
thence S 18 degrees 11' 50" E a distance of 350.04 feet to the South
1/8 line of said Section 34; thence S 89 degrees 58' 29" E along the
South 1/8 line of said section a distance of 294.76 feet to the place
of beginning.
VAN BUREN COUNTY
Certain land in Covert Township, Van Buren County, Michigan described
as:
All that part of the West 20 acres of the N 1/2 of the NE
fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the
North 80 rods, being more particularly described as follows: To find
the place of beginning of this description commence at the N 1/4 post
of said section; run thence N 89 degrees 29' 20" E along the North line
of said section 280.5 feet to the place of beginning of this
description; thence continuing N 89 degrees 29' 20" E along said North
line of said section 288.29 feet; thence S 00 degrees 44' 00" E,
1531.92 feet; thence S 89 degrees 33' 30" W, 568.79 feet to the North
and South 1/4 line of said section; thence N 00 degrees 44' 00" W along
said North and South 1/4 line of said section 211.4 feet; thence N 89
degrees 29' 20" E, 280.5 feet; thence N 00 degrees 44' 00" W, 1320 feet
to the North line of said section and the place of beginning.
WASHTENAW COUNTY
Certain land in Manchester Township, Washtenaw County, Michigan
described as:
A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
T4S, R3E, described as follows: To find the place of beginning of this
description commence at the Northwest corner of said section; run
thence East along the North line of said section 1355.07 feet to the
West 1/8 line of said section; thence S 00 degrees 22' 20" E along said
West 1/8 line of said section 927.66 feet to the place of beginning of
this description; thence continuing S 00 degrees 22' 20" E along said
West 1/8 line of said section 660 feet to the North 1/8 line of said
section; thence N 86 degrees 36' 57" E along said North 1/8 line of
said section 660.91 feet; thence N 00 degrees22' 20" W, 660 feet;
thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.
WAYNE COUNTY
Certain land in Livonia City, Wayne County, Michigan described as:
Commencing at the Southeast corner of Section 6, T1S, R9E;
thence North along the East line of Section 6 a distance of 253 feet to
the point of beginning; thence continuing North along the East line of
Section 6 a distance of 50 feet; thence Westerly parallel to the South
line of Section 6, a distance of 215 feet; thence Southerly parallel to
the East line of Section 6 a distance of 50 feet;
- 32 -
thence easterly parallel with the South line of Section 6 a distance of
215 feet to the point of beginning.
WEXFORD COUNTY
Certain land in Selma Township, Wexford County, Michigan described as:
A parcel of land in the NW 1/4 of Section 7, T22N, R10W,
described as beginning on the North line of said section at a point 200
feet East of the West line of said section, running thence East along
said North section line 450 feet, thence South parallel with said West
section line 350 feet, thence West parallel with said North section
line 450 feet, thence North parallel with said West section line 350
feet to the place of beginning.
SECTION 12. The Company is a transmitting utility under Section 9501(2)
of the Michigan Uniform Commercial Code (M.C.L. 440.9501(2)) as defined in
M.C.L. 440.9102(1)(aaaa).
IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board, President, a Vice President or its Treasurer and its corporate seal
to be hereunto affixed and to be attested by its Secretary or an Assistant
Secretary, and said JPMorgan Chase Bank, as Trustee as aforesaid, to evidence
its acceptance hereof, has caused this Supplemental Indenture to be executed in
its corporate name by a Vice President and its corporate seal to be hereunto
affixed and to be attested by a Trust Officer, in several counterparts, all as
of the day and year first above written.
- 33 -
CONSUMERS ENERGY COMPANY
(SEAL) By /s/ Paul A. Stadnikia
---------------------------------
Paul A. Stadnikia
Attest: Treasurer
/s/ Joyce H. Norkey
- ----------------------------
Joyce H. Norkey
Assistant Secretary
Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of
/s/ Kimberly C. Wilson
- ----------------------------
Kimberly C. Wilson
/s/ Sammie B. Dalton
- ----------------------------
Sammie B. Dalton
STATE OF MICHIGAN )
ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this 28th day of
March, 2003, by Paul A. Stadnikia, Treasurer of CONSUMERS ENERGY COMPANY, a
Michigan corporation, on behalf of the corporation.
/s/ Margaret Hillman
--------------------------------------
Margaret Hillman, Notary Public
[Seal] Jackson County, Michigan
My Commission Expires: June 14, 2004
S-1
JPMORGAN CHASE BANK, AS TRUSTEE
(SEAL) By /s/ L. O'Brien
---------------------------------
L. O'Brien
Attest: Vice President
/s/ Rosa Ciaccia
- ------------------
Rosa Ciaccia
Trust Officer
Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of
/s/ James D. Heaney
- ----------------------------
James D. Heaney
Vice President
/s/ William G. Keenan
- ----------------------------
William G. Keenan
Vice President
STATE OF NEW YORK )
ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 28th day of
March, 2003, by L. O'Brien, a Vice President of JPMORGAN CHASE BANK, a New York
corporation, on behalf of the corporation.
/s/ Emily Fayan
------------------------------------
Notary Public
[Seal]
New York County, New York
My Commission Expires:
Prepared by: When recorded, return to:
Kimberly C. Wilson Consumers Energy Company
212 West Michigan Avenue Business Services Real Estate Dept.
Jackson, MI 49201 Attn: Nancy Fisher EP7-439
One Energy Plaza
Jackson, MI 49201
S-2
EXHIBIT 4(d)
NINETIETH SUPPLEMENTAL INDENTURE
PROVIDING AMONG OTHER THINGS FOR
FIRST MORTGAGE BONDS,
$250,000,000 4.25% SERIES DUE 2008, SERIES A,
$375,000,000 5.375% SERIES DUE 2013, SERIES B,
$250,000,000 4.25% SERIES DUE 2008, SERIES C
AND
$375,000,000 5.375% SERIES DUE 2013, SERIES D
--------------
DATED AS OF APRIL 30, 2003
--------------
CONSUMERS ENERGY COMPANY
TO
JPMORGAN CHASE BANK,
TRUSTEE
Counterpart _____ of 80
THIS NINETIETH SUPPLEMENTAL INDENTURE, dated as of April 30,
2003 (herein sometimes referred to as "this Supplemental Indenture"), made and
entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized
and existing under the laws of the State of Michigan, with its principal
executive office and place of business at 212 West Michigan Avenue, in Jackson,
Jackson County, Michigan 49201, formerly known as Consumers Power Company
(hereinafter sometimes referred to as the "Company"), and JPMORGAN CHASE BANK, a
corporation organized and existing under the laws of the State of New York, with
its corporate trust offices at 4 New York Plaza, New York, New York 10004
(hereinafter sometimes referred to as the "Trustee"), as Trustee under the
Indenture dated as of September 1, 1945 between Consumers Power Company, a Maine
corporation (hereinafter sometimes referred to as the "Maine corporation"), and
City Bank Farmers Trust Company (Citibank, N.A., successor, hereinafter
sometimes referred to as the "Predecessor Trustee"), securing bonds issued and
to be issued as provided therein (hereinafter sometimes referred to as the
"Indenture"),
WHEREAS at the close of business on January 30, 1959, City
Bank Farmers Trust Company was converted into a national banking association
under the title "First National City Trust Company"; and
WHEREAS at the close of business on January 15, 1963, First
National City Trust Company was merged into First National City Bank; and
WHEREAS at the close of business on October 31, 1968, First
National City Bank was merged into The City Bank of New York, National
Association, the name of which was thereupon changed to First National City
Bank; and
WHEREAS effective March 1, 1976, the name of First National
City Bank was changed to Citibank, N.A.; and
WHEREAS effective July 16, 1984, Manufacturers Hanover Trust
Company succeeded Citibank, N.A. as Trustee under the Indenture; and
WHEREAS effective June 19, 1992, Chemical Bank succeeded by
merger to Manufacturers Hanover Trust Company as Trustee under the Indenture;
and
WHEREAS effective July 15, 1996, The Chase Manhattan Bank
(National Association), merged with and into Chemical Bank which thereafter was
renamed The Chase Manhattan Bank; and
WHEREAS effective November 11, 2001, The Chase Manhattan Bank
merged with Morgan Guaranty Trust Company of New York and the surviving
corporation was renamed JPMorgan Chase Bank; and
WHEREAS the Indenture was executed and delivered for the
purpose of securing such bonds as may from time to time be issued under and in
accordance with the terms of the Indenture, the aggregate principal amount of
bonds to be secured thereby being limited to $5,000,000,000 at any one time
outstanding (except as provided in Section 2.01 of the Indenture), and the
Indenture describes and sets forth the property conveyed thereby and is filed
1
in the Office of the Secretary of State of the State of Michigan and is of
record in the Office of the Register of Deeds of each county in the State of
Michigan in which this Supplemental Indenture is to be recorded; and
WHEREAS the Indenture has been supplemented and amended by
various indentures supplemental thereto, each of which is filed in the Office of
the Secretary of State of the State of Michigan and is of record in the Office
of the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and
WHEREAS the Company and the Maine corporation entered into an
Agreement of Merger and Consolidation, dated as of February 14, 1968, which
provided for the Maine corporation to merge into the Company; and
WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was merged
into the Company and the name of the Company was changed from "Consumers Power
Company of Michigan" to "Consumers Power Company"; and
WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided,
among other things, for the assumption of the Indenture by the Company; and
WHEREAS said Sixteenth Supplemental Indenture became effective
on the effective date of such Agreement of Merger and Consolidation; and
WHEREAS the Company has succeeded to and has been substituted
for the Maine corporation under the Indenture with the same effect as if it had
been named therein as the mortgagor corporation; and
WHEREAS effective March 11, 1997, the name of Consumers Power
Company was changed to Consumers Energy Company; and
WHEREAS, the Indenture provides for the issuance of bonds
thereunder in one or more series, and the Company, by appropriate corporate
action in conformity with the terms of the Indenture, has duly determined to
create, and does hereby create, a new series of bonds under the Indenture
designated 4.25% Series due 2008, Series A, each of which bonds shall also bear
the descriptive title "First Mortgage Bonds" (hereinafter provided for and
hereinafter sometimes referred to as the "2008 Bonds, Series A"), the bonds of
which series are to be issued as registered bonds without coupons and are to
bear interest at the rate per annum specified in the title thereof and are to
mature April 15, 2008; and
WHEREAS, the Indenture provides for the issuance of bonds
thereunder in one or more series, and the Company, by appropriate corporate
action in conformity with the terms of the Indenture, has duly determined to
create, and does hereby create, a new series of bonds under the Indenture
designated 5.375% Series due 2013, Series B, each of which bonds shall also bear
the descriptive title "First Mortgage Bonds" (hereinafter provided for and
hereinafter sometimes referred to as the "2013 Bonds, Series B"), the bonds of
which series are to be issued as
2
registered bonds without coupons and are to bear interest at the rate per annum
specified in the title thereof and are to mature April 15, 2013; and
WHEREAS the Company and Banc One Capital Markets, Inc.,
Barclays Capital Inc., J.P. Morgan Securities Inc., Comerica Securities, Inc.,
and Wachovia Securities, Inc. (the "Initial Purchasers") have entered into a
Purchase Agreement dated April 23, 2003 (the "Purchase Agreement"), pursuant to
which the Company agreed to sell and the Initial Purchasers agreed to buy
$250,000,000 in aggregate principal amount of 2008 Bonds, Series A and
$375,000,000 of 2013 Bonds, Series B (such 2008 Bonds, Series A and 2013 Bonds,
Series B together, the "Initial Bonds"); and
WHEREAS the Company and the Initial Purchasers have entered
into a Registration Rights Agreement dated as of April 30, 2003 (the
"Registration Rights Agreement"); and
WHEREAS the Registration Rights Agreement requires the Company
to use its reasonable best efforts to make an Exchange Offer (as defined
therein) which would allow (i) the Initial Purchasers, or permitted successor
holders, of the 2008 Bonds, Series A to exchange such bonds for bonds not
subject to certain restrictions under the Securities Act of 1933, as amended
(the "Securities Act") or to cause a Shelf Registration Statement (as defined in
the Registration Rights Agreement) to be declared effective with respect to the
2008 Bonds, Series A, and (ii) the Initial Purchasers, or permitted successor
holders, of the 2013 Bonds, Series B to exchange such bonds for bonds not
subject to certain restrictions under the Securities Act or to cause a Shelf
Registration Statement (as defined in the Registration Rights Agreement) to be
declared effective with respect to the 2013 Bonds, Series B; and
WHEREAS the Company has duly determined to create, and does
hereby create, a series of bonds under the Indenture to be issued in exchange
for the 2008 Bonds, Series A, such bonds to be designated 4.25% Series due 2008,
Series C, each of which bonds shall also bear the descriptive title "First
Mortgage Bonds" (the "2008 Bonds, Series C"), the bonds of which series are to
be issued as registered bonds without coupons and are to bear interest at the
rate per annum specified in the title thereof and are to mature April 15, 2008;
and
WHEREAS the Company has duly determined to create, and does
hereby create, a series of bonds under the Indenture to be issued in exchange
for the 2013 Bonds, Series B, such bonds to be designated 5.375% Series due
2013, Series D, each of which bonds shall also bear the descriptive title "First
Mortgage Bonds" (the "2013 Bonds, Series D" and, together with the 2008 Bonds,
Series C, the "Exchange Bonds"), the bonds of which series are to be issued as
registered bonds without coupons and are to bear interest at the rate per annum
specified in the title thereof and are to mature April 15, 2013; and
WHEREAS, each of the registered bonds without coupons of 2008
Bonds, Series A, and the Trustee's Authentication Certificate thereon, each of
the registered bonds without coupons of the 2013 Bonds, Series B, and the
Trustee's Authentication Certificate thereon, each of the registered bonds
without coupons of the 2008 Bonds, Series C, and the Trustee's Authentication
Certificate thereon, and each of the registered bonds without coupons of the
2013 Bonds, Series D are to be substantially in the following forms,
respectively, to wit:
3
[FORM OF REGISTERED BOND OF THE 2008 BONDS, SERIES A]
[FACE]
THIS BOND IS A GLOBAL BOND REGISTERED IN THE NAME OF THE
DEPOSITARY (REFERRED TO HEREIN) OR A NOMINEE THEREOF AND, UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL BONDS REPRESENTED HEREBY, THIS
GLOBAL BOND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
GLOBAL BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK), A NEW YORK CORPORATION (THE
"DEPOSITARY"), TO THE TRUSTEE FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY) ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THE BONDS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
(5) TO CONSUMERS ENERGY COMPANY OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES.
4
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
4.25% SERIES DUE 2008, SERIES A
CUSIP: [210518BPO/U21010AF7] $250,000,000
ISIN: [US210518BPOO/USU21010AF75]
No.: ________________
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to Cede & Co.,
or registered assigns, the principal sum of Two Hundred Fifty Million Dollars
($250,000,000) on April 15, 2008, and to pay to the registered holder hereof
interest on said sum from the latest semi-annual interest payment date to which
interest has been paid on the bonds of this series preceding the date hereof,
unless the date hereof be an interest payment date to which interest is being
paid, in which case from the date hereof, or unless the date hereof is prior to
October 15, 2003, in which case from April 30, 2003 (or if this bond is dated
between the record date for any interest payment date and such interest payment
date, then from such interest payment date, provided, however, that if the
Company shall default in payment of the interest due on such interest payment
date, then from the next preceding semi-annual interest payment date to which
interest has been paid on the bonds of this series, or if such interest payment
date is October 15, 2003, from April 30, 2003), at the rate per annum, until the
principal hereof shall have become due and payable, specified in the title of
this bond, payable on October 15 and April 15 in each year. If the Company does
not comply with certain of its obligations under the Registration Rights
Agreement entered into by the Company as of April 30, 2003, (in which case the
Company shall notify the Trustee thereof), the bonds of this series shall, in
accordance with Section 5 of such Registration Rights Agreement, bear additional
interest ("Additional Interest") in addition to the interest provided for in the
immediately preceding sentence. For purposes of the bonds of this series, the
term "interest" shall be deemed to include interest provided for in the second
immediately preceding sentence and Additional Interest, if any.
The provisions of this bond are continued on the reverse
hereof and such continued provisions shall for all purposes have the same effect
as though fully set forth at this place.
This bond shall not be valid or become obligatory for any
purpose unless and until it shall have been authenticated by the execution by
the Trustee or its successor in trust under the Indenture of the certificate
hereon.
5
IN WITNESS WHEREOF, Consumers Energy Company has caused this
bond to be executed in its name by its Chairman of the Board, its President or
one of its Vice Presidents by his or her signature or a facsimile thereof, and
its corporate seal or a facsimile thereof to be affixed hereto or imprinted
hereon and attested by its Secretary or one of its Assistant Secretaries by his
or her signature or a facsimile thereof.
CONSUMERS ENERGY COMPANY
Dated:
By: __________________________
Printed: __________________________
Title: __________________________
Attest: _________________________
TRUSTEE'S AUTHENTICATION CERTIFICATE
This is one of the bonds, of the series designated therein,
described in the within-mentioned Indenture.
JPMORGAN CHASE BANK, Trustee
By: _______________________________
Authorized Officer
[REVERSE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
4.25% SERIES DUE 2008, SERIES A
The interest payable on any October 15 or April 15 will,
subject to certain exceptions provided in the Indenture hereinafter mentioned,
be paid to the person in whose name this bond is registered at the close of
business on the record date, which shall be the first calendar day of the month
next preceding such interest payment date, or, if such October 15 or April 15
shall be a legal holiday or a day on which banking institutions in the Borough
of Manhattan, The City of New York, are authorized to close, the next preceding
day which shall not be a legal holiday or a day on which such institutions are
so authorized to close. The principal of and the premium, if any, and interest
on this bond shall be payable at the office or agency of the Company in the
Borough of Manhattan, The City of New York, designated for that purpose, in any
coin or currency of the United States of America which at the time of payment is
legal tender for public and private debts.
6
This bond is one of the bonds of a series designated as First
Mortgage Bonds, 4.25% Series due 2008, Series A (sometimes herein referred to as
the "2008 Bonds, Series A" or the "Bonds") issued and to be issued from time to
time under and in accordance with and secured by an indenture dated as of
September 1, 1945, given by the Company (or its predecessor, Consumers Power
Company, a Maine corporation) to City Bank Farmers Trust Company (JPMorgan Chase
Bank, successor) (hereinafter sometimes referred to as the "Trustee"), together
with indentures supplemental thereto, heretofore or hereafter executed, to which
indenture and indentures supplemental thereto (hereinafter referred to
collectively as the "Indenture") reference is hereby made for a description of
the property mortgaged and pledged, the nature and extent of the security and
the rights, duties and immunities thereunder of the Trustee and the rights of
the holders of said bonds and of the Trustee and of the Company in respect of
such security, and the limitations on such rights. By the terms of the
Indenture, the bonds to be secured thereby are issuable in series which may vary
as to date, amount, date of maturity, rate of interest and in other respects as
provided in the Indenture.
The 2008 Bonds, Series A are redeemable upon notice given by
mailing the same, postage prepaid, not less than thirty days nor more than sixty
days prior to the date fixed for redemption to each registered holder of a bond
to be redeemed (in whole or in part) at the last address of such holder
appearing on the registry books. Any or all of the bonds of this series may be
redeemed by the Company, at any time and from time to time prior to maturity, at
a redemption price equal to the greater of (1) 100% of the principal amount of
the Bonds and (2) the sum of the present values of the Remaining Scheduled
Payments (as defined below) of principal and interest on the Bonds discounted to
the redemption date semiannually (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate (as defined below), plus 20 basis points,
plus in either case accrued interest on the Bonds to the date of redemption.
"Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as defined below), assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price (as defined below) for such redemption
date.
"Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker (as defined below) as
having a maturity comparable to the remaining term of the Bonds to be redeemed
that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Bonds.
"Independent Investment Banker" means either Banc One Capital
Markets, Inc., Barclays Capital Inc., J.P. Morgan Securities Inc. and Wachovia
Securities, Inc. or, if such firms are unwilling or unable to select the
Comparable Treasury Issues, an independent banking institution of national
standing selected by the Company.
"Comparable Treasury Price" means, with respect to any
redemption date, (1) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal
7
Reserve Bank of New York and designated "H.15(519)" or (2) if such release (or
any successor release) is not published or does not contain such prices on such
business day, (a) the average of the Reference Treasury Dealer Quotations (as
defined below) for such redemption date, after excluding the highest and lowest
of such Reference Treasury Dealer Quotations, or (b) if the Company obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such quotations.
"Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer (as defined below) and any redemption date, the
average, as determined by the Company, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Company by such Reference Treasury
Dealer at 5:00 p.m. on the third business day preceding such redemption date.
"Reference Treasury Dealer" means (1) each of Banc One Capital
Markets, Inc., Barclays Capital Inc., J.P. Morgan Securities Inc. and Wachovia
Securities, Inc. and their respective successors; provided, however, that if any
of the foregoing shall cease to be a primary U.S. government securities dealer
in New York City (a "Primary Treasury Dealer"), the Company shall replace that
former dealer with another Primary Treasury Dealer and (2) up to four other
Primary Treasury Dealers selected by the Company.
"Remaining Scheduled Payments" means, with respect to each
Bond to be redeemed, the remaining scheduled payments of the principal thereof
and interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if that redemption date is prior to an
interest payment date with respect to such Bond, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to that redemption date.
In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof or reduce any premium payable on the redemption hereof, or (b)
permit the creation of any lien, not otherwise permitted, prior to or on a
parity with the lien of the Indenture, or (c) reduce the
8
percentage of the principal amount of the bonds upon the approval or consent of
the holders of which modifications or alterations may be made as aforesaid.
The Company reserves the right, without any consent, vote or
other action by holders of the 2008 Bonds, Series A or any other series created
after the Sixty-eighth Supplemental Indenture to amend the Indenture to reduce
the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than any supplemental
indenture which is subject to the proviso contained in the immediately preceding
sentence) (a) from not less than seventy-five per centum (including sixty per
centum of each series affected) to not less than a majority in principal amount
of the bonds at the time outstanding or (b) in case fewer than all series are
affected, not less than a majority in principal amount of the bonds of all
affected series, voting together.
No recourse shall be had for the payment of the principal of
or premium, if any, or interest on this bond, or for any claim based hereon, or
otherwise in respect hereof or of the Indenture, to or against any incorporator,
stockholder, director or officer, past, present or future, as such, of the
Company, or of any predecessor or successor company, either directly or through
the Company, or such predecessor or successor company, or otherwise, under any
constitution or statute or rule of law, or by the enforcement of any assessment
or penalty, or otherwise, all such liability of incorporators, stockholders,
directors and officers, as such, being waived and released by the holder and
owner hereof by the acceptance of this bond and being likewise waived and
released by the terms of the Indenture.
[END OF FORM OF REGISTERED BOND OF THE 2008 BONDS, SERIES A]
[FORM OF REGISTERED BOND OF THE 2013 BONDS, SERIES B]
[FACE]
THIS BOND IS A GLOBAL BOND REGISTERED IN THE NAME OF THE
DEPOSITARY (REFERRED TO HEREIN) OR A NOMINEE THEREOF AND, UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL BONDS REPRESENTED HEREBY, THIS
GLOBAL BOND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
GLOBAL BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK), A NEW YORK CORPORATION (THE
"DEPOSITARY"), TO THE TRUSTEE FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED
9
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY) ANY TRANSFER, PLEDGE OR OTHER
USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE
REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE BONDS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHO
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR
FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (2) IN AN OFFSHORE
TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
(5) TO CONSUMERS ENERGY COMPANY OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE
SECURITIES LAWS OF THE STATES OF THE UNITED STATES.
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
5.375% SERIES DUE 2013, SERIES B
CUSIP: [210518BQ8/U21010AG5] $375,000,000
ISIN: [US210518BQ82/USU21010AG58]
No.: ________________
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to Cede & Co.,
or registered assigns, the principal sum of Three Hundred Seventy Five Million
Dollars ($375,000,000) on April 15, 2013 and to pay to the registered holder
hereof interest on said sum from the latest semi-annual interest payment date to
which interest has been paid on the bonds of this series preceding the date
hereof, unless the date hereof be an interest payment date to which interest is
being paid, in which case from the date hereof, or unless the date hereof is
prior to October 15, 2003, in which case from April 30, 2003 (or if this bond is
dated between the record date for any interest payment date and such interest
payment date, then from such interest payment date, provided, however, that if
the Company shall default in payment of the interest due on such interest
payment date, then from the next preceding semi-annual interest payment date to
which interest has been paid on the bonds of this series, or if such interest
payment date is October 15, 2003, from April 30, 2003), at the rate per annum,
until the principal hereof shall have become
10
due and payable, specified in the title of this bond, payable on October 15 and
April 15 in each year. If the Company does not comply with certain of its
obligations under the Registration Rights Agreement entered into by the Company
as of April 30, 2003, (in which case the Company shall notify the Trustee
thereof), the bonds of this series shall, in accordance with Section 5 of such
Registration Rights Agreement, bear additional interest ("Additional Interest")
in addition to the interest provided for in the immediately preceding sentence.
For purposes of the bonds of this series, the term "interest" shall be deemed to
include interest provided for in the second immediately preceding sentence and
Additional Interest, if any.
The provisions of this bond are continued on the reverse
hereof and such continued provisions shall for all purposes have the same effect
as though fully set forth at this place.
This bond shall not be valid or become obligatory for any
purpose unless and until it shall have been authenticated by the execution by
the Trustee or its successor in trust under the Indenture of the certificate
hereon.
IN WITNESS WHEREOF, Consumers Energy Company has caused this
bond to be executed in its name by its Chairman of the Board, its President or
one of its Vice Presidents by his or her signature or a facsimile thereof, and
its corporate seal or a facsimile thereof to be affixed hereto or imprinted
hereon and attested by its Secretary or one of its Assistant Secretaries by his
or her signature or a facsimile thereof.
CONSUMERS ENERGY COMPANY
Dated:
By: _________________________________
Printed: ____________________________
Title: ______________________________
Attest: _________________________
TRUSTEE'S AUTHENTICATION CERTIFICATE
This is one of the bonds, of the series designated therein,
described in the within-mentioned Indenture.
JPMORGAN CHASE BANK, Trustee
By: _______________________________
Authorized Officer
11
[REVERSE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
5.375% SERIES DUE 2013, SERIES B
The interest payable on any October 15 or April 15 will,
subject to certain exceptions provided in the Indenture hereinafter mentioned,
be paid to the person in whose name this bond is registered at the close of
business on the record date, which shall be the first calendar day of the month
next preceding such interest payment date, or, if such October 15 or April 15
shall be a legal holiday or a day on which banking institutions in the Borough
of Manhattan, The City of New York, are authorized to close, the next preceding
day which shall not be a legal holiday or a day on which such institutions are
so authorized to close. The principal of and the premium, if any, and interest
on this bond shall be payable at the office or agency of the Company in the
Borough of Manhattan, The City of New York, designated for that purpose, in any
coin or currency of the United States of America which at the time of payment is
legal tender for public and private debts.
This bond is one of the bonds of a series designated as First
Mortgage Bonds, 5.375% Series due 2013, Series B (sometimes herein referred to
as the "2013 Bonds, Series B" or the "Bonds") issued and to be issued from time
to time under and in accordance with and secured by an indenture dated as of
September 1, 1945, given by the Company (or its predecessor, Consumers Power
Company, a Maine corporation) to City Bank Farmers Trust Company (JPMorgan Chase
Bank, successor) (hereinafter sometimes referred to as the "Trustee"), together
with indentures supplemental thereto, heretofore or hereafter executed, to which
indenture and indentures supplemental thereto (hereinafter referred to
collectively as the "Indenture") reference is hereby made for a description of
the property mortgaged and pledged, the nature and extent of the security and
the rights, duties and immunities thereunder of the Trustee and the rights of
the holders of said bonds and of the Trustee and of the Company in respect of
such security, and the limitations on such rights. By the terms of the
Indenture, the bonds to be secured thereby are issuable in series which may vary
as to date, amount, date of maturity, rate of interest and in other respects as
provided in the Indenture.
The 2013 Bonds, Series B are redeemable upon notice given by
mailing the same, postage prepaid, not less than thirty days nor more than sixty
days prior to the date fixed for redemption to each registered holder of a bond
to be redeemed (in whole or in part) at the last address of such holder
appearing on the registry books. Any or all of the bonds of this series may be
redeemed by the Company, at any time and from time to time prior to maturity, at
a redemption price equal to the greater of (1) 100% of the principal amount of
the Bonds and (2) the sum of the present values of the Remaining Scheduled
Payments (as defined below) of principal and interest on the Bonds discounted to
the redemption date semiannually (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate (as defined below), plus 25 basis points,
plus in either case accrued interest on the Bonds to the date of redemption.
"Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as
12
defined below), assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price (as
defined below) for such redemption date.
"Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker (as defined below) as
having a maturity comparable to the remaining term of the Bonds to be redeemed
that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Bonds.
"Independent Investment Banker" means either Banc One Capital
Markets, Inc., Barclays Capital Inc., J.P. Morgan Securities Inc. and Wachovia
Securities, Inc. or, if such firms are unwilling or unable to select the
Comparable Treasury Issues, an independent banking institution of national
standing selected by the Company.
"Comparable Treasury Price" means, with respect to any
redemption date, (1) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "H.15(519)" or (2) if such release (or
any successor release) is not published or does not contain such prices on such
business day, (a) the average of the Reference Treasury Dealer Quotations (as
defined below) for such redemption date, after excluding the highest and lowest
of such Reference Treasury Dealer Quotations, or (b) if the Company obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such quotations.
"Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer (as defined below) and any redemption date, the
average, as determined by the Company, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Company by such Reference Treasury
Dealer at 5:00 p.m. on the third business day preceding such redemption date.
"Reference Treasury Dealer" means (1) each of Banc One Capital
Markets, Inc., Barclays Capital Inc., J.P. Morgan Securities Inc. and Wachovia
Securities, Inc. and their respective successors; provided, however, that if any
of the foregoing shall cease to be a primary U.S. government securities dealer
in New York City (a "Primary Treasury Dealer"), the Company shall replace that
former dealer with another Primary Treasury Dealer and (2) up to four other
Primary Treasury Dealers selected by the Company.
"Remaining Scheduled Payments" means, with respect to each
Bond to be redeemed, the remaining scheduled payments of the principal thereof
and interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if that redemption date is prior to an
interest payment date with respect to such Bond, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to that redemption date.
13
In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof or reduce any premium payable on the redemption hereof, or (b)
permit the creation of any lien, not otherwise permitted, prior to or on a
parity with the lien of the Indenture, or (c) reduce the percentage of the
principal amount of the bonds upon the approval or consent the holders of which
modifications or alterations may be made as aforesaid.
The Company reserves the right, without any consent, vote or
other action by holders of the 2013 Bonds, Series B or any other series created
after the Sixty-eighth Supplemental Indenture to amend the Indenture to reduce
the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than any supplemental
indenture which is subject to the proviso contained in the immediately preceding
sentence) (a) from not less than seventy-five per centum (including sixty per
centum of each series affected) to not less than a majority in principal amount
of the bonds at the time outstanding or (b) in case fewer than all series are
affected, not less than a majority in principal amount of the bonds of all
affected series, voting together.
No recourse shall be had for the payment of the principal of
or premium, if any, or interest on this bond, or for any claim based hereon, or
otherwise in respect hereof or of the Indenture, to or against any incorporator,
stockholder, director or officer, past, present or future, as such, of the
Company, or of any predecessor or successor company, either directly or through
the Company, or such predecessor or successor company, or otherwise, under any
constitution or statute or rule of law, or by the enforcement of any assessment
or penalty, or otherwise, all such liability of incorporators, stockholders,
directors and officers, as such, being waived and released by the holder and
owner hereof by the acceptance of this bond and being likewise waived and
released by the terms of the Indenture.
[END OF FORM OF REGISTERED BOND OF THE 2013 BONDS, SERIES B]
14
[FORM OF REGISTERED BOND OF THE 2008 BONDS, SERIES C]
[FACE]
THIS BOND IS A GLOBAL BOND REGISTERED IN THE NAME OF THE
DEPOSITARY (REFERRED TO HEREIN) OR A NOMINEE THEREOF AND, UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL BONDS REPRESENTED HEREBY, THIS
GLOBAL BOND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
GLOBAL BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK), A NEW YORK CORPORATION (THE
"DEPOSITARY"), TO THE TRUSTEE FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY) ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
4.25% SERIES DUE 2008, SERIES C
CUSIP: __________________ $250,000,000
ISIN: __________________
No.: ________________
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to Cede & Co.,
or registered assigns, the principal sum of Two Hundred Fifty Million Dollars
($250,000,000) on April 15, 2008 and to pay to the registered holder hereof
interest on said sum from the latest semi-annual interest payment date to which
interest has been paid on the bonds of this series preceding the date hereof,
unless the date hereof be an interest payment date to which interest is being
paid, in which case from the date hereof, or unless the date hereof is prior to
October 15, 2003, in which case from April 30, 2003, or unless the date hereof
is after October 15, 2003 but prior to the first date when any interest hereon
has been paid, in which case from the last interest payment date on the
Company's First Mortgage Bonds, 4.25% Series due 2008, Series A, to which
interest has been paid (or if this bond is dated between the record date for any
interest payment date and such interest payment date, then from such interest
payment date, provided, however, that if the
15
Company shall default in payment of the interest due on such interest payment
date, then from the next preceding semi-annual interest payment date to which
interest has been paid on the bonds of this series, or if such interest payment
date is October 15, 2003, from April 30, 2003), at the rate per annum, until the
principal hereof shall have become due and payable, specified in the title of
this bond, payable on October 15 and April 15 in each year.
The provisions of this bond are continued on the reverse
hereof and such continued provisions shall for all purposes have the same effect
as though fully set forth at this place.
This bond shall not be valid or become obligatory for any
purpose unless and until it shall have been authenticated by the execution by
the Trustee or its successor in trust under the Indenture of the certificate
hereon.
IN WITNESS WHEREOF, Consumers Energy Company has caused this
bond to be executed in its name by its Chairman of the Board, its President or
one of its Vice Presidents by his or her signature or a facsimile thereof, and
its corporate seal or a facsimile thereof to be affixed hereto or imprinted
hereon and attested by its Secretary or one of its Assistant Secretaries by his
or her signature or a facsimile thereof.
CONSUMERS ENERGY COMPANY
Dated:
By: __________________________
Printed: __________________________
Title: __________________________
Attest: _________________________
TRUSTEE'S AUTHENTICATION CERTIFICATE
This is one of the bonds, of the series designated therein,
described in the within-mentioned Indenture.
JPMORGAN CHASE BANK, Trustee
By:__________________________________
Authorized Officer
16
[REVERSE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
4.25% SERIES DUE 2008, SERIES C
The interest payable on any October 15 or April 15 will,
subject to certain exceptions provided in the Indenture hereinafter mentioned,
be paid to the person in whose name this bond is registered at the close of
business on the record date, which shall be the first calendar day of the month
next preceding such interest payment date, or, if such October 15 or April 15
shall be a legal holiday or a day on which banking institutions in the Borough
of Manhattan, The City of New York, are authorized to close, the next preceding
day which shall not be a legal holiday or a day on which such institutions are
so authorized to close. The principal of and the premium, if any, and interest
on this bond shall be payable at the office or agency of the Company in the
Borough of Manhattan, The City of New York, designated for that purpose, in any
coin or currency of the United States of America which at the time of payment is
legal tender for public and private debts.
This bond is one of the bonds of a series designated as First
Mortgage Bonds, 4.25% Series due 2008, Series C (sometimes herein referred to as
the "2008 Bonds, Series C" or the "Bonds") issued and to be issued from time to
time under and in accordance with and secured by an indenture dated as of
September 1, 1945, given by the Company (or its predecessor, Consumers Power
Company, a Maine corporation) to City Bank Farmers Trust Company (JPMorgan Chase
Bank, successor) (hereinafter sometimes referred to as the "Trustee"), together
with indentures supplemental thereto, heretofore or hereafter executed, to which
indenture and indentures supplemental thereto (hereinafter referred to
collectively as the "Indenture") reference is hereby made for a description of
the property mortgaged and pledged, the nature and extent of the security and
the rights, duties and immunities thereunder of the Trustee and the rights of
the holders of said bonds and of the Trustee and of the Company in respect of
such security, and the limitations on such rights. By the terms of the
Indenture, the bonds to be secured thereby are issuable in series which may vary
as to date, amount, date of maturity, rate of interest and in other respects as
provided in the Indenture.
The 2008 Bonds, Series C are redeemable upon notice given by
mailing the same, postage prepaid, not less than thirty days nor more than sixty
days prior to the date fixed for redemption to each registered holder of a bond
to be redeemed (in whole or in part) at the last address of such holder
appearing on the registry books. Any or all of the bonds of this series may be
redeemed by the Company, at any time and from time to time prior to maturity, at
a redemption price equal to the greater of (1) 100% of the principal amount of
the Bonds and (2) the sum of the present values of the Remaining Scheduled
Payments (as defined below) of principal and interest on the Bonds discounted to
the redemption date semiannually (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate (as defined below), plus 20 basis points,
plus in either case accrued interest on the Bonds to the date of redemption.
"Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as
17
defined below), assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price (as
defined below) for such redemption date.
"Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker (as defined below) as
having a maturity comparable to the remaining term of the Bonds to be redeemed
that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Bonds.
"Independent Investment Banker" means either Banc One Capital
Markets, Inc., Barclays Capital Inc., J.P. Morgan Securities Inc. and Wachovia
Securities, Inc. or, if such firms are unwilling or unable to select the
Comparable Treasury Issues, an independent banking institution of national
standing selected by the Company.
"Comparable Treasury Price" means, with respect to any
redemption date, (1) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "H.15(519)" or (2) if such release (or
any successor release) is not published or does not contain such prices on such
business day, (a) the average of the Reference Treasury Dealer Quotations (as
defined below) for such redemption date, after excluding the highest and lowest
of such Reference Treasury Dealer Quotations, or (b) if the Company obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such quotations.
"Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer (as defined below) and any redemption date, the
average, as determined by the Company, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Company by such Reference Treasury
Dealer at 5:00 p.m. on the third business day preceding such redemption date.
"Reference Treasury Dealer" means (1) each of Banc One Capital
Markets, Inc., Barclays Capital Inc., J.P. Morgan Securities Inc. and Wachovia
Securities, Inc. and their respective successors; provided, however, that if any
of the foregoing shall cease to be a primary U.S. government securities dealer
in New York City (a "Primary Treasury Dealer"), the Company shall replace that
former dealer with another Primary Treasury Dealer and (2) up to four other
Primary Treasury Dealers selected by the Company.
"Remaining Scheduled Payments" means, with respect to each
Bond to be redeemed, the remaining scheduled payments of the principal thereof
and interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if that redemption date is prior to an
interest payment date with respect to such Bond, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to that redemption date.
18
In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof or reduce any premium payable on the redemption hereof, or (b)
permit the creation of any lien, not otherwise permitted, prior to or on a
parity with the lien of the Indenture, or (c) reduce the percentage of the
principal amount of the bonds upon the approval or consent of the holders of
which modifications or alterations may be made as aforesaid.
The Company reserves the right, without any consent, vote or
other action by holders of the 2008 Bonds, Series C or any other series created
after the Sixty-eighth Supplemental Indenture to amend the Indenture to reduce
the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than any supplemental
indenture which is subject to the proviso contained in the immediately preceding
sentence) (a) from not less than seventy-five per centum (including sixty per
centum of each series affected) to not less than a majority in principal amount
of the bonds at the time outstanding or (b) in case fewer than all series are
affected, not less than a majority in principal amount of the bonds of all
affected series, voting together.
No recourse shall be had for the payment of the principal of
or premium, if any, or interest on this bond, or for any claim based hereon, or
otherwise in respect hereof or of the Indenture, to or against any incorporator,
stockholder, director or officer, past, present or future, as such, of the
Company, or of any predecessor or successor company, either directly or through
the Company, or such predecessor or successor company, or otherwise, under any
constitution or statute or rule of law, or by the enforcement of any assessment
or penalty, or otherwise, all such liability of incorporators, stockholders,
directors and officers, as such, being waived and released by the holder and
owner hereof by the acceptance of this bond and being likewise waived and
released by the terms of the Indenture.
[END OF FORM OF REGISTERED BOND OF THE 2008 BONDS, SERIES C]
19
[FORM OF REGISTERED BOND OF THE 2013 BONDS, SERIES D]
[FACE]
THIS BOND IS A GLOBAL BOND REGISTERED IN THE NAME OF THE
DEPOSITARY (REFERRED TO HEREIN) OR A NOMINEE THEREOF AND, UNLESS AND UNTIL IT IS
EXCHANGED IN WHOLE OR IN PART FOR THE INDIVIDUAL BONDS REPRESENTED HEREBY, THIS
GLOBAL BOND MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A
NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A
SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS
GLOBAL BOND IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (55 WATER STREET, NEW YORK, NEW YORK), A NEW YORK CORPORATION (THE
"DEPOSITARY"), TO THE TRUSTEE FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER
NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY) ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
5.375% SERIES DUE 2013, SERIES D
CUSIP: __________________ $375,000,000
ISIN: __________________
No.: ________________
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter
called the "Company"), for value received, hereby promises to pay to Cede & Co.,
or registered assigns, the principal sum of Three Hundred Seventy Five Million
Dollars ($375,000,000) on April 15, 2013 and to pay to the registered holder
hereof interest on said sum from the latest semi-annual interest payment date to
which interest has been paid on the bonds of this series preceding the date
hereof, unless the date hereof be an interest payment date to which interest is
being paid, in which case from the date hereof, or unless the date hereof is
prior to October 15, 2003, in which case from April 30, 2003 or unless the date
hereof is after October 15, 2003 but prior to the first date when any interest
hereon has been paid, in which case from the last interest payment date on the
Company's First Mortgage Bonds, 5.375% Series due 2013, Series B, to which
interest has been paid (or if this bond is dated between the record date for any
interest payment date and such interest payment date, then from such interest
payment date, provided,
20
however, that if the Company shall default in payment of the interest due on
such interest payment date, then from the next preceding semi-annual interest
payment date to which interest has been paid on the bonds of this series, or if
such interest payment date is October 15, 2003, from April 30, 2003), at the
rate per annum, until the principal hereof shall have become due and payable,
specified in the title of this bond, payable on October 15 and April 15 in each
year.
The provisions of this bond are continued on the reverse
hereof and such continued provisions shall for all purposes have the same effect
as though fully set forth at this place.
This bond shall not be valid or become obligatory for any
purpose unless and until it shall have been authenticated by the execution by
the Trustee or its successor in trust under the Indenture of the certificate
hereon.
IN WITNESS WHEREOF, Consumers Energy Company has caused this
bond to be executed in its name by its Chairman of the Board, its President or
one of its Vice Presidents by his or her signature or a facsimile thereof, and
its corporate seal or a facsimile thereof to be affixed hereto or imprinted
hereon and attested by its Secretary or one of its Assistant Secretaries by his
or her signature or a facsimile thereof.
CONSUMERS ENERGY COMPANY
Dated:
By: __________________________
Printed: __________________________
Title: __________________________
Attest: _________________________
TRUSTEE'S AUTHENTICATION CERTIFICATE
This is one of the bonds, of the series designated therein,
described in the within-mentioned Indenture.
JPMORGAN CHASE BANK, Trustee
By:__________________________________
Authorized Officer
21
[REVERSE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
5.375% SERIES DUE 2013, SERIES D
The interest payable on any October 15 or April 15 will,
subject to certain exceptions provided in the Indenture hereinafter mentioned,
be paid to the person in whose name this bond is registered at the close of
business on the record date, which shall be the first calendar day of the month
next preceding such interest payment date, or, if such October 15 or April 15
shall be a legal holiday or a day on which banking institutions in the Borough
of Manhattan, The City of New York, are authorized to close, the next preceding
day which shall not be a legal holiday or a day on which such institutions are
so authorized to close. The principal of and the premium, if any, and interest
on this bond shall be payable at the office or agency of the Company in the
Borough of Manhattan, The City of New York, designated for that purpose, in any
coin or currency of the United States of America which at the time of payment is
legal tender for public and private debts.
This bond is one of the bonds of a series designated as First
Mortgage Bonds, 5.375% Series due 2013, Series D (sometimes herein referred to
as the "2013 Bonds, Series D" or the "Bonds") issued and to be issued from time
to time under and in accordance with and secured by an indenture dated as of
September 1, 1945, given by the Company (or its predecessor, Consumers Power
Company, a Maine corporation) to City Bank Farmers Trust Company (JPMorgan Chase
Bank, successor) (hereinafter sometimes referred to as the "Trustee"), together
with indentures supplemental thereto, heretofore or hereafter executed, to which
indenture and indentures supplemental thereto (hereinafter referred to
collectively as the "Indenture") reference is hereby made for a description of
the property mortgaged and pledged, the nature and extent of the security and
the rights, duties and immunities thereunder of the Trustee and the rights of
the holders of said bonds and of the Trustee and of the Company in respect of
such security, and the limitations on such rights. By the terms of the
Indenture, the bonds to be secured thereby are issuable in series which may vary
as to date, amount, date of maturity, rate of interest and in other respects as
provided in the Indenture.
The 2013 Bonds, Series D are redeemable upon notice given by
mailing the same, postage prepaid, not less than thirty days but no more than
sixty days prior to the date fixed for redemption to each registered holder of a
bond to be redeemed (in whole or in part) at the last address of such holder
appearing on the registry books. Any or all of the bonds of this series may be
redeemed by the Company, at any time and from time to time prior to maturity, at
a redemption price equal to the greater of (1) 100% of the principal amount of
the Bonds and (2) the sum of the present values of the Remaining Scheduled
Payments (as defined below) of principal and interest on the Bonds discounted to
the redemption date semiannually (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Rate (as defined below), plus 25 basis points,
plus in either case accrued interest on the Bonds to the date of redemption.
"Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as
22
defined below), assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price (as
defined below) for such redemption date.
"Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker (as defined below) as
having a maturity comparable to the remaining term of the Bonds to be redeemed
that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Bonds.
"Independent Investment Banker" means either Banc One Capital
Markets, Inc., Barclays Capital Inc., J.P. Morgan Securities Inc. and Wachovia
Securities, Inc. or, if such firms are unwilling or unable to select the
Comparable Treasury Issues, an independent banking institution of national
standing selected by the Company.
"Comparable Treasury Price" means, with respect to any
redemption date, (1) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "H.15(519)" or (2) if such release (or
any successor release) is not published or does not contain such prices on such
business day, (a) the average of the Reference Treasury Dealer Quotations (as
defined below) for such redemption date, after excluding the highest and lowest
of such Reference Treasury Dealer Quotations, or (b) if the Company obtains
fewer than four such Reference Treasury Dealer Quotations, the average of all
such quotations.
"Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer (as defined below) and any redemption date, the
average, as determined by the Company, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Company by such Reference Treasury
Dealer at 5:00 p.m. on the third business day preceding such redemption date.
"Reference Treasury Dealer" means (1) each of Banc One Capital
Markets, Inc., Barclays Capital Inc., J.P. Morgan Securities Inc. and Wachovia
Securities, Inc. and their respective successors; provided, however, that if any
of the foregoing shall cease to be a primary U.S. government securities dealer
in New York City (a "Primary Treasury Dealer"), the Company shall replace that
former dealer with another Primary Treasury Dealer and (2) up to four other
Primary Treasury Dealers selected by the Company.
"Remaining Scheduled Payments" means, with respect to each
Bond to be redeemed, the remaining scheduled payments of the principal thereof
and interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if that redemption date is prior to an
interest payment date with respect to such Bond, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to that redemption date.
23
In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.
The Indenture contains provisions permitting the Company and
the Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof or reduce any premium payable on the redemption hereof, or (b)
permit the creation of any lien, not otherwise permitted, prior to or on a
parity with the lien of the Indenture, or (c) reduce the percentage of the
principal amount of the bonds upon the approval or consent of the holders of
which modifications or alterations may be made as aforesaid.
The Company reserves the right, without any consent, vote or
other action by holders of the 2013 Bonds, Series D or any other series created
after the Sixty-eighth Supplemental Indenture to amend the Indenture to reduce
the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than any supplemental
indenture which is subject to the proviso contained in the immediately preceding
sentence) (a) from not less than seventy-five per centum (including sixty per
centum of each series affected) to not less than a majority in principal amount
of the bonds at the time outstanding or (b) in case fewer than all series are
affected, not less than a majority in principal amount of the bonds of all
affected series, voting together.
No recourse shall be had for the payment of the principal of
or premium, if any, or interest on this bond, or for any claim based hereon, or
otherwise in respect hereof or of the Indenture, to or against any incorporator,
stockholder, director or officer, past, present or future, as such, of the
Company, or of any predecessor or successor company, either directly or through
the Company, or such predecessor or successor company, or otherwise, under any
constitution or statute or rule of law, or by the enforcement of any assessment
or penalty, or otherwise, all such liability of incorporators, stockholders,
directors and officers, as such, being waived and released by the holder and
owner hereof by the acceptance of this bond and being likewise waived and
released by the terms of the Indenture.
[END OF FORM OF REGISTERED BOND OF THE 2013 BONDS, SERIES D]
24
AND WHEREAS all acts and things necessary to make the 2008
Bonds, Series A, the 2013 Bonds, Series B, the 2008 Bonds, Series C and the 2013
Bonds, Series D (collectively referred to herein as the "Bonds"), when duly
executed by the Company and authenticated by the Trustee or its agent and issued
as prescribed in the Indenture, as heretofore supplemented and amended, this
Supplemental Indenture, the valid, binding and legal obligations of the Company,
and to constitute the Indenture, as supplemented and amended as aforesaid, as
well as by this Supplemental Indenture, a valid, binding and legal instrument
for the security thereof, have been done and performed, and the creation,
execution and delivery of this Supplemental Indenture and the creation,
execution and issuance of bonds subject to the terms hereof and of the
Indenture, as so supplemented and amended, have in all respects been duly
authorized;
NOW, THEREFORE, in consideration of the premises, of the
acceptance and purchase by the holders thereof of the bonds issued and to be
issued under the Indenture, as supplemented and amended as above set forth, duly
paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$250,000,000 principal amount of the 2008 Bonds, Series A, the $375,000,000
principal amount of the 2013 Bonds, Series B and of the Exchange Bonds, if
issued, and all other bonds which shall be issued under the Indenture, as
supplemented and amended from time to time, and for the purpose of securing the
faithful performance and observance of all covenants and conditions therein, and
in any indenture supplemental thereto, set forth, the Company has given,
granted, bargained, sold, released, transferred, assigned, hypothecated,
pledged, mortgaged, confirmed, set over, warranted, alienated and conveyed and
by these presents does give, grant, bargain, sell, release, transfer, assign,
hypothecate, pledge, mortgage, confirm, set over, warrant, alienate and convey
unto JPMorgan Chase Bank, as Trustee, as provided in the Indenture, and its
successor or successors in the trust thereby and hereby created and to its or
their assigns forever, all the right, title and interest of the Company in and
to all the property, described in Section 13 hereof, together (subject to the
provisions of Article X of the Indenture) with the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, excepting, however, the
property, interests and rights specifically excepted from the lien of the
Indenture as set forth in the Indenture;
TOGETHER WITH all and singular the tenements, hereditaments
and appurtenances belonging or in any wise appertaining to the premises,
property, franchises and rights, or any thereof, referred to in the foregoing
granting clause, with the reversion and reversions, remainder and remainders and
(subject to the provisions of Article X of the Indenture) the tolls, rents,
revenues, issues, earnings, income, products and profits thereof, and all the
estate, right, title and interest and claim whatsoever, at law as well as in
equity, which the Company now has or may hereafter acquire in and to the
aforesaid premises, property, franchises and rights and every part and parcel
thereof;
SUBJECT, HOWEVER, with respect to such premises, property,
franchises and rights, to excepted encumbrances as said term is defined in
Section 1.02 of the Indenture, and subject also to all defects and limitations
of title and to all encumbrances existing at the time of acquisition.
25
TO HAVE AND TO HOLD all said premises, property, franchises
and rights hereby conveyed, assigned, pledged or mortgaged, or intended so to
be, unto the Trustee, its successor or successors in trust and their assigns
forever;
BUT IN TRUST, NEVERTHELESS, with power of sale for the equal
and proportionate benefit and security of the holders of all bonds now or
hereafter authenticated and delivered under and secured by the Indenture and
interest coupons appurtenant thereto, pursuant to the provisions of the
Indenture and of any supplemental indenture, and for the enforcement of the
payment of said bonds and coupons when payable and the performance of and
compliance with the covenants and conditions of the Indenture and of any
supplemental indenture, without any preference, distinction or priority as to
lien or otherwise of any bond or bonds over others by reason of the difference
in time of the actual authentication, delivery, issue, sale or negotiation
thereof or for any other reason whatsoever, except as otherwise expressly
provided in the Indenture; and so that each and every bond now or hereafter
authenticated and delivered thereunder shall have the same lien, and so that the
principal of and premium, if any, and interest on every such bond shall, subject
to the terms thereof, be equally and proportionately secured, as if it had been
made, executed, authenticated, delivered, sold and negotiated simultaneously
with the execution and delivery thereof;
AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as supplemented
and amended as above set forth, are to be issued, authenticated and delivered,
and all said premises, property, franchises and rights hereby and by the
Indenture and indentures supplemental thereto conveyed, assigned, pledged or
mortgaged, or intended so to be, are to be dealt with and disposed of under,
upon and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes expressed in the Indenture, as supplemented and
amended as above set forth, and the parties hereto mutually agree as follows:
SECTION 1. There is hereby created one series of bonds (the
2008 Bonds, Series A) designated as hereinabove provided, which shall also bear
the descriptive title "First Mortgage Bond", and the form thereof shall be
substantially as hereinbefore set forth. The 2008 Bonds, Series A shall be
issued in the aggregate principal amount of $250,000,000, shall mature on April
15, 2008 and shall be issued only as registered bonds without coupons in
denominations of $1,000 and any multiple thereof. The serial numbers of the 2008
Bonds, Series A shall be such as may be approved by any officer of the Company,
the execution thereof by any such officer either manually or by facsimile
signature to be conclusive evidence of such approval. The 2008 Bonds, Series A
shall bear interest at the rate per annum, until the principal thereof shall
have become due and payable, specified in the title thereto, payable
semi-annually on October 15 and April 15 in each year. If the Company does not
comply with certain of its obligations under the Registration Rights Agreement,
(in which case the Company shall notify the Trustee thereof), the 2008 Bonds,
Series A shall, in accordance with Section 5 of the Registration Rights
Agreement, bear additional interest ("Additional Interest") in addition to the
interest provided for in the immediately preceding sentence. For purposes of
this Supplemental Indenture and the 2008 Bonds, Series A, the term "interest"
shall be deemed to include interest provided for in the second immediately
preceding sentence and Additional Interest, if any. The principal of and the
premium, if any, and the interest on said bonds shall be payable in any coin or
currency of the United States of America which at the time of payment is legal
tender for
26
public and private debts, at the office or agency of the Company in the City of
New York, designated for that purpose.
SECTION 2. There is hereby created one series of bonds (the
2013 Bonds, Series B) designated as hereinabove provided, which shall also bear
the descriptive title "First Mortgage Bond", and the form thereof shall be
substantially as hereinbefore set forth. The 2013 Bonds, Series B shall be
issued in the aggregate principal amount of $375,000,000, shall mature on April
15, 2013 and shall be issued only as registered bonds without coupons in
denominations of $1,000 and any multiple thereof. The serial numbers of the 2013
Bonds, Series B shall be such as may be approved by any officer of the Company,
the execution thereof by any such officer either manually or by facsimile
signature to be conclusive evidence of such approval. The 2013 Bonds, Series B
shall bear interest at the rate per annum, until the principal thereof shall
have become due and payable, specified in the title thereto, payable
semi-annually on October 15 and April 15 in each year. If the Company does not
comply with certain of its obligations under the Registration Rights Agreement,
(in which case the Company shall notify the Trustee thereof), the 2013 Bonds,
Series B shall, in accordance with Section 5 of the Registration Rights
Agreement, bear Additional Interest in addition to the interest provided for in
the immediately preceding sentence. For purposes of this Supplemental Indenture
and the 2013 Bonds, Series B, the term "interest" shall be deemed to include
interest provided for in the second immediately preceding sentence and
Additional Interest, if any. The principal of and the premium, if any, and the
interest on said bonds shall be payable in any coin or currency of the United
States of America which at the time of payment is legal tender for public and
private debts, at the office or agency of the Company in the City of New York,
designated for that purpose.
SECTION 3. The Company and the Initial Purchasers have entered
into the Registration Rights Agreement. The Registration Rights Agreement
provides the 2008 Bonds, Series A and the 2013 Bonds, Series B that are issued
and sold without registration under the Securities Act may be exchanged for the
2008 Bonds, Series C and the 2013 Bonds, Series D, respectively, each of which
will be registered under the Securities Act and that will otherwise have
substantially the same terms as the 2008 Bonds, Series A and the 2013 Bonds,
Series B, respectively. In the event such exchange does not occur, the Company
is required to cause a Shelf Registration Statement as defined in and pursuant
to the Registration Rights Agreement to be declared effective with respect to
the 2008 Bonds, Series A and/or the 2013 Bonds, Series B.
SECTION 4. Terms of Bonds.
4.01 Form of Bonds.
(a) The 2008 Bonds, Series A and the 2013 Bonds, Series B
offered and sold to a Qualified Institutional Buyer (within the meaning of Rule
144A under the Securities Act) in reliance on Rule 144A under the Securities Act
("Rule 144A") or in reliance on Regulation S under the Securities Act
("Regulation S"), in each case as provided in the Purchase Agreement, shall in
each case be issued initially in the form of one or more permanent Global Bonds
in definitive, fully registered form without interest coupons with the global
securities legend and restricted securities legend set forth in Section 4.02(b)
hereof (each, a "Restricted Global Bond"), which shall be deposited on behalf of
the purchasers of the Initial Bonds represented thereby
27
with the Trustee, at its corporate trust office, as securities custodian (or
with such other securities custodian as the Depository (as defined below) may
direct), and registered in the name of the Depository or a nominee of the
Depository, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Global Bonds may
from time to time be increased or decreased by adjustments made on the records
of the Trustee and the Depository or its nominee as hereinafter provided.
Exchange Bonds shall be issued in global form. Exchange Bonds issued in global
form and Restricted Global Bonds are sometimes referred to in this Supplemental
Indenture as "Global Bonds." The Depositary for the Global Bonds shall be The
Depository Trust Company, a New York corporation, or its duly appointed
successor (the "Depository").
(b) This Section 4.01(b) shall apply only to a Global
Bond deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in the case
of each of the 2008 Bonds, Series A, the 2013 Bonds, Series B, the 2008 Bonds,
Series C and the 2013 Bonds, Series D, in accordance with this Section 4.01(b),
authenticate and deliver initially one or more Global Bonds that (a) shall be
registered in the name of the Depository or the nominee of the Depository and
(b) shall be delivered by the Trustee to the Depository or pursuant to the
Depository's instructions or held by the Trustee as securities custodian.
Members of, or participants in, the Depository ("Agent
Members") shall have no rights under this Supplemental Indenture with respect to
any Global Bond held on their behalf by the Depository or by the Trustee as the
securities custodian or under such Global Bond, and the Company, the Trustee and
any agent of the Company or the Trustee shall be entitled to treat the
Depository as the absolute owner of such Global Bond for all purposes
whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the
Company, the Trustee or any agent of the Company from giving effect to any
written certification, proxy or other authorization furnished by the Depository
or impair, as between the Depository and its Agent Members, the operation of
customary practices of such Depository governing the exercise of the rights of a
holder of a beneficial interest in any Global Bond.
(c) Except as provided in this Section 4.01, Section 4.02
or Section 4.03, owners of beneficial interests in Restricted Global Bonds shall
not be entitled to receive physical delivery of certificated Bonds.
4.02 Transfer and Exchange.
(a) Transfer and Exchange of Global Bonds.
(i) The transfer and exchange of Global Bonds or
beneficial interests therein shall be effected through the Depository,
in accordance with this Supplemental Indenture (including applicable
restrictions on transfer set forth herein, if any) and the procedures
of the Depository therefor.
(ii) Notwithstanding any other provision of this
Supplemental Indenture (other than the provisions set forth in Section
4.03), a Global Bond may not be transferred as a whole except by the
Depository to a nominee of the Depository or by a
28
nominee of the Depository to the Depository or another nominee of the
Depository or by the Depository or any such nominee to a successor
Depository or a nominee of such successor Depository.
(iii) In the event that a Restricted Global Bond
is exchanged for Bonds in certificated registered form pursuant to
Section 4.03 prior to the consummation of a registered exchange offer
or the effectiveness of a Shelf Registration Statement (as defined in
the Registration Rights Agreement) with respect to such Initial Bonds,
such Restricted Global Bond may be exchanged only in accordance with
such procedures as are substantially consistent with the provisions of
this Section 4.02 and such other procedures as may from time to time be
adopted by the Company; provided, however, the Trustee shall be
notified of such event.
(b) Legend.
(i) Except as permitted by the following
paragraphs (ii), (iii) and (iv), each Bond certificate evidencing a
Transfer Restricted Security (as defined in the Registration Rights
Agreement) shall bear a legend in substantially the following form:
THE BONDS EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") AND MAY NOT
BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A
PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE
144A UNDER THE SECURITIES ACT, (2) IN AN OFFSHORE TRANSACTION COMPLYING
WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, (5) TO CONSUMERS ENERGY COMPANY OR (6) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE
WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES.
(ii) Upon any sale or transfer of a Transfer
Restricted Security (as defined in the Registration Rights Agreement)
(including any Transfer Restricted Security (as defined in the
Registration Rights Agreement) represented by a Restricted Global Bond)
pursuant to Rule 144, the security registrar shall, subject to approval
by the Company, permit the transferee thereof to exchange such Transfer
Restricted Security (as defined in the Registration Rights Agreement)
for a certificated Bond that does not bear the legend set forth above
and rescind any restriction on the transfer of such Transfer Restricted
Security (as defined in the Registration Rights Agreement), if the
transferor
29
thereof certifies in writing to the security registrar that such sale
or transfer was made in reliance on Rule 144.
(iii) After a transfer of any Initial Bonds
pursuant to and during the period of the effectiveness of a Shelf
Registration Statement (as defined in the Registration Rights
Agreement) with respect to such Initial Bonds all requirements
pertaining to legends on such Initial Bonds with respect to such Bonds
transferred will cease to apply and Initial Bonds in global form,
without restrictive transfer legends, will be available to the
transferee of the holder of such Initial Bonds upon written directions
to transfer such holder's interest in the Global Bond.
(iv) Upon the consummation of a registered
exchange offer with respect to the Initial Bonds, Exchange Bonds in
global form will be available to holders that exchange such Initial
Bonds in such registered exchange offer.
(c) Cancellation or Adjustment of Global Bond. At such
time as all beneficial interests in a Global Bond have either been exchanged for
certificated Bonds, redeemed, purchased or canceled, such Global Bond shall be
canceled by the Trustee. At any time prior to such cancellation, if any
beneficial interest in a Global Bond is exchanged for certificated Bonds,
redeemed, purchased or canceled, the principal amount of Bonds represented by
such Global Bond shall be reduced and an adjustment shall be made on the books
and records of the securities custodian with respect to such Global Bond.
(d) Obligations with Respect to Transfers and Exchanges
of Bonds.
(i) To permit registrations of transfers and
exchanges, the Company shall execute and the Trustee shall authenticate
certificated Bonds and Global Bonds at the security registrar's
request.
(ii) No service charge shall be made for
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any transfer tax, assessments or
similar governmental charge payable in connection therewith.
(iii) Prior to the due presentation for
registration of transfer of any Bond, the Company, the Trustee, the
paying agent or the security registrar may deem and treat the person in
whose name a Bond is registered as the absolute owner of such Bond for
the purpose of receiving payment of principal of and interest on such
Bond and for all other purposes whatsoever, whether or not such Bond is
overdue, and none of the Company, the Trustee, the paying agent or the
security registrar shall be affected by notice to the contrary.
(iv) All Bonds issued upon any transfer or
exchange pursuant to the terms of the Indenture shall evidence the same
debt and shall be entitled to the same benefits under the Indenture as
the Bonds surrendered upon such transfer or exchange.
30
(e) No Obligation of Trustee.
(i) The Trustee (whether in its capacity as
Trustee or otherwise) shall have no responsibility or obligation to any
beneficial owner of a Global Bond, Agent Member or other person with
respect to the accuracy of the records of the Depository or its nominee
or of any Agent Member, with respect to any ownership interest in the
Bonds or with respect to the delivery to any Agent Member, beneficial
owner or other person (other than the Depository) of any notice
(including any notice of redemption) or the payment of any amount,
under or with respect to such Bonds. All notices and communications to
be given to the holders and all payments to be made to holders under
the Bonds shall be given or made only to or upon the order of the
registered holders (which shall be the Depository or its nominee in the
case of a Global Bond). The rights of beneficial owners in any Global
Bond shall be exercised only through the Depository subject to the
applicable rules and procedures of the Depository. The Trustee may rely
and shall be fully protected in relying upon information furnished by
the Depository with respect to its Agent Members and any beneficial
owners.
(ii) The Trustee shall have no obligation or duty
to monitor, determine or inquire as to compliance with any restrictions
on transfer imposed under this Supplemental Indenture or under
applicable law with respect to any transfer of any interest in any Bond
(including any transfers between or among Agent Members or beneficial
owners in any Global Bond) other than to require delivery of such
certificates and other documentation or evidence as are expressly
required by, and to do so if and when expressly required by, the terms
of the Indenture.
4.03 Certificated Bonds.
(a) A Global Bond deposited with the Depository or with
the Trustee as securities custodian pursuant to Section 4.01 shall be
transferred to the beneficial owners thereof in the form of certificated Bonds
in an aggregate principal amount equal to the principal amount of such Global
Bond, in exchange for such Global Bond, only if such transfer complies with this
Section 4.03 and the conditions set forth in Article II of the Indenture.
(b) Any Global Bond that is transferable to the
beneficial owners thereof pursuant to this Section 4.03 shall be surrendered by
the Depository to the Trustee at its corporate trust office to be so
transferred, in whole or from time to time in part, without charge, and the
Trustee shall authenticate and deliver, upon such transfer of each portion of
such Global Bond, an equal aggregate principal amount of certificated Bonds of
authorized denominations. Any portion of a Global Bond transferred pursuant to
this Section 4.03 shall be executed, authenticated and delivered only in
denominations of $1,000 principal amount and any integral multiple thereof and
registered in such names as the Depository shall direct. Any certificated
Initial Bond delivered in exchange for an interest in the Global Bond shall bear
the restricted securities legend set forth in Section 4.02(b) hereof.
(c) Subject to the provisions of Section 4.03(b), the
registered holder of a Global Bond shall be entitled to grant proxies and
otherwise authorize any person, including
31
Agent Members and persons that may hold interests through Agent Members, to take
any action which a holder is entitled to take under the Indenture or the Bonds.
4.04 Issuance of Exchange Bonds. The Trustee shall not
authenticate the 2008 Bonds, Series C or the 2013 Bonds, Series D for issuance
until (i) such bonds are issued in principal amount equal to the principal
amount of retired 2008 Bonds, Series A and 2013 Bonds, Series B, respectively,
made the basis for such issuance in accordance with Article V of the Indenture
and (ii) the Trustee shall have received (or shall receive concurrently with the
granting of the application of the Company for the authentication and delivery
by the Trustee of such bonds) the documents required by Article V of the
Indenture.
SECTION 5. The 2008 Bonds, Series A, the 2013 Bonds, Series B,
the 2008 Bonds, Series C and the 2013 Bonds, Series D, are redeemable upon
notice given by mailing the same, postage prepaid, not less than thirty days nor
more than sixty days prior to the date fixed for redemption to each registered
holder of a bond to be redeemed (in whole or in part) at the last address of
such holder appearing on the registry books. Any or all of the bonds of this
series may be redeemed by the Company, at any time and from time to time prior
to maturity, at a redemption price equal to the greater of (1) 100% of the
principal amount of the Bonds and (2) the sum of the present values of the
Remaining Scheduled Payments (as defined below) of principal and interest on the
Bonds discounted to the redemption date semiannually (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate (as defined below),
plus 20 basis points in the case of 2008 Bonds, Series A or 2008 Bonds, Series
C, or plus 25 basis points in the case of 2013 Bonds, Series B or 2013 Bonds,
Series D, plus in either case accrued interest on the Bonds to the date of
redemption.
"Treasury Rate" means, with respect to any redemption date,
the rate per annum equal to the semiannual equivalent yield to maturity of the
Comparable Treasury Issue (as defined below), assuming a price for the
Comparable Treasury Issue (expressed as a percentage of its principal amount)
equal to the Comparable Treasury Price (as defined below) for such redemption
date.
"Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker (as defined below) as
having a maturity comparable to the remaining term of the Bonds to be redeemed
that would be used, at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt securities of
comparable maturity to the remaining term of the Bonds.
"Independent Investment Banker" means either Banc One Capital
Markets, Inc., Barclays Capital Inc., J.P. Morgan Securities Inc. and Wachovia
Securities, Inc. or, if such firms are unwilling or unable to select the
Comparable Treasury Issues, an independent banking institution of national
standing selected by the Company.
"Comparable Treasury Price" means, with respect to any
redemption date, (1) the average of the bid and asked prices for the Comparable
Treasury Issue (expressed in each case as a percentage of its principal amount)
on the third business day preceding such redemption date, as set forth in the
daily statistical release (or any successor release) published by the Federal
Reserve Bank of New York and designated "H.15(519)" or (2) if such release (or
any successor
32
release) is not published or does not contain such prices on such business day,
(a) the average of the Reference Treasury Dealer Quotations (as defined below)
for such redemption date, after excluding the highest and lowest of such
Reference Treasury Dealer Quotations, or (b) if the Company obtains fewer than
four such Reference Treasury Dealer Quotations, the average of all such
quotations.
"Reference Treasury Dealer Quotations" means, with respect to
each Reference Treasury Dealer (as defined below) and any redemption date, the
average, as determined by the Company, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a percentage of its
principal amount) quoted in writing to the Company by such Reference Treasury
Dealer at 5:00 p.m. on the third business day preceding such redemption date.
"Reference Treasury Dealer" means (1) each of Banc One Capital
Markets, Inc., Barclays Capital Inc., J.P. Morgan Securities Inc. and Wachovia
Securities, Inc. and their respective successors; provided, however, that if any
of the foregoing shall cease to be a primary U.S. government securities dealer
in New York City (a "Primary Treasury Dealer"), the Company shall replace that
former dealer with another Primary Treasury Dealer and (2) up to four other
Primary Treasury Dealers selected by the Company.
"Remaining Scheduled Payments" means, with respect to each
Bond to be redeemed, the remaining scheduled payments of the principal thereof
and interest thereon that would be due after the related redemption date but for
such redemption; provided, however, that, if that redemption date is prior to an
interest payment date with respect to such Bond, the amount of the next
succeeding scheduled interest payment thereon will be reduced by the amount of
interest accrued thereon to that redemption date.
SECTION 6. The 2008 Bonds, Series A, the 2013 Bonds, Series B,
the 2008 Bonds, Series C and the 2013 Bonds, Series D are not redeemable by the
operation of the maintenance and replacement provisions of the Indenture or with
the proceeds of released property or in any other manner except as set forth in
Section 5 hereof.
SECTION 7. The Company reserves the right, without any
consent, vote or other action by the holders of the 2008 Bonds, Series A, the
2013 Bonds, Series B, the 2008 Bonds, Series C and the 2013 Bonds, Series D, or
of any subsequent series of bonds issued under the Indenture, to make such
amendments to the Indenture, as supplemented, as shall be necessary in order to
amend Section 17.02 to read as follows:
SECTION 17.02. With the consent of the holders of not less
than a majority in principal amount of the bonds at the time
outstanding or their attorneys-in-fact duly authorized, or, if
fewer than all series are affected, not less than a majority
in principal amount of the bonds at the time outstanding of
each series the rights of the holders of which are affected,
voting together, the Company, when authorized by a resolution,
and the Trustee may from time to time and at any time enter
into an indenture or indentures supplemental hereto for the
purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Indenture or of
any supplemental indenture or modifying the rights and
33
obligations of the Company and the rights of the holders of
any of the bonds and coupons; provided, however, that no such
supplemental indenture shall (1) extend the maturity of any of
the bonds or reduce the rate or extend the time of payment of
interest thereon, or reduce the amount of the principal
thereof, or reduce any premium payable on the redemption
thereof, without the consent of the holder of each bond so
affected, or (2) permit the creation of any lien, not
otherwise permitted, prior to or on a parity with the lien of
this Indenture, without the consent of the holders of all the
bonds then outstanding, or (3) reduce the aforesaid percentage
of the principal amount of bonds the holders of which are
required to approve any such supplemental indenture, without
the consent of the holders of all the bonds then outstanding.
For the purposes of this Section, bonds shall be deemed to be
affected by a supplemental indenture if such supplemental
indenture adversely affects or diminishes the rights of
holders thereof against the Company or against its property.
The Trustee may in its discretion determine whether or not, in
accordance with the foregoing, bonds of any particular series
would be affected by any supplemental indenture and any such
determination shall be conclusive upon the holders of bonds of
such series and all other series. Subject to the provisions of
Sections 16.02 and 16.03 hereof, the Trustee shall not be
liable for any determination made in good faith in connection
herewith.
Upon the written request of the Company, accompanied
by a resolution authorizing the execution of any such
supplemental indenture, and upon the filing with the Trustee
of evidence of the consent of bondholders as aforesaid (the
instrument or instruments evidencing such consent to be dated
within one year of such request), the Trustee shall join with
the Company in the execution of such supplemental indenture
unless such supplemental indenture affects the Trustee's own
rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion but
shall not be obligated to enter into such supplemental
indenture.
It shall not be necessary for the consent of the
bondholders under this Section to approve the particular form
of any proposed supplemental indenture, but it shall be
sufficient if such consent shall approve the substance
thereof.
The Company and the Trustee, if they so elect, and
either before or after such consent has been obtained, may
require the holder of any bond consenting to the execution of
any such supplemental indenture to submit his bond to the
Trustee or to ask such bank, banker or trust company as may be
designated by the Trustee for the purpose, for the notation
thereon of the fact that the holder of such bond has consented
to the execution of such supplemental indenture, and in such
case such notation, in form satisfactory to the Trustee, shall
be made upon all bonds so submitted, and
34
such bonds bearing such notation shall forthwith be returned
to the persons entitled thereto.
Prior to the execution by the Company and the Trustee
of any supplemental indenture pursuant to the provisions of
this Section, the Company shall publish a notice, setting
forth in general terms the substance of such supplemental
indenture, at least once in one daily newspaper of general
circulation in each city in which the principal of any of the
bonds shall be payable, or, if all bonds outstanding shall be
registered bonds without coupons or coupon bonds registered as
to principal, such notice shall be sufficiently given if
mailed, first class, postage prepaid, and registered if the
Company so elects, to each registered holder of bonds at the
last address of such holder appearing on the registry books,
such publication or mailing, as the case may be, to be made
not less than thirty days prior to such execution. Any failure
of the Company to give such notice, or any defect therein,
shall not, however, in any way impair or affect the validity
of any such supplemental indenture.
SECTION 8. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.
SECTION 9. The Trustee assumes no responsibility for or in
respect of the validity or sufficiency of this Supplemental Indenture or of the
Indenture as hereby supplemented or the due execution hereof by the Company or
for or in respect of the recitals and statements contained herein (other than
those contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.
SECTION 10. This Supplemental Indenture may be simultaneously
executed in several counterparts and all such counterparts executed and
delivered, each as an original, shall constitute but one and the same
instrument.
SECTION 11. In the event the date of any notice required or
permitted hereunder shall not be a Business Day (as defined below), then
(notwithstanding any other provision of the Indenture or of any supplemental
indenture thereto) such notice 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 fixed for such notice. "Business Day" means, with respect to this
Section 11, any day, other than a Saturday or Sunday, on which banks generally
are open in New York, New York for the conduct of substantially all of their
commercial lending activities and on which interbank wire transfers can be made
on the Fedwire system.
SECTION 12. This Supplemental Indenture, the 2008 Bonds,
Series A, the 2013 Bonds, Series B, the 2008 Bonds, Series C and the 2013 Bonds,
Series D shall be governed by and deemed to be a contract under, and construed
in accordance with, the laws of the State of Michigan, and for all purposes
shall be construed in accordance with the laws of such state, except as may
otherwise be required by mandatory provisions of law.
35
SECTION 13. Detailed Description of Property Mortgaged:
I.
ELECTRIC GENERATING PLANTS AND DAMS
All the electric generating plants and stations of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.
II.
ELECTRIC TRANSMISSION LINES
All the electric transmission lines of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including towers, poles, pole lines, wires, switches, switch
racks, switchboards, insulators and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.
III.
ELECTRIC DISTRIBUTION SYSTEMS
All the electric distribution systems of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including substations, transformers, switchboards, towers, poles,
wires, insulators, subways, trenches, conduits, manholes, cables, meters and
other appliances and equipment, and all other property, real or personal,
forming a part of or appertaining to or used, occupied or enjoyed in connection
with such distribution systems or any of them or adjacent thereto; together with
all real property, rights of way, easements, permits, privileges, franchises,
grants and rights, for or relating to the construction, maintenance or operation
thereof, through, over, under or upon any private property or any
36
public streets or highways within as well as without the corporate limits of any
municipal corporation.
IV.
ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES
All the substations, switching stations and sites of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, for transforming, regulating, converting or distributing
or otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.
V.
GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS,
DESULPHURIZATION STATIONS, METERING STATIONS, ODORIZING STATIONS,
REGULATORS AND SITES
All the compressor stations, processing plants,
desulphurization stations, metering stations, odorizing stations, regulators and
sites of the Company, constructed or otherwise acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the lien of the Indenture, for compressing, processing, desulphurizing,
metering, odorizing and regulating manufactured or natural gas at any of its
plants and elsewhere, together with all buildings, meters and other appliances
and equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of such
purposes, with sites to be used for such purposes.
VI.
GAS STORAGE FIELDS
The natural gas rights and interests of the Company, including
wells and well lines (but not including natural gas, oil and minerals), the gas
gathering system, the underground gas storage rights, the underground gas
storage wells and injection and withdrawal system used in connection therewith,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture: In the Overisel Gas Storage Field, located in the Township of
Overisel, Allegan County, and in the Township of Zeeland, Ottawa County,
Michigan; in the Northville Gas Storage Field located in the Township of Salem,
Washtenaw County, Township of Lyon, Oakland County, and the Townships of
Northville and Plymouth and City of Plymouth, Wayne County, Michigan; in the
Salem Gas Storage Field, located in the Township of Salem, Allegan County, and
in the Township of Jamestown, Ottawa County, Michigan; in the Ray Gas Storage
Field, located in the Townships of Ray and Armada, Macomb County, Michigan; in
the Lenox
37
Gas Storage Field, located in the Townships of Lenox and Chesterfield, Macomb
County, Michigan; in the Ira Gas Storage Field, located in the Township of Ira,
St. Clair County, Michigan; in the Puttygut Gas Storage Field, located in the
Township of Casco, St. Clair County, Michigan; in the Four Corners Gas Storage
Field, located in the Townships of Casco, China, Cottrellville and Ira, St.
Clair County, Michigan; in the Swan Creek Gas Storage Field, located in the
Township of Casco and Ira, St. Clair County, Michigan; and in the Hessen Gas
Storage Field, located in the Townships of Casco and Columbus, St. Clair,
Michigan.
VII.
GAS TRANSMISSION LINES
All the gas transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including gas mains, pipes, pipelines, gates, valves, meters and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements, permits, privileges, franchises and rights
for or relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways,
within as well as without the corporate limits of any municipal corporation.
VIII.
GAS DISTRIBUTION SYSTEMS
All the gas distribution systems of the Company, constructed
or otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including tunnels, conduits, gas mains and pipes, service pipes, fittings,
gates, valves, connections, meters and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such distribution systems or any of them
or adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises, grants and rights, for or relating to the
construction, maintenance or operation thereof, through, over, under or upon any
private property or any public streets or highways within as well as without the
corporate limits of any municipal corporation.
IX.
OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.
All office, garage, service and other buildings of the
Company, wherever located, in the State of Michigan, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, together
with the land on which the same are situated and all easements, rights of way
and appurtenances to said lands, together with all furniture and fixtures
located in said buildings.
38
X.
TELEPHONE PROPERTIES AND
RADIO COMMUNICATION EQUIPMENT
All telephone lines, switchboards, systems and equipment of
the Company, constructed or otherwise acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the lien of the Indenture, used or available for use in the operation of
its properties, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such telephone
properties or any of them or adjacent thereto; together with all real estate,
rights of way, easements, permits, privileges, franchises, property, devices or
rights related to the dispatch, transmission, reception or reproduction of
messages, communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment installed in
buildings used as general and regional offices, substations and generating
stations and all telephone lines erected on towers and poles; and all radio
communication equipment of the Company, together with all property, real or
personal (except any in the Indenture expressly excepted), fixed stations,
towers, auxiliary radio buildings and equipment, and all appurtenances used in
connection therewith, wherever located, in the State of Michigan.
XI.
OTHER REAL PROPERTY
All other real property of the Company and all interests
therein, of every nature and description (except any in the Indenture expressly
excepted) wherever located, in the State of Michigan, acquired by it and not
heretofore described in the Indenture or any supplement thereto and not
heretofore released from the lien of the Indenture. Such real property includes
but is not limited to the following described property, such property is subject
to any interests that were excepted or reserved in the conveyance to the
Company:
ALCONA COUNTY
Certain land in Caledonia Township, Alcona County, Michigan described
as:
The East 330 feet of the South 660 feet of the SW 1/4 of the
SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South
330 feet thereof; said land being more particularly described as
follows: To find the place of beginning of this description, commence
at the Southwest corner of said section, run thence East along the
South line of said section 1243 feet to the place of beginning of this
description, thence continuing East along said South line of said
section 66 feet to the West 1/8 line of said section, thence N 02
degrees 09' 30" E along the said West 1/8 line of said section 660
feet, thence West 330 feet, thence S 02 degrees 09' 30" W, 330 feet,
thence East 264 feet, thence S 02 degrees 09' 30" W, 330 feet to the
place of beginning.
39
ALLEGAN COUNTY
Certain land in Lee Township, Allegan County, Michigan described as:
The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.
ALPENA COUNTY
Certain land in Wilson and Green Townships, Alpena County, Michigan
described as:
All that part of the S'ly 1/2 of the former Boyne City-Gaylord
and Alpena Railroad right of way, being the Southerly 50 feet of a 100
foot strip of land formerly occupied by said Railroad, running from the
East line of Section 31, T31N, R7E, Southwesterly across said Section
31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2
of Section 9, except the West 1646 feet thereof, all in T30N, R6E.
ANTRIM COUNTY
Certain land in Mancelona Township, Antrim County, Michigan described
as:
The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
therefrom all mineral, coal, oil and gas and such other rights as were
reserved unto the State of Michigan in that certain deed running from
the State of Michigan to August W. Schack and Emma H. Schack, his wife,
dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on
page 682 of Antrim County Records.
ARENAC COUNTY
Certain land in Standish Township, Arenac County, Michigan described
as:
A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
T18N, R4E, described as follows: To find the place of beginning of said
parcel of land, commence at the Northwest corner of Section 12, T18N,
R4E; run thence South along the West line of said section, said West
line of said section being also the center line of East City Limits
Road 2642.15 feet to the W 1/4 post of said section and the place of
beginning of said parcel of land; running thence N 88 degrees 26' 00" E
along the East and West 1/4 line of said section, 660.0 feet; thence
North parallel with the West line of said section, 310.0 feet; thence S
88 degrees 26' 00" W, 330.0 feet; thence South parallel with the West
line of said section, 260.0 feet; thence S 88 degrees 26' 00" W, 330.0
feet to the West line of said section and the center line of East City
Limits Road; thence South along the said West line of said section,
50.0 feet to the place of beginning.
40
BARRY COUNTY
Certain land in Johnstown Township, Barry County, Michigan described
as:
A strip of land 311 feet in width across the SW 1/4 of the NE
1/4 of Section 31, T1N, R8W, described as follows: To find the place of
beginning of this description, commence at the E 1/4 post of said
section; run thence N 00 degrees 55' 00" E along the East line of said
section, 555.84 feet; thence N 59 degrees 36' 20" W, 1375.64 feet;
thence N 88 degrees 30' 00" W, 130 feet to a point on the East 1/8 line
of said section and the place of beginning of this description; thence
continuing N 88 degrees 30' 00" W, 1327.46 feet to the North and South
1/4 line of said section; thence S 00 degrees 39'35" W along said North
and South 1/4 line of said section, 311.03 feet to a point, which said
point is 952.72 feet distant N'ly from the East and West 1/4 line of
said section as measured along said North and South 1/4 line of said
section; thence S 88 degrees 30' 00" E, 1326.76 feet to the East 1/8
line of said section; thence N 00 degrees 47' 20" E along said East 1/8
line of said section, 311.02 feet to the place of beginning.
BAY COUNTY
Certain land in Frankenlust Township, Bay County, Michigan described
as:
The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
the SE 1/4 of Section 9, T13N, R4E.
BENZIE COUNTY
Certain land in Benzonia Township, Benzie County, Michigan described
as:
A parcel of land in the Northeast 1/4 of Section 7, Township
26 North, Range 14 West, described as beginning at a point on the East
line of said Section 7, said point being 320 feet North measured along
the East line of said section from the East 1/4 post; running thence
West 165 feet; thence North parallel with the East line of said section
165 feet; thence East 165 feet to the East line of said section; thence
South 165 feet to the place of beginning.
BRANCH COUNTY
Certain land in Girard Township, Branch County, Michigan described as:
A parcel of land in the NE 1/4 of Section 23 T5S, R6W,
described as beginning at a point on the North and South quarter line
of said section at a point 1278.27 feet distant South of the North
quarter post of said section, said distance being measured along the
North and South quarter line of said section, running thence S89
degrees21'E 250 feet, thence North along a line parallel with the said
North and South quarter line of said section 200 feet, thence N89
degrees 21'W 250 feet to the North and South quarter line of said
section, thence South along
41
said North and South quarter line of said section 200 feet to the place
of beginning.
CALHOUN COUNTY
Certain land in Convis Township, Calhoun County, Michigan described as:
A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
T1S, R6W, described as follows: To find the place of beginning of this
description, commence at the Southeast corner of said section; run
thence North along the East line of said section 1034.32 feet to the
place of beginning of this description; running thence N 89 degrees 39'
52" W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of
said section; thence S 89 degrees 39' 52" E along said South 1/8 line
of said section 333.0 feet to the East line of said section; thence
South along said East line of said section 290.0 feet to the place of
beginning. (Bearings are based on the East line of Section 32, T1S,
R6W, from the Southeast corner of said section to the Northeast corner
of said section assumed as North.)
CASS COUNTY
Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:
The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
R13W.
CHARLEVOIX COUNTY
Certain land in South Arm Township, Charlevoix County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
described as follows: Beginning at the Southwest corner of said section
and running thence North along the West line of said section 788.25
feet to a point which is 528 feet distant South of the South 1/8 line
of said section as measured along the said West line of said section;
thence N 89 degrees 30' 19" E, parallel with said South 1/8 line of
said section 442.1 feet; thence South 788.15 feet to the South line of
said section; thence S 89 degrees 29' 30" W, along said South line of
said section 442.1 feet to the place of beginning.
CHEBOYGAN COUNTY
Certain land in Inverness Township, Cheboygan County, Michigan
described as:
A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
described as beginning at the Northwest corner of the SW frl 1/4,
running thence East on the East and West quarter line of said Section,
40 rods, thence South parallel to the West line of said Section 40
rods, thence West 40 rods to the West line of said Section, thence
North 40 rods to the place of beginning.
42
CLARE COUNTY
Certain land in Frost Township, Clare County, Michigan described as:
The East 150 feet of the North 225 feet of the NW 1/4 of the
NW 1/4 of Section 15, T20N, R4W.
CLINTON COUNTY
Certain land in Watertown Township, Clinton County, Michigan described
as:
The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
T5N, R3W.
CRAWFORD COUNTY
Certain land in Lovells Township, Crawford County, Michigan described
as:
A parcel of land in Section 1, T28N, R1W, described as:
Commencing at NW corner said section; thence South 89 degrees53'30"
East along North section line 105.78 feet to point of beginning; thence
South 89 degrees53'30" East along North section line 649.64 feet;
thence South 55 degrees 42'30" East 340.24 feet; thence South 55
degrees 44' 37"" East 5,061.81 feet to the East section line; thence
South 00 degrees 00' 08"" West along East section line 441.59 feet;
thence North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
degrees 42'30" West 877.76 feet to point of beginning.
EATON COUNTY
Certain land in Eaton Township, Eaton County, Michigan described as:
A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section; run
thence N 89 degrees 51' 30" E along the South line of said section 400
feet to the place of beginning of this description; thence continuing N
89 degrees 51' 30" E, 500 feet; thence N 00 degrees 50' 00" W, 600
feet; thence S 89 degrees 51' 30" W parallel with the South line of
said section 500 feet; thence S 00 degrees 50' 00" E, 600 feet to the
place of beginning.
EMMET COUNTY
Certain land in Wawatam Township, Emmet County, Michigan described as:
The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
Section 23, T39N, R4W.
43
GENESEE COUNTY
Certain land in Argentine Township, Genesee County, Michigan described
as:
A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
being more particularly described as follows:
Beginning at a point of the West line of Duffield Road, 100
feet wide, (as now established) distant 829.46 feet measured N01
degrees42'56"W and 50 feet measured S88 degrees14'04"W` from the South
quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a
distance of 550 feet; thence N01 degrees42'56"W a distance of 500 feet
to a point on the North line of the South half of the Southwest quarter
of said Section 8; thence N88 degrees14'04"E along the North line of
South half of the Southwest quarter of said Section 8 a distance 550
feet to a point on the West line of Duffield Road, 100 feet wide (as
now established); thence S01 degrees42'56"E along the West line of said
Duffield Road a distance of 500 feet to the point of beginning.
GLADWIN COUNTY
Certain land in Secord Township, Gladwin County, Michigan described as:
The East 400 feet of the South 450 feet of Section 2, T19N,
R1E.
GRAND TRAVERSE COUNTY
Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:
A parcel of land in the Northwest 1/4 of Section 3, T25N,
R11W, described as follows: Commencing at the Northwest corner of said
section, running thence S 89 degrees19'15" E along the North line of
said section and the center line of Clouss Road 225 feet, thence South
400 feet, thence N 89 degrees19'15" W 225 feet to the West line of said
section and the center line of Hannah Road, thence North along the West
line of said section and the center line of Hannah Road 400 feet to the
place of beginning for this description.
GRATIOT COUNTY
Certain land in Fulton Township, Gratiot County, Michigan described as:
A parcel of land in the NE 1/4 of Section 7, Township 9 North,
Range 3 West, described as beginning at a point on the North line of
George Street in the Village of Middleton, which is 542 feet East of
the North and South one-quarter (1/4) line of said Section 7; thence
North 100 feet; thence East 100 feet; thence South 100 feet to the
North line of George Street; thence West along the North line of George
Street 100 feet to place of beginning.
44
HILLSDALE COUNTY
Certain land in Litchfield Village, Hillsdale County, Michigan
described as:
Lot 238 of Assessors Plat of the Village of Litchfield.
HURON COUNTY
Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:
The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.
INGHAM COUNTY
Certain land in Vevay Township, Ingham County, Michigan described as:
A parcel of land 660 feet wide in the Southwest 1/4 of Section
7 lying South of the centerline of Sitts Road as extended to the
North-South 1/4 line of said Section 7, T2N, R1W, more particularly
described as follows: Commence at the Southwest corner of said Section
7, thence North along the West line of said Section 2502.71 feet to the
centerline of Sitts Road; thence South 89 degrees54'45" East along said
centerline 2282.38 feet to the place of beginning of this description;
thence continuing South 89 degrees54'45" East along said centerline and
said centerline extended 660.00 feet to the North-South 1/4 line of
said section; thence South 00 degrees07'20" West 1461.71 feet; thence
North 89 degrees34'58" West 660.00 feet; thence North 00 degrees07'20"
East 1457.91 feet to the centerline of Sitts Road and the place of
beginning.
IONIA COUNTY
Certain land in Sebewa Township, Ionia County, Michigan described as:
A strip of land 280 feet wide across that part of the SW 1/4
of the NE 1/4 of Section 15, T5N, R6W, described as follows:
To find the place of beginning of this description commence at
the E 1/4 corner of said section; run thence N 00 degrees 05' 38" W
along the East line of said section, 1218.43 feet; thence S 67 degrees
18' 24" W, 1424.45 feet to the East 1/8 line of said section and the
place of beginning of this description; thence continuing S 67 degrees
18' 24" W, 1426.28 feet to the North and South 1/4 line of said section
at a point which said point is 105.82 feet distant N'ly of the center
of said section as measured along said North and South 1/4 line of said
section; thence N 00 degrees 04' 47" E along said North and South 1/4
line of said section, 303.67 feet; thence N 67 degrees 18' 24" E,
1425.78 feet to the East 1/8 line of said section; thence S 00 degrees
00' 26" E along said East 1/8 line of said section, 303.48 feet to the
place of beginning. (Bearings are based on the East line of
45
Section 15, T5N, R6W, from the E 1/4 corner of said section to the
Northeast corner of said section assumed as N 00 degrees 05' 38" W.)
IOSCO COUNTY
Certain land in Alabaster Township, Iosco County, Michigan described
as:
A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run thence
South along the North and South 1/4 line of said section, 1354.40 feet
to the place of beginning of this description; thence continuing South
along the said North and South 1/4 line of said section, 165.00 feet to
a point on the said North and South 1/4 line of said section which said
point is 1089.00 feet distant North of the center of said section;
thence West 440.00 feet; thence North 165.00 feet; thence East 440.00
feet to the said North and South 1/4 line of said section and the place
of beginning.
ISABELLA COUNTY
Certain land in Chippewa Township, Isabella County, Michigan described
as:
The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
T14N, R3W.
JACKSON COUNTY
Certain land in Waterloo Township, Jackson County, Michigan described
as:
A parcel of land in the North fractional part of the N
fractional 1/2 of Section 2, T1S, R2E, described as follows: To find
the place of beginning of this description commence at the E 1/4 post
of said section; run thence N 01 degrees 03' 40" E along the East line
of said section 1335.45 feet to the North 1/8 line of said section and
the place of beginning of this description; thence N 89 degrees 32' 00"
W, 2677.7 feet to the North and South 1/4 line of said section; thence
S 00 degrees 59' 25" W along the North and South 1/4 line of said
section 22.38 feet to the North 1/8 line of said section; thence S 89
degrees 59' 10" W along the North 1/8 line of said section 2339.4 feet
to the center line of State Trunkline Highway M-52; thence N 53 degrees
46' 00" W along the center line of said State Trunkline Highway 414.22
feet to the West line of said section; thence N 00 degrees 55' 10" E
along the West line of said section 74.35 feet; thence S 89 degrees 32'
00" E, 5356.02 feet to the East line of said section; thence S 01
degrees 03' 40" W along the East line of said section 250 feet to the
place of beginning.
KALAMAZOO COUNTY
Certain land in Alamo Township, Kalamazoo County, Michigan described
as:
The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
T1S, R12W, being more particularly described as follows: To find the
place of
46
beginning of this description, commence at the Northwest corner of said
section; run thence S 00 degrees 36' 55" W along the West line of said
section 971.02 feet to the place of beginning of this description;
thence continuing S 00 degrees 36' 55" W along said West line of said
section 350.18 feet to the North 1/8 line of said section; thence S 87
degrees 33' 40" E along the said North 1/8 line of said section 1325.1
feet to the West 1/8 line of said section; thence N 00 degrees 38' 25"
E along the said West 1/8 line of said section 350.17 feet; thence N 87
degrees 33' 40" W, 1325.25 feet to the place of beginning.
KALKASKA COUNTY
Certain land in Kalkaska Township, Kalkaska County, Michigan described
as:
The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
therefrom all mineral, coal, oil and gas and such other rights as were
reserved unto the State of Michigan in that certain deed running from
the Department of Conservation for the State of Michigan to George
Welker and Mary Welker, his wife, dated October 9, 1934 and recorded
December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records,
and subject to easement for pipeline purposes as granted to Michigan
Consolidated Gas Company by first party herein on April 4, 1963 and
recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County
Records.
KENT COUNTY
Certain land in Caledonia Township, Kent County, Michigan described as:
A parcel of land in the Northwest fractional 1/4 of Section
15, T5N, R10W, described as follows: To find the place of beginning of
this description commence at the North 1/4 corner of said section, run
thence S 0 degrees 59' 26" E along the North and South 1/4 line of said
section 2046.25 feet to the place of beginning of this description,
thence continuing S 0 degrees 59' 26" E along said North and South 1/4
line of said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90
feet to a point herein designated "Point A" on the East bank of the
Thornapple River, thence continuing S 88 degrees 53' 30" W to the
center thread of the Thornapple River, thence NW'ly along the center
thread of said Thornapple River to a point which said point is S 88
degrees 58' 30" W of a point on the East bank of the Thornapple River
herein designated "Point B", said "Point B" being N 23 degrees 41' 35"
W 360.75 feet from said above-described "Point A", thence N 88 degrees
58' 30" E to said "Point B", thence continuing N 88 degrees 58' 30" E
2650.13 feet to the place of beginning. (Bearings are based on the East
line of Section 15, T5N, R10W between the East 1/4 corner of said
section and the Northeast corner of said section assumed as N 0 degrees
59' 55" W.)
47
LAKE COUNTY
Certain land in Pinora and Cherry Valley Townships, Lake County,
Michigan described as:
A strip of land 50 feet wide East and West along and adjoining
the West line of highway on the East side of the North 1/2 of Section
13 T18N, R12W. Also a strip of land 100 feet wide East and West along
and adjoining the East line of the highway on the West side of
following described land: The South 1/2 of NW 1/4, and the South 1/2 of
the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.
LAPEER COUNTY
Certain land in Hadley Township, Lapeer County, Michigan described as:
The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
T6N, R9E, except the West 1064 feet thereof.
LEELANAU COUNTY
Certain land in Cleveland Township, Leelanau County, Michigan described
as:
The North 200 feet of the West 180 feet of the SW 1/4 of the
SE 1/4 of Section 35, T29N, R13W.
LENAWEE COUNTY
Certain land in Madison Township, Lenawee County, Michigan described
as:
A strip of land 165 feet wide off the West side of the
following described premises: The E 1/2 of the SE 1/4 of Section 12.
The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13,
being all in T7S, R3E, excepting therefrom a parcel of land in the E
1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest
corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4
rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to
the place of beginning.
LIVINGSTON COUNTY
Certain land in Cohoctah Township, Livingston County, Michigan
described as:
Parcel 1
The East 390 feet of the East 50 rods of the SW 1/4 of Section
30, T4N, R4E.
48
Parcel 2
A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run thence N 89
degrees 13' 06" W along the North line of said section, 330 feet to the
place of beginning of this description; running thence S 00 degrees 52'
49" W, 2167.87 feet; thence N 88 degrees 59' 49" W, 60 feet; thence N
00 degrees 52' 49" E, 2167.66 feet to the North line of said section;
thence S 89 degrees 13' 06" E along said North line of said section, 60
feet to the place of beginning.
MACOMB COUNTY
Certain land in Macomb Township, Macomb County, Michigan described as:
A parcel of land commencing on the West line of the E 1/2 of
the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of
said E 1/2 of the NW 1/4 of Section 6; thence South on said West line
and the East line of A. Henry Kotner's Hayes Road Subdivision #15,
according to the recorded plat thereof, as recorded in Liber 24 of
Plats, on page 7, 24.36 chains to the East and West 1/4 line of said
Section 6; thence East on said East and West 1/4 line 8.93 chains;
thence North parallel with the said West line of the E 1/2 of the NW
1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of
beginning, all in T3N, R13E.
MANISTEE COUNTY
Certain land in Manistee Township, Manistee County, Michigan described
as:
A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
described as follows: To find the place of beginning of this
description, commence at the Southwest corner of said section; run
thence East along the South line of said section 832.2 feet to the
place of beginning of this description; thence continuing East along
said South line of said section 132 feet; thence North 198 feet; thence
West 132 feet; thence South 198 feet to the place of beginning,
excepting therefrom the South 2 rods thereof which was conveyed to
Manistee Township for highway purposes by a Quitclaim Deed dated June
13, 1919 and recorded July 11, 1919 in Liber 88 of Deeds on page 638 of
Manistee County Records.
MASON COUNTY
Certain land in Riverton Township, Mason County, Michigan described as:
Parcel 1
The South 10 acres of the West 20 acres of the S 1/2 of the NE
1/4 of Section 22, T17N, R17W.
49
Parcel 2
A parcel of land containing 4 acres of the West side of
highway, said parcel of land being described as commencing 16 rods
South of the Northwest corner of the NW 1/4 of the SW 1/4 of Section
22, T17N, R17W, running thence South 64 rods, thence NE'ly and N'ly and
NW'ly along the W'ly line of said highway to the place of beginning,
together with any and all right, title, and interest of Howard C.
Wicklund and Katherine E. Wicklund in and to that portion of the
hereinbefore mentioned highway lying adjacent to the E'ly line of said
above described land.
MECOSTA COUNTY
Certain land in Wheatland Township, Mecosta County, Michigan described
as:
A parcel of land in the SW 1/4 of the SW 1/4 of Section 16,
T14N, R7W, described as beginning at the Southwest corner of said
section; thence East along the South line of Section 133 feet; thence
North parallel to the West section line 133 feet; thence West 133 feet
to the West line of said Section; thence South 133 feet to the place of
beginning.
MIDLAND COUNTY
Certain land in Ingersoll Township, Midland County, Michigan described
as:
The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
T13N, R2E.
MISSAUKEE COUNTY
Certain land in Norwich Township, Missaukee County, Michigan described
as:
A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
T24N, R6W, described as follows: Commencing at the Northwest corner of
said section, running thence N 89 degrees 01' 45" E along the North
line of said section 233.00 feet; thence South 233.00 feet; thence S 89
degrees 01' 45" W, 233.00 feet to the West line of said section; thence
North along said West line of said section 233.00 feet to the place of
beginning. (Bearings are based on the West line of Section 16, T24N,
R6W, between the Southwest and Northwest corners of said section
assumed as North.)
MONROE COUNTY
Certain land in Whiteford Township, Monroe County, Michigan described
as:
A parcel of land in the SW1/4 of Section 20, T8S, R6E,
described as follows: To find the place of beginning of this
description commence at the S 1/4 post of said section; run thence West
along the South line of said section 1269.89 feet to the place of
beginning of this description; thence continuing West along
50
said South line of said section 100 feet; thence N 00 degrees 50' 35"
E, 250 feet; thence East 100 feet; thence S 00 degrees 50' 35" W
parallel with and 16.5 feet distant W'ly of as measured perpendicular
to the West 1/8 line of said section, as occupied, a distance of 250
feet to the place of beginning.
MONTCALM COUNTY
Certain land in Crystal Township, Montcalm County, Michigan described
as:
The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.
MONTMORENCY COUNTY
Certain land in the Village of Hillman, Montmorency County, Michigan
described as:
Lot 14 of Hillman Industrial Park, being a subdivision in the
South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to
the plat thereof recorded in Liber 4 of Plats on Pages 32-34,
Montmorency County Records.
MUSKEGON COUNTY
Certain land in Casnovia Township, Muskegon County, Michigan described
as:
The West 433 feet of the North 180 feet of the South 425 feet
of the SW 1/4 of Section 3, T10N, R13W.
NEWAYGO COUNTY
Certain land in Ashland Township, Newaygo County, Michigan described
as:
The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.
OAKLAND COUNTY
Certain land in Wixcom City, Oakland County, Michigan described as:
The E 75 feet of the N 160 feet of the N 330 feet of the W
526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more
particularly described as follows: Commence at the NW corner of said
Section 8, thence N 87 degrees 14' 29" E along the North line of said
Section 8 a distance of 451.84 feet to the place of beginning for this
description; thence continuing N 87 degrees 14' 29" E along said North
section line a distance of 75.0 feet to the East line of the West
526.84 feet of the NW 1/4 of the NW 1/4 of said Section 8; thence S 02
degrees 37' 09" E along said East line a distance of 160.0 feet; thence
S 87 degrees 14' 29" W a distance of 75.0 feet; thence N 02 degrees 37'
09" W a distance of 160.0 feet to the place of beginning.
51
OCEANA COUNTY
Certain land in Crystal Township, Oceana County, Michigan described as:
The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.
OGEMAW COUNTY
Certain land in West Branch Township, Ogemaw County, Michigan described
as:
The South 660 feet of the East 660 feet of the NE 1/4 of the
NE 1/4 of Section 33, T22N, R2E.
OSCEOLA COUNTY
Certain land in Hersey Township, Osceola County, Michigan described as:
A parcel of land in the North 1/2 of the Northeast 1/4 of
Section 13, T17N, R9W, described as commencing at the Northeast corner
of said Section; thence West along the North Section line 999 feet to
the point of beginning of this description; thence S 01 degrees 54' 20"
E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17' 05" W
along the North 1/8 line 330.89 feet; thence N 01 degrees 54' 20" W
1331.26 feet to the North Section line; thence East along the North
Section line 331 feet to the point of beginning.
OSCODA COUNTY
Certain land in Comins Township, Oscoda County, Michigan described as:
The East 400 feet of the South 580 feet of the W 1/2 of the SW
1/4 of Section 15, T27N, R3E.
OTSEGO COUNTY
Certain land in Corwith Township, Otsego County, Michigan described as:
Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
described as: Beginning at the N 1/4 corner of said section; running
thence S 89 degrees 04' 06" E along the North line of said section,
330.00 feet; thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89
degrees 04' 06" W, 330.00 feet to the North and South 1/4 line of said
section; thence N 00 degrees 28' 43" W along the said North and South
1/4 line of said section, 400.00 feet to the point of beginning;
subject to the use of the N'ly 33.00 feet thereof for highway purposes.
52
OTTAWA COUNTY
Certain land in Robinson Township, Ottawa County, Michigan described
as:
The North 660 feet of the West 660 feet of the NE 1/4 of the
NW 1/4 of Section 26, T7N, R15W.
PRESQUE ISLE COUNTY
Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:
Part of the South half of the Northeast quarter, Section 24,
T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E,
more fully described as: Commencing at the East 1/4 corner of said
Section 24; thence N 00 degrees15'47" E, 507.42 feet, along the East
line of said Section 24 to the point of beginning; thence S 88
degrees15'36" W, 400.00 feet, parallel with the North 1/8 line of said
Section 24; thence N 00 degrees15'47" E, 800.00 feet, parallel with
said East line of Section 24; thence N 88 degrees15'36"E, 800.00 feet,
along said North 1/8 line of Section 24 and said line extended; thence
S 00 degrees15'47" W, 800.00 feet, parallel with said East line of
Section 24; thence S 88 degrees15'36" W, 400.00 feet, parallel with
said North 1/8 line of Section 24 to the point of beginning.
Together with a 33 foot easement along the West 33 feet of the
Northwest quarter lying North of the North 1/8 line of Section 24,
Belknap Township, extended, in Section 19, T34N, R6E.
ROSCOMMON COUNTY
Certain land in Gerrish Township, Roscommon County, Michigan described
as:
A parcel of land in the NW 1/4 of Section 19, T24N, R3W,
described as follows: To find the place of beginning of this
description commence at the Northwest corner of said section, run
thence East along the North line of said section 1,163.2 feet to the
place of beginning of this description (said point also being the place
of intersection of the West 1/8 line of said section with the North
line of said section), thence S 01 degrees 01' E along said West 1/8
line 132 feet, thence West parallel with the North line of said section
132 feet, thence N 01 degrees 01' W parallel with said West 1/8 line of
said section 132 feet to the North line of said section, thence East
along the North line of said section 132 feet to the place of
beginning.
53
SAGINAW COUNTY
Certain land in Chapin Township, Saginaw County, Michigan described as:
A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section; run
thence North along the West line of said section 1581.4 feet to the
place of beginning of this description; thence continuing North along
said West line of said section 230 feet to the center line of a creek;
thence S 70 degrees 07' 00" E along said center line of said creek
196.78 feet; thence South 163.13 feet; thence West 185 feet to the West
line of said section and the place of beginning.
SANILAC COUNTY
Certain easement rights located across land in Minden Township, Sanilac
County, Michigan described as:
The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
R14E, excepting therefrom the South 83 feet of the East 83 feet
thereof.
SHIAWASSEE COUNTY
Certain land in Burns Township, Shiawassee County, Michigan described
as:
The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
T5N, R4E.
ST. CLAIR COUNTY
Certain land in Ira Township, St. Clair County, Michigan described as:
The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.
ST. JOSEPH COUNTY
Certain land in Mendon Township, St. Joseph County, Michigan described
as:
The North 660 feet of the West 660 feet of the NW 1/4 of SW
1/4, Section 35, T5S, R10W.
TUSCOLA COUNTY
Certain land in Millington Township, Tuscola County, Michigan described
as:
A strip of land 280 feet wide across the East 96 rods of the
South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
particularly described as commencing at the Northeast corner of Section
3, T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
distance of 1398.67 feet to the South 1/8
54
line of said Section 34 and the place of beginning for this
description; thence continuing N 18 degrees 11' 50" W a distance of
349.91 feet; thence N 89 degrees 57' 01" W a distance of 294.80 feet;
thence S 18 degrees 11' 50" E a distance of 350.04 feet to the South
1/8 line of said Section 34; thence S 89 degrees 58' 29" E along the
South 1/8 line of said section a distance of 294.76 feet to the place
of beginning.
VAN BUREN COUNTY
Certain land in Covert Township, Van Buren County, Michigan described
as:
All that part of the West 20 acres of the N 1/2 of the NE
fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the
North 80 rods, being more particularly described as follows: To find
the place of beginning of this description commence at the N 1/4 post
of said section; run thence N 89 degrees 29' 20" E along the North line
of said section 280.5 feet to the place of beginning of this
description; thence continuing N 89 degrees 29' 20" E along said North
line of said section 288.29 feet; thence S 00 degrees 44' 00" E,
1531.92 feet; thence S 89 degrees 33' 30" W, 568.79 feet to the North
and South 1/4 line of said section; thence N 00 degrees 44' 00" W along
said North and South 1/4 line of said section 211.4 feet; thence N 89
degrees 29' 20" E, 280.5 feet; thence N 00 degrees 44' 00" W, 1320 feet
to the North line of said section and the place of beginning.
WASHTENAW COUNTY
Certain land in Manchester Township, Washtenaw County, Michigan
described as:
A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
T4S, R3E, described as follows: To find the place of beginning of this
description commence at the Northwest corner of said section; run
thence East along the North line of said section 1355.07 feet to the
West 1/8 line of said section; thence S 00 degrees 22' 20" E along said
West 1/8 line of said section 927.66 feet to the place of beginning of
this description; thence continuing S 00 degrees 22' 20" E along said
West 1/8 line of said section 660 feet to the North 1/8 line of said
section; thence N 86 degrees 36' 57" E along said North 1/8 line of
said section 660.91 feet; thence N 00 degrees22' 20" W, 660 feet;
thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.
WAYNE COUNTY
Certain land in Livonia City, Wayne County, Michigan described as:
Commencing at the Southeast corner of Section 6, T1S, R9E;
thence North along the East line of Section 6 a distance of 253 feet to
the point of beginning; thence continuing North along the East line of
Section 6 a distance of 50 feet; thence Westerly parallel to the South
line of Section 6, a distance of 215
55
feet; thence Southerly parallel to the East line of Section 6 a
distance of 50 feet; thence easterly parallel with the South line of
Section 6 a distance of 215 feet to the point of beginning.
WEXFORD COUNTY
Certain land in Selma Township, Wexford County, Michigan described as:
A parcel of land in the NW 1/4 of Section 7, T22N, R10W,
described as beginning on the North line of said section at a point 200
feet East of the West line of said section, running thence East along
said North section line 450 feet, thence South parallel with said West
section line 350 feet, thence West parallel with said North section
line 450 feet, thence North parallel with said West section line 350
feet to the place of beginning.
SECTION 14. The Company is a transmitting utility under
Section 9501(2) of the Michigan Uniform Commercial Code (M.C.L. 440.9501(2)) as
defined in M.C.L. 440.9102(1)(aaaa).
IN WITNESS WHEREOF, said Consumers Energy Company has caused
this Supplemental Indenture to be executed in its corporate name by its Chairman
of the Board, President, a Vice President or its Treasurer and its corporate
seal to be hereunto affixed and to be attested by its Secretary or an Assistant
Secretary, and said JPMorgan Chase Bank, as Trustee as aforesaid, to evidence
its acceptance hereof, has caused this Supplemental Indenture to be executed in
its corporate name by a Vice President and its corporate seal to be hereunto
affixed and to be attested by a Trust Officer, in several counterparts, all as
of the day and year first above written.
56
CONSUMERS ENERGY COMPANY
(SEAL) By: /s/ Paul A. Stadnikia
---------------------
Paul A. Stadnikia
Attest: Treasurer
/s/ Joyce H. Norkey
- ----------------------------
Joyce H. Norkey
Assistant Secretary
Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of
/s/ Kimberly C. Wilson
- ----------------------------
Kimberly C. Wilson
/s/ Sammie B. Dalton
- ----------------------------
Sammie B. Dalton
STATE OF MICHIGAN )
ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this 30th
day of April, 2003, by Paul A. Stadnikia, Treasurer of CONSUMERS ENERGY COMPANY,
a Michigan corporation, on behalf of the corporation.
/s/ Margaret Hillman
------------------------------------
Margaret Hillman, Notary Public
[Seal] Jackson County, Michigan
My Commission Expires: June 14, 2004
S-1
JPMORGAN CHASE BANK, AS TRUSTEE
(SEAL) By: /s/ L. O'Brien
----------------------------
L. O'Brien
Attest: Vice President
/s/ Rosa Ciaccia
- ----------------------------
Rosa Ciaccia
Trust Officer
Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of
/s/ Kathleen Perry
- ----------------------------
Kathleen Perry
Vice President
/s/ William G. Keenan
- ----------------------------
WILLIAM G. KEENAN
VICE PRESIDENT
STATE OF NEW YORK )
ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 30th
day of April, 2003, by L. O'Brien, a Vice President of JPMORGAN CHASE BANK, a
New York corporation, on behalf of the corporation.
/s/ EMILY FAYAN
-----------------------------------
Notary Public
[Seal] New York County, New York
My Commission Expires:
Prepared by: When recorded, return to:
Kimberly C. Wilson Consumers Energy Company
One Energy Plaza, EP11-219 Business Services Real Estate Dept.
Jackson, MI 49201 Attn: Nancy Fisher EP7-439
One Energy Plaza
Jackson, MI 49201
S-2
EXHIBIT 4(e)
================================================================================
TERM LOAN AGREEMENT
Dated as of March 26, 2003
between
CONSUMERS ENERGY COMPANY
as the Borrower,
and
BEAL BANK, S.S.B.
as the initial Bank and as Agent
================================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I. DEFINITIONS ............................................... 1
1.1. Definitions ............................................... 1
1.2. Singular and Plural ....................................... 7
1.3. Accounting Terms .......................................... 7
ARTICLE II. THE TERM LOANS ............................................ 7
2.1. The Term Loans ............................................ 7
2.2. Making of Term Loans ...................................... 8
2.3. Repayment of Term Loans ................................... 8
2.4. Optional Principal Payments ............................... 8
2.5. Establishment and Continuation of Eurodollar Rate Loans ... 8
2.6. Interest Rates, Interest Payment Dates .................... 9
2.7. Rate after Maturity ....................................... 9
2.8. Method of Payment ......................................... 9
2.9. Evidence of Obligation; Telephonic Notices ................ 10
2.10. Lending Installations ..................................... 10
2.11. Non-Receipt of Funds by the Agent ......................... 10
ARTICLE III. RESERVED .................................................. 11
ARTICLE IV. CHANGE IN CIRCUMSTANCES ................................... 11
4.1. Yield Protection .......................................... 11
4.2. Replacement Bank .......................................... 12
4.3. Availability of Eurodollar Rate Loans ..................... 12
4.4. Funding Indemnification ................................... 12
4.5. Taxes. .................................................... 12
4.6. Bank Certificates; Survival of Indemnity .................. 14
ARTICLE V. REPRESENTATIONS AND WARRANTIES ............................ 14
5.1. Incorporation and Good Standing ........................... 14
5.2. Corporate Power and Authority; No Conflicts ............... 14
5.3. Governmental Approvals .................................... 14
5.4. Legally Enforceable Agreements ............................ 15
5.5. Financial Statements ...................................... 15
5.6. Litigation ................................................ 15
5.7. Margin Stock .............................................. 15
5.8. ERISA ..................................................... 15
5.9. Insurance ................................................. 15
5.10. Taxes ..................................................... 15
5.11. Investment Company Act .................................... 15
5.12. Public Utility Holding Company Act ........................ 16
5.13. Bonds ..................................................... 16
TABLE OF CONTENTS, Page i
ARTICLE VI. AFFIRMATIVE COVENANTS ..................................... 16
6.1. Payment of Taxes, etc ..................................... 16
6.2. Maintenance of Insurance .................................. 16
6.3. Preservation of Corporate Existence, etc .................. 16
6.4. Compliance with Laws, etc ................................. 16
6.5. Visitation Rights ......................................... 16
6.6. Keeping of Books .......................................... 17
6.7. Reporting Requirements .................................... 17
6.8. Use of Proceeds ........................................... 18
6.9. Maintenance of Properties, etc ............................ 18
6.10. Bonds ..................................................... 18
6.11. Recordation of Supplemental Indenture ..................... 18
ARTICLE VII. NEGATIVE COVENANTS ........................................ 19
7.1. Liens ..................................................... 19
7.2. Sale of Assets ............................................ 20
7.3. Mergers, etc .............................................. 20
7.4. Compliance with ERISA ..................................... 20
7.5. Change in Nature of Business .............................. 20
7.6. Restricted Payments ....................................... 20
7.7. Off-Balance Sheet Liabilities ............................. 21
ARTICLE VIII. RESERVED .................................................. 21
ARTICLE IX. EVENTS OF DEFAULT ......................................... 21
9.1. Events of Default ......................................... 21
9.2. Remedies .................................................. 22
ARTICLE X. WAIVERS, AMENDMENTS AND REMEDIES .......................... 23
10.1. Amendments ................................................ 23
10.2. Preservation of Rights .................................... 23
ARTICLE XI. CONDITIONS PRECEDENT ...................................... 23
11.1. Delivery of Documents ..................................... 23
11.2. No Default, etc ........................................... 24
ARTICLE XII. GENERAL PROVISIONS ........................................ 24
12.1. Successors and Assigns .................................... 24
12.2. Survival of Representations ............................... 26
12.3. Governmental Regulation ................................... 26
12.4. Taxes ..................................................... 27
12.5. Choice of Law; Waiver of Jury Trial ....................... 27
12.6. Headings .................................................. 27
12.7. Entire Agreement .......................................... 27
12.8. Expenses; Indemnification ................................. 27
12.9. [Intentionally Omitted.] .................................. 27
12.10. Severability of Provisions ................................ 27
12.11. Setoff .................................................... 27
TABLE OF CONTENTS, Page ii
12.12. Ratable Payments .......................................... 28
12.13. Nonliability of Banks ..................................... 28
ARTICLE XIII. THE AGENT ................................................. 28
13.1. Appointment ............................................... 28
13.2. Powers .................................................... 28
13.3. General Immunity .......................................... 28
13.4. No Responsibility for Loans, Recitals, etc ................ 29
13.5. Action on Instructions of Banks ........................... 29
13.6. Employment of Agents and Counsel .......................... 29
13.7. Reliance on Documents; Counsel ............................ 29
13.8. Agent's Reimbursement and Indemnification ................. 29
13.9. Rights as a Lender ........................................ 29
13.10. Bank Credit Decision ...................................... 29
13.11. Successor Agent ........................................... 30
ARTICLE XIV. NOTICES ................................................... 30
14.1. Giving Notice ............................................. 30
14.2. Change of Address ......................................... 30
ARTICLE XV. COUNTERPARTS .............................................. 30
ARTICLE XVI. MAXIMUM INTEREST RATE ..................................... 31
16.1. Recapture ................................................. 31
16.2. Savings Clause ............................................ 31
TABLE OF CONTENTS, Page iii
EXHIBITS
Exhibit A Form of Supplemental Indenture
Exhibit B-1 Required Opinions from Michael D. VanHemert, Esq.
Exhibit B-2 Required Opinions from Miller, Canfield, Paddock and Stone, P.L.C.
Exhibit C Form of Assignment and Assumption Agreement
Exhibit D Form of Bond Delivery Agreement
SCHEDULES
Commitment Schedule
INDEX OF SCHEDULES AND EXHIBITS, Page Solo
TERM LOAN AGREEMENT
This Term Loan Agreement (the "Agreement"), dated as of March 26, 2003,
is among Consumers Energy Company, a Michigan corporation (the "Company"), the
financial institutions listed on the signature pages hereof (together with their
respective successors and assigns, the "Banks") and Beal Bank, S.S.B., a savings
bank organized under the laws of the State of Texas, as Agent.
RECITALS
The Company has requested that the Banks make a $140,000,000 term loan
to the Company and the Banks have agreed to do so upon the terms set forth in
this Agreement. The Agent has agreed to act as agent on behalf of the Banks
under the terms of this Agreement.
Accordingly, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.1. Definitions. As used in this Agreement:
"Agent" means Beal Bank, S.S.B. in its capacity as administrative agent
for the Banks pursuant to Article XIII, and not in its individual capacity as a
Bank, and any successor Agent appointed pursuant to Article XIII.
"Agreement" means this Term Loan Agreement, as amended from time to
time.
"Applicable Margin" means, with respect to Eurodollar Rate Loans at any
time, 4.75% per annum, and with respect to Floating Rate Loans at any time,
2.00% per annum.
"Approved Fund" means, with respect to any Bank that is a fund that
invests in commercial loans, any other fund that invests in commercial loans and
is managed or advised by the same investment advisor as such Bank or by an
affiliate of such investment advisor.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Assignment Agreement" - see Section 12.1(e).
"Banks" - see the preamble.
"Base Eurodollar Rate" means, with respect to any Interest Period
applicable to a Eurodollar Rate Loan, the per annum interest rate determined by
the offered rate per annum at which deposits in Dollars appears on Telerate page
3750 (or any successor page) as of 11:00 a.m. (London time), or in the event
such offered rate is not available from the Telerate page, the rate offered on
deposits in Dollars by Citibank's London Office to prime banks in the London
interbank market at 11:00 a.m. (London time), on the Eurodollar Interest Rate
Determination Date for such Interest Period and in an amount substantially equal
to the amount of the Eurodollar Rate Loan to be outstanding from Beal Bank,
S.S.B. for such Interest Period.
"Base Rate" means, as of any date, the prime rate of interest most
recently announced or published by The Wall Street Journal from time to time, it
being understood that if The Wall Street
TERM LOAN AGREEMENT, Page 1
Journal should at any time announce or publish more than one such prime rate of
interest, the highest such announced or published prime rate of interest shall
be used as the Base Rate hereunder.
"Bond Delivery Agreement" means a bond delivery agreement substantially
in the form of Exhibit D whereby the Agent (x) acknowledges delivery of the
Bonds and (y) agrees to hold the Bonds for the benefit of the Banks and to
distribute all payments made by the Company on account thereof to the Banks.
"Bonds" means the series of First Mortgage Bonds created under the
Supplemental Indenture issued in favor of, and in form and substance
satisfactory to, the Agent.
"Building Lease" means the Master Lease and Lease Supplement, each
dated as of April 23, 2001, between Consumers Campus Holdings, LLC, a wholly
owned Subsidiary of the Company, as lessee, and Wilmington Trust Company, not in
its individual capacity but solely as owner Trustee of CEC Trust 2001-A, as
lessor, together with certain other related agreements, as the same may be
amended, restated or otherwise modified and any similar agreement entered into
replacement thereof.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Rate Loan, a day (other than a Saturday or Sunday) on
which banks generally are open in New York, New York and Dallas, Texas for the
conduct of substantially all of their commercial lending activities, interbank
wire transfers can be made on the Fedwire system and dealings in United States
dollars are carried on in the London interbank market and (ii) for all other
purposes, a day (other than a Saturday or Sunday) on which banks generally are
open in New York, New York and Dallas, Texas for the conduct of substantially
all of their commercial lending activities and interbank wire transfers can be
made on the Fedwire system.
"Capital Lease" means any lease which has been or would be capitalized
on the books of the lessee in accordance with GAAP.
"Citibank" means Citibank, N.A., a national banking association.
"CMS" means CMS Energy Corporation, a Michigan corporation.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment Schedule" means the Schedule identifying each Bank's Term
Loan Commitment as of the date hereof attached hereto and identified as such.
"Company" - see the preamble.
"Consolidated Subsidiary" means any Subsidiary whose accounts are or
are required to be consolidated with the accounts of the Company in accordance
with GAAP.
"Continuation Notice" - see Section 2.5(b).
"Credit Agreement" means that certain 364 Day Credit Agreement, dated
as of July 12, 2002, by and among the Company, the banks from time to time
parties thereto, and Bank One, NA, as agent thereunder, as amended, restated,
supplemented or otherwise modified from time to time.
"Debt" means, with respect to any Person, and without duplication, (a)
all indebtedness of such Person for borrowed money, (b) all indebtedness of such
Person for the deferred purchase price of property or services (other than trade
accounts payable arising in the ordinary course of business which are not
overdue), (c) all Unfunded Vested Liabilities of such Person (if such Person is
not the Company,
TERM LOAN AGREEMENT, Page 2
determined in a manner analogous to that of determining Unfunded Vested
Liabilities of the Company), (d) all obligations of such Person arising under
acceptance facilities, (e) all obligations of such Person as lessee under
Capital Leases, (f) all obligations of such Person arising under any interest
rate swap, "cap", "collar" or other hedging agreements; provided, however, for
purposes of the calculation of Debt for this clause (f) only, the actual amount
of Debt of such Person shall be determined on a net basis to the extent such
agreements permit such amounts to be calculated on a net basis, and (g) all
guaranties, endorsements (other than for collection in the ordinary course of
business) and other contingent obligations of such Person to assure a creditor
against loss (whether by the purchase of goods or services, the provision of
funds for payment, the supply of funds to invest in any Person or otherwise) in
respect of indebtedness or obligations of any other Person of the kinds referred
to in clauses (a) through (f) above.
"Default" means an event which but for the giving of notice or lapse of
time, or both, would constitute an Event of Default.
"Designated Officer" means the Chief Financial Officer, the Treasurer,
an Assistant Treasurer, any Vice President in charge of financial or accounting
matters or the principal accounting officer of the Company.
"Effective Date" means March 26, 2003.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Company or is under common control (within
the meaning of Section 414(c) of the Code) with the Company.
"Eurodollar Interest Rate Determination Date" means the second Business
Day prior to the first day of each Interest Period.
"Eurodollar Rate" means, with respect to any Interest Period applicable
to a Eurodollar Rate Loan, an interest rate per annum equal to the sum of (i)
the quotient obtained by dividing (a) the greater of 1.35% or the Base
Eurodollar Rate applicable to that Interest Period by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to that Interest Period plus
(ii) the Applicable Margin.
"Eurodollar Rate Loan" means a Term Loan which bears interest by
reference to the Eurodollar Rate.
"Event of Default" means an event described in Article IX.
"Excluded Taxes" means, in the case of each Bank or applicable Lending
Installation and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it, by (i) the jurisdiction under the laws of which
such Bank or the Agent is incorporated or organized or (ii) the jurisdiction in
which the Agent's or such Bank's principal executive office or such Bank's
applicable Lending Installation is located.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day in New York, New York, for the next preceding
Business Day) in New York, New York by the Federal Reserve Bank of New York, or
if such rate is not so published for any day which is a Business Day in New
York, New York, the average of the quotations for such day on such
TERM LOAN AGREEMENT, Page 3
transactions received by the Agent from three federal funds brokers of
recognized standing selected by the Agent.
"FERC Approval" See Section 5.2.
"First Mortgage Bonds" means bonds issued by the Company pursuant to
the Indenture.
"Fitch" means Fitch, Inc. or any successor thereto.
"Floating Rate" means a rate per annum equal to (i) the Base Rate plus
(ii) the Applicable Margin, changing when and as the Base Rate changes.
"Floating Rate Loan" means a Term Loan which bears interest at the
Floating Rate.
"FRB" means the Board of Governors of the Federal Reserve System or any
successor thereto.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect on the date hereof, applied on a basis consistent
with those used in the preparation of the financial statements referred to in
Section 5.5 (except, for purposes of the financial statements required to be
delivered pursuant to Sections 6.7(b) and (c), for changes concurred in by the
Company's independent public accountants).
"Indenture" means the Indenture, dated as of September 1, 1945 from
Consumers Power Company (predecessor to the Company) to City Bank Farmers Trust
Company, as trustee, as supplemented and amended from time to time. JPMorgan
Chase Bank is now the successor trustee under the Indenture.
"Interest Period" means, with respect to a Eurodollar Rate Loan, a
period of one, two, three or six months, or such shorter or longer period agreed
to by the Company and the Banks, commencing on a Business Day selected by the
Company pursuant to this Agreement. Such Interest Period shall end on the day
which corresponds numerically to such date one, two, three or six months
thereafter (or such shorter or longer period agreed to by the Company and the
Banks), provided, however, that if there is no such numerically corresponding
day in such next, second, third or sixth succeeding month (or such shorter or
longer period, as applicable), such Interest Period shall end on the last
Business Day of such next, second, third or sixth succeeding month (or such
shorter or longer period, as applicable). If an Interest Period would otherwise
end on a day which is not a Business Day, such Interest Period shall end on the
next succeeding Business Day, provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day. The Company may not select any Interest
Period that ends after the Maturity Date.
"Lending Installation" means any office, branch, subsidiary or
affiliate of a Bank.
"Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.
"Loan" means a Floating Rate Loan, a Eurodollar Rate Loan or any other
principal portion of the Term Loans.
"Loan Documents" means this Agreement, the Indenture, the Supplemental
Indenture and the Bonds.
TERM LOAN AGREEMENT, Page 4
"Majority Banks" means, as of any date of determination, Banks whose
Pro Rata Shares, in the aggregate, are 51% or greater as of such date.
"Maturity Date" means March 26, 2009.
"Maximum Rate" means, at any time and with respect to any Bank, the
maximum rate of nonusurious interest under applicable law that such Bank may
charge the Company. The Maximum Rate shall be calculated in a manner that takes
into account any and all fees, payments, and other charges contracted for,
charged or received in connection with the Loan Documents that constitute
interest under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate resulting from a change in the Maximum Rate
shall take effect without notice to the Company at the time of such change in
the Maximum Rate.
"Moody's" means Moody's Investors Service, Inc. or any successor
thereto.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA.
"Net Proceeds" means, with respect to any sale or issuance of
securities or incurrence of Debt by any Person, the excess of (i) the gross cash
proceeds received by or on behalf of such Person in respect of such sale,
issuance or incurrence (as the case may be) over (ii) customary underwriting
commissions, auditing and legal fees, printing costs, rating agency fees and
other customary and reasonable fees and expenses incurred by such Person in
connection therewith.
"Net Worth" means, with respect to any Person, the excess of such
Person's total assets over its total liabilities, total assets and total
liabilities each to be determined in accordance with GAAP consistently applied,
excluding, however, from the determination of total assets (i) goodwill,
organizational expenses, research and development expenses, trademarks, trade
names, copyrights, patents, patent applications, licenses and rights in any
thereof, and other similar intangibles, (ii) cash held in a sinking or other
analogous fund established for the purpose of redemption, retirement or
prepayment of capital stock or Debt, and (iii) any items not included in clauses
(i) or (ii) above, that are treated as intangibles in conformity with GAAP.
"Non-U.S. Bank" - see Section 4.5(d).
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Term Loans and all other obligations of the Company to the Banks
or to any Bank or the Agent arising under the Loan Documents.
"Off-Balance Sheet Liability" of a Person means (i) any repurchase
obligation or liability of such Person with respect to accounts or notes
receivable sold by such Person, (ii) any liability under any sale and leaseback
transaction which is not a Capital Lease, (iii) any liability under any
so-called "synthetic lease" transaction entered into by such Person, or (iv) any
obligation arising with respect to any other transaction which is the functional
equivalent of or takes the place of borrowing but which does not constitute a
liability on the balance sheets of such Person, but excluding from this clause
(iv) Operating Leases.
"Operating Lease" of a Person means any lease of Property (other than a
Capital Lease) by such Person as lessee.
"Other Taxes" - see Section 4.5(b).
TERM LOAN AGREEMENT, Page 5
"Payment Date" means the last Business Day of each June, September,
December and March occurring after the Effective Date.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"Plan" means any employee benefit plan (other than a Multiemployer
Plan) maintained for employees of the Company or any ERISA Affiliate and covered
by Title IV of ERISA.
"Prepayment Fee" see Section 2.4.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.
"Pro Rata Share" means, with respect to any Bank, at any time, the
percentage obtained by dividing (i) the outstanding principal balance of such
Bank's Term Loan at such time by (ii) the outstanding principal balance of all
Term Loans.
"Receivables Sale Agreement" means the Amended and Restated Receivables
Sale Agreement among the Company, Asset Securitization Cooperative Corporation
and Canadian Imperial Bank of Commerce, dated as of April 1, 2002, as the same
may be amended, restated or otherwise modified and any similar agreement entered
into replacement thereof.
"Regulation D" means Regulation D of the FRB from time to time in
effect and shall include any successor or other regulation or official
interpretation of said FRB relating to reserve requirements applicable to member
banks of the Federal Reserve System.
"Regulation U" means Regulation U of the FRB from time to time in
effect and shall include any successor or other regulation or official
interpretation of said FRB relating to the extension of credit by banks,
non-banks and non-broker-dealers for the purpose of purchasing or carrying
margin stocks.
"Reportable Event" has the meaning assigned to that term in Title IV of
ERISA.
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities or which is imposed by any other law or regulation applicable to a
Bank.
"S&P" means Standard and Poor's Rating Services, a division of The
McGraw Hill Companies, Inc. or any successor thereto.
"SEC" means the Securities and Exchange Commission or any governmental
authority which may be substituted therefor.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Securitized Bonds" shall mean any nonrecourse bonds or similar
asset-backed securities issued by a special-purpose Subsidiary of the Company
which are payable solely from specialized charges
TERM LOAN AGREEMENT, Page 6
authorized by the utility commission of the relevant state in connection with
the recovery of regulatory assets or other stranded costs.
"Senior Debt" means the First Mortgage Bonds.
"Single Employer Plan" means a Plan maintained by the Company or any
ERISA Affiliate for employees of the Company or any ERISA Affiliate.
"Subsidiary" means, as to any Person, any corporation or other entity
of which at least a majority of the securities or other ownership interests
having ordinary voting power (absolutely or contingently) for the election of
directors or other Persons performing similar functions are at the time owned
directly or indirectly by such Person.
"Supplemental Indenture" means a supplemental indenture substantially
in the form of Exhibit A.
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities with
respect to the foregoing, but excluding Excluded Taxes and Other Taxes.
"Termination Event" means (a) a Reportable Event described in Section
4043 of ERISA and the regulations issued thereunder (other than a Reportable
Event not subject to the provision for 30-day notice to the PBGC under such
regulations), or (b) the withdrawal of the Company or any of its ERISA
Affiliates from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of proceedings
to terminate a Plan by the PBGC or to appoint a trustee to administer any Plan.
"Term Loan Commitment" means, for each Bank, the obligation of such
Bank to make a term loan to the Company on the Effective Date in an amount not
exceeding the amount set forth on the Commitment Schedule as its Term Loan
Commitment.
"Term Loans" - see Section 2.1.
"Unfunded Vested Liabilities" means, (i) in the case of Single Employer
Plans, the amount (if any) by which the present value of all vested
nonforfeitable benefits under such Plan exceeds the fair market value of all
Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, and (ii) in the case of Multiemployer
Plans, the withdrawal liability of the Company and its ERISA Affiliates.
1.2. Singular and Plural. The foregoing definitions shall be
equally applicable to both the singular and plural forms of the defined terms.
1.3. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.
ARTICLE II.
THE TERM LOANS
2.1. The Term Loans. Each Bank severally agrees, on the terms and
conditions set forth in this Agreement, to make a term loan to the Company on
the Effective Date in an amount equal to such Bank's Term Loan Commitment (each
individually, a "Term Loan" and collectively the "Term Loans").
TERM LOAN AGREEMENT, Page 7
2.2. Making of Term Loans. Not later than 1:00 p.m. (Dallas, Texas
time) on the Effective Date, each Bank shall make available its applicable Term
Loan in funds immediately available in Dallas, Texas to the Agent at its address
specified pursuant to Section 14. No Bank's obligation to make any Term Loan
shall be affected by any other Bank's failure to make any Term Loan.
2.3. Repayment of Term Loans. The Term Loans shall be paid in full
on the Maturity Date.
2.4. Optional Principal Payments. The Company may, upon at least
three (3) Business Days' prior written notice to the Agent (which the Agent
shall promptly transmit to each Bank), at any time and from time to time, prepay
the Term Loans, in whole or in part, provided that: (a) in connection with any
prepayment made prior to March 26, 2008 the Company also agrees to pay to the
Agent for the benefit of the Banks the Prepayment Fee and (b) in connection with
any prepayment of a Eurodollar Rate Loans prior to the expiration date of the
then applicable Interest Period therefor, the Company agrees to pay to the Agent
for the benefit of the Banks the amounts required by Section 4.4. Any notice of
prepayment given to the Agent under this Section 2.4 shall specify the date
(which shall be a Business Day) of prepayment and the aggregate principal amount
of the prepayment. When notice of prepayment is delivered as provided herein,
the principal amount of the Term Loans specified in the notice shall become due
and payable on the prepayment date specified in such notice. Unless the
aggregate outstanding principal balance of the Term Loans is to be prepaid in
full, voluntary prepayments of the Term Loans shall be in an aggregate minimum
amount of $10,000,000 and integral multiples of $1,000,000 in excess of that
amount. Each voluntary prepayment of the Term Loans shall be allocated first to
Term Loans which are Floating Rate Loans until paid in full, then to Term Loans
which are Eurodollar Rate Loans and then to any other portion of the Term Loans
outstanding. Amounts prepaid hereunder may not be reborrowed. Upon any
prepayment of the Term Loans pursuant to the terms of this Section 2.4, the
Agent shall, upon request of the Company, promptly surrender to or upon the
order of the Company one or more Bonds specified by the Company; provided that
the Company remains in compliance with Section 6.10. The term "Prepayment Fee"
means, with respect to any prepayment, a fee equal to the lesser of (i) the
maximum prepayment fee the Banks may collect without violating applicable law or
(ii) the following percentage of the amount of principal being prepaid during
the period in question:
- --------------------------------------------------------------------------------
Period Percentage
- --------------------------------------------------------------------------------
Effective Date through the first anniversary of the Effective Date 3.00%
- --------------------------------------------------------------------------------
From the first anniversary of the Effective Date through the second 2.00%
anniversary of the Effective Date
- --------------------------------------------------------------------------------
From the second anniversary of the Effective Date through the fifth 1.00%
anniversary of the Effective Date
- --------------------------------------------------------------------------------
In the event the maturity of the Term Loans is accelerated prior to March 26,
2008, the Company also agrees to pay to the Agent for the benefit of the Banks
the Prepayment Fee on any amount of the Terms Loans subsequently repaid prior to
March 26, 2008.
2.5. Establishment and Continuation of Eurodollar Rate Loans. (a)
The Company shall have the option to: (A) establish the initial Interest Periods
and amount of each Eurodollar Rate Loan to be created on the Effective Date; and
(B) to continue all or any part of outstanding Eurodollar Rate Loans having
Interest Periods which expire on the same date as Eurodollar Rate Loans, and the
succeeding Interest Period of such continued Eurodollar Rate Loans shall
commence on such expiration date; provided, however, no such outstanding
Eurodollar Rate Loan may be continued as a Eurodollar Rate Loan (i) if the
continuation of such Eurodollar Rate Loan would violate any of the provisions of
this Agreement or (ii) if a Default or Event of Default would occur or has
occurred and is continuing. Any continuation of Eurodollar Rate Loans under this
Section 2.5 shall be in a minimum amount of $10,000,000 and in integral
multiples of $1,000,000 in excess of that amount.
TERM LOAN AGREEMENT, Page 8
(b) To establish Eurodollar Rate Loans on the Effective
Date, the Company shall deliver an irrevocable notice to the Agent no later than
11:00 a.m. (Dallas, Texas time) on the Effective Date. To continue a Eurodollar
Rate Loan under Section 2.5(a), the Company shall deliver an irrevocable notice
(a "Continuation Notice") to the Agent no later than 11:00 a.m. (Dallas, Texas
time) at least three (3) Business Days in advance of the proposed continuation
date. The notice of establishment of the initial Eurodollar Rate Loans and each
Continuation Notice shall specify: (A) the proposed establishment or
continuation date (which shall be a Business Day), (B) the principal amount of
the Term Loan to be continued or established, and (C) the requested Interest
Period. Promptly after receipt of a notice under this Section 2.5(b) (or
telephonic notice in lieu thereof), the Agent shall notify each Bank by telex or
telecopy, or other similar form of transmission, of the proposed continuation.
Any notice under this Section 2.5(b) (or telephonic notice in lieu thereof)
shall be irrevocable, and the Company shall be bound to continue in accordance
therewith.
2.6. Interest Rates, Interest Payment Dates. Each Term Loan shall
bear interest at a rate per annum equal to the applicable Eurodollar Rate for
each applicable Interest Period therein; provided that:
(a) if the Company fails to establish Eurodollar Rate
Loans hereunder or fails to continue a Eurodollar Rate Loan at the end of the
Interest Period therefor as provided in Section 2.5, the principal amount of the
Term Loan relating thereto shall bear interest at a per annum rate equal to the
greater of 6.75% or the Floating Rate;
(b) if the Base Eurodollar Rate can not be determined for
any Eurodollar Rate Loan and any Interest Period with respect thereto, any other
event described in Section 4.3 occurs with respect to a Eurodollar Rate Loan or
if any Interest Period applicable to any Eurodollar Rate Loan would be shorter
than 30 days, the principal amount of the Term Loan relating to such Eurodollar
Rate Loan shall bear interest at a per annum rate equal to the greater of 6.10%
or the Floating Rate; and
(c) if an Event of Default exists, the Term Loans shall
bear interest at a rate per annum equal to 2.00% plus the rate otherwise
applicable thereto determined in accordance with this Section 2.6.
Changes in the rate of interest on that portion of any Term Loan maintained as a
Floating Rate Loan will take effect simultaneously with each change in the
Floating Rate. Interest accrued on each Loan shall be payable on each Payment
Date and at maturity. Interest on all Term Loans shall be calculated for actual
days elapsed on the basis of a 365 or 366 (as the case may be) day year. In
computing interest on any Term Loan, the date of the making of the Term Loan or
the first day of an Interest Period, as the case may be, shall be included and
the date of payment or the expiration date an Interest Period, as the case may
be, shall be excluded; provided, however, if a Term Loan is repaid on the same
day on which it is made, one (1) day's interest shall be paid on such Term Loan.
If any payment of principal of or interest on a Loan shall become due on a day
which is not a Business Day, such payment shall be made on the next succeeding
Business Day and, in the case of a principal payment, such extension of time
shall be included in computing interest in connection with such payment.
2.7. Rate after Maturity. All Obligations (other than principal)
which shall accrue interest as provided in Section 2.6) that are not paid when
due (including, without limitation, overdue interest) shall bear interest until
paid in full at a rate per annum equal to the Floating Rate plus 2%.
2.8. Method of Payment. All payments of principal, interest and
fees hereunder shall be made in immediately available funds to the Agent at its
address specified on its signature page to this Agreement (or at any other
Lending Installation of the Agent specified in writing by the Agent to the
Company) not later than 1:00 p.m. (Dallas, Texas time) on the date when due and
shall be applied ratably by the Agent among the Banks. Funds received after such
time shall be deemed received on the
TERM LOAN AGREEMENT, Page 9
following Business Day unless the Agent shall have received from, or on behalf
of, the Company a Federal Reserve reference number with respect to such payment
before 1:00 p.m. (Dallas, Texas time) on the date of such payment. Each payment
delivered to the Agent for the account of any Bank shall be delivered promptly
by the Agent in the same type of funds received by the Agent to such Bank at the
address specified for such Bank on its signature page to this Agreement or at
any Lending Installation specified in a notice received by the Agent from such
Bank. The Agent is hereby authorized to charge the account of the Company
maintained with Beal Bank, S.S.B., if any, for each payment of principal,
interest and fees as such payment becomes due hereunder.
2.9. Evidence of Obligation; Telephonic Notices.
(a) The obligation of the Company to repay the
Obligations shall be evidenced by one or more Bonds.
(b) Each Bank shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness of the Company to
such Bank resulting from each Term Loan made by such Bank from time to time,
including the amounts of principal and interest payable and paid to such Bank
from time to time hereunder.
(c) The Agent shall also maintain accounts in which it
will record (i) the amount of each Term Loan made hereunder, the interest rate
applicable thereto and any Interest Period applicable thereto, (ii) the amount
of any principal or interest due and payable or to become due and payable from
the Company to each Bank hereunder, and (iii) the amount of any sum received by
the Agent hereunder from the Company and each Bank's share thereof.
(d) The entries maintained in the accounts maintained
pursuant to paragraphs (b) and (c) above shall be prima facie evidence of the
existence and amounts of the Obligations therein recorded; provided, however,
that the failure of the Agent or any Bank to maintain such accounts or any error
therein shall not in any manner affect the obligation of the Company to repay
the Obligations in accordance with their terms.
(e) The Company hereby authorizes the Banks and the Agent
to make or continue Term Loans based on telephonic notices made by any person or
persons the Agent or any Bank in good faith believes to be acting on behalf of
the Company. The Company agrees to deliver promptly to the Agent a written
confirmation of each telephonic notice signed by a Designated Officer. If the
written confirmation differs in any material respect from the action taken by
the Agent and the Banks, the records of the Agent and the Banks shall govern
absent manifest error.
2.10. Lending Installations. Subject to the provisions of Section
4.6, each Bank may book its Term Loans at any Lending Installation selected by
such Bank and may change its Lending Installation from time to time. All terms
of this Agreement shall apply to any such Lending Installation and the Term
Loans shall be deemed held by the applicable Bank for the benefit of such
Lending Installation. Each Bank may, by written or facsimile notice to the
Company, designate a Lending Installation through which Term Loans will be made
by it and for whose account payments on the Term Loans are to be made.
2.11. Non-Receipt of Funds by the Agent. Unless a Bank or the
Company, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Bank, the
proceeds of a Term Loan or (ii) in the case of the Company, a payment of
principal, interest or fees to the Agent for the account of the Banks, that it
does not intend to make such payment, the Agent may assume that such payment has
been made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption If
such Bank or the Company, as the case may be, has not in fact made such payment
to the Agent, the
TERM LOAN AGREEMENT, Page 10
recipient of such payment shall, on demand by the Agent, repay to the Agent the
amount so made available together with interest thereon in respect of each day
during the period commencing on the date such amount was so made available by
the Agent until the date the Agent recovers such amount at a rate per annum
equal to (i) in the case of payment by a Bank, the Federal Funds Rate for such
day or (ii) in the case of payment by the Company, the interest rate applicable
to the relevant Term Loan.
ARTICLE III.
RESERVED
ARTICLE IV.
CHANGE IN CIRCUMSTANCES
4.1. Yield Protection. (a) If any change in law or any governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law), or any interpretation thereof by any agency or authority having
jurisdiction over any Bank,
(i) subjects any Bank or any applicable Lending
Installation to any increased tax, duty, charge or withholding on or from
payments due from the Company (excluding taxation measured by or attributable to
the overall net income of such Bank or applicable Lending Installation, whether
overall or in any geographic area), or changes the rate of taxation of payments
to any Bank in respect of its Term Loans or other amounts due it hereunder, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by any Bank
or any applicable Lending Installation (including, without limitation, any
reserve costs under Regulation D with respect to Eurocurrency liabilities (as
defined in Regulation D)), or
(iii) imposes any other condition the result of which is to
increase the cost to any Bank or any applicable Lending Installation of making,
funding or maintaining Term Loans, or reduces any amount receivable by any Bank
or any applicable Lending Installation in connection with Term Loans or requires
any Bank or any applicable Lending Installation to make any payment calculated
by reference to its Term Loans or interest received by it, by an amount deemed
material by such Bank, or
(iv) affects the amount of capital required or expected to
be maintained by any Bank or Lending Installation or any corporation controlling
any Bank and such Bank determines the amount of capital required is increased by
or based upon the existence of this Agreement or its obligation to make Term
Loans hereunder or of commitments of this type,
then, upon presentation by such Bank to the Company of a certificate (as
referred to in the immediately succeeding sentence of this Section 4.1) setting
forth the basis for such determination and the additional amounts reasonably
determined by such Bank for the period of up to 90 days prior to the date on
which such certificate is delivered to the Company and the Agent, to be
sufficient to compensate such Bank in light of such circumstances, the Company
shall within 30 days of such delivery of such certificate pay to the Agent for
the account of such Bank the specified amounts set forth on such certificate.
The affected Bank shall deliver to the Company and the Agent a certificate
setting forth the basis of the claim and specifying in reasonable detail the
calculation of such increased expense, which certificate shall be prima facie
evidence as to such increase and such amounts. An affected Bank may deliver more
than one
TERM LOAN AGREEMENT, Page 11
certificate to the Company during the term of this Agreement. In making the
determinations contemplated by the above-referenced certificate, any Bank may
make such reasonable estimates, assumptions, allocations and the like that such
Bank in good faith determines to be appropriate, and such Bank's selection
thereof in accordance with this Section 4.1 shall be conclusive and binding on
the Company, absent manifest error.
(b) No Bank shall be entitled to demand compensation or
be compensated hereunder to the extent that such compensation relates to any
period of time more than 90 days prior to the date upon which such Bank first
notified the Company of the occurrence of the event entitling such Bank to such
compensation (unless, and to the extent, that any such compensation so demanded
shall relate to the retroactive application of any event so notified to the
Company).
4.2. Replacement Bank. If any Bank shall make a demand for payment
under Section 4.1, then within 30 days after such demand, the Company may, with
the approval of the Agent (which approval shall not be unreasonably withheld)
and provided that no Default or Event of Default shall then have occurred and be
continuing, demand that such Bank assign to one or more financial institutions
designated by the Company and approved by the Agent all (but not less than all)
of such Bank's outstanding Term Loans within the period ending on the later of
such 30th day and the last day of the longest of the then current Interest
Periods or maturity dates for such outstanding Term Loans. It is understood that
such assignment shall be consummated on terms satisfactory to the Company, the
Agent and the assigning Bank, provided that such assigning Bank's consent to
such an assignment shall not be unreasonably withheld.
4.3. Availability of Eurodollar Rate Loans. If:
(i) any Bank determines that maintenance of a Eurodollar
Rate Loan at a suitable Lending Installation would violate any applicable law,
rule, regulation or directive, whether or not having the force of law, or
(ii) the Majority Banks determine that (A) deposits of a
type and maturity appropriate to match fund Eurodollar Rate Loans are not
available or (B) the Base Eurodollar Rate does not accurately reflect the cost
of making or maintaining a Eurodollar Rate Loan,
then the Agent shall suspend the availability of Eurodollar Rate Loans and the
Term Loans or applicable portions thereof shall bear interest as provided in
Section 2.6.
4.4. Funding Indemnification. If any payment of a Eurodollar Rate
Loan occurs on a date which is not the last day of an applicable Interest
Period, whether because of prepayment or otherwise, or a Eurodollar Rate Loan is
not made on the date specified by the Company for any reason other than default
by the Banks, the Company will indemnify each Bank for any loss or cost (but not
lost profits) incurred by it resulting therefrom, including, without limitation,
any loss or cost in liquidating or employing deposits acquired to fund or
maintain such Eurodollar Rate Loan; provided that the Company shall not be
liable for any of the foregoing to the extent they arise because of acceleration
by any Bank.
4.5. Taxes.
(a) All payments by the Company to or for the account of
any Bank or the Agent hereunder or under any Bond shall be made free and clear
of and without deduction for any and all Taxes. If the Company shall be required
by law to deduct any Taxes from or in respect of any sum payable hereunder to
any Bank or the Agent, (i) the sum payable shall be increased as necessary so
that after making all required deductions (including deductions applicable to
additional sums payable under this Section 4.5) such Bank or the Agent (as the
case may be) receives an amount equal to the sum it would
TERM LOAN AGREEMENT, Page 12
have received had no such deductions been made, (ii) the Company shall make such
deductions, (iii) the Company shall pay the full amount deducted to the relevant
authority in accordance with applicable law and (iv) the Company shall furnish
to the Agent the original copy of a receipt evidencing payment thereof within 30
days after such payment is made.
(b) In addition, the Company hereby agrees to pay any
present or future stamp or documentary taxes and any other excise or property
taxes, charges or similar levies which arise from any payment made hereunder or
under any Bond or from the execution or delivery of, or otherwise with respect
to, this Agreement or any Bond ("Other Taxes").
(c) The Company hereby agrees to indemnify the Agent and
each Bank for the full amount of Taxes or Other Taxes (including, without
limitation, any Taxes or Other Taxes imposed on amounts payable under this
Section 4.5) paid by the Agent or such Bank and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
Payments due under this indemnification shall be made within 30 days of the date
the Agent or such Bank makes demand therefor pursuant to Section 4.6.
(d) Each Bank that is not incorporated under the laws of
the United States of America or a state thereof (each a "Non-U.S. Bank") agrees
that it will, not more than ten Business Days after the date hereof, or, if
later, not more than ten Business Days after becoming a Bank hereunder, (i)
deliver to each of the Company and the Agent two (2) duly completed copies of
United States Internal Revenue Service Form W8BEN or W8ECI, certifying in either
case that such Bank is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes, and (ii)
deliver to each of the Company and the Agent a United States Internal Revenue
Form W-8 or W-9, as the case may be, and certify that it is entitled to an
exemption from United States backup withholding tax. Each Non-U.S. Bank further
undertakes to deliver to each of the Company and the Agent (x) renewals or
additional copies of such form (or any successor form) on or before the date
that such form expires or becomes obsolete, and (y) after the occurrence of any
event requiring a change in the most recent forms so delivered by it, such
additional forms or amendments thereto as may be reasonably requested by the
Company or the Agent. All forms or amendments described in the preceding
sentence shall certify that such Bank is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes, unless an event (including without limitation any change in treaty, law
or regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Bank from duly completing and delivering any such form or amendment
with respect to it and such Bank advises the Company and the Agent that it is
not capable of receiving payments without any deduction or withholding of United
States federal income tax.
(e) For any period during which a Non-U.S. Bank has
failed to provide the Company with an appropriate form pursuant to clause (d),
above (unless such failure is due to a change in treaty, law or regulation, or
any change in the interpretation or administration thereof by any governmental
authority, occurring subsequent to the date on which a form originally was
required to be provided), such Non-U.S. Bank shall not be entitled to
indemnification under this Section 4.5 with respect to Taxes imposed by the
United States; provided that, should a Non-U.S. Bank which is otherwise exempt
from or subject to a reduced rate of withholding tax become subject to Taxes
because of its failure to deliver a form required under clause (d) above, the
Company shall take such steps as such Non-U.S. Bank shall reasonably request to
assist such Non-U.S. Bank to recover such Taxes.
(f) Any Bank that is entitled to an exemption from or
reduction of withholding tax with respect to payments under this Agreement or
any Bond pursuant to the law of any relevant jurisdiction or any treaty shall
deliver to the Company (with a copy to the Agent), at the time or times
TERM LOAN AGREEMENT, Page 13
prescribed by applicable law, such properly completed and executed documentation
prescribed by applicable law as will permit such payments to be made without
withholding or at a reduced rate.
(g) If the U.S. Internal Revenue Service or any other
governmental authority of the United States or any other country or any
political subdivision thereof asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Bank (because the
appropriate form was not delivered or properly completed, because such Bank
failed to notify the Agent of a change in circumstances which rendered its
exemption from withholding ineffective, or for any other reason), such Bank
shall indemnify the Agent fully for all amounts paid, directly or indirectly, by
the Agent as tax, withholding therefor, or otherwise, including penalties and
interest, and including taxes imposed by any jurisdiction on amounts payable to
the Agent under this subsection, together with all costs and expenses related
thereto (including attorneys fees and time charges of attorneys for the Agent,
which attorneys may be employees of the Agent). The obligations of the Banks
under this Section 4.5(g) shall survive the payment of the Obligations and
termination of this Agreement.
4.6. Bank Certificates; Survival of Indemnity. To the extent
reasonably possible, each Bank shall designate an alternate Lending Installation
with respect to Eurodollar Rate Loans to reduce any liability of the Company to
such Bank under Section 4.1 or to avoid the unavailability of Eurodollar Rate
Loan under Section 4.3, so long as such designation is not disadvantageous to
such Bank. A certificate of such Bank as to the amount due under Section 4.1,
4.4 or 4.5 shall be final, conclusive and binding on the Company in the absence
of manifest error. Determination of amounts payable under such Sections in
connection with a Eurodollar Rate Loan shall be calculated as though each Bank
funded each Eurodollar Rate Loan through the purchase of a deposit of the type
and maturity corresponding to the deposit used as a reference in determining the
Base Eurodollar Rate applicable to such Eurodollar Rate Loan whether in fact
that is the case or not. Unless otherwise provided herein, the amount specified
in any certificate shall be payable on demand after receipt by the Company of
such certificate. The obligations of the Company under Sections 4.1, 4.4 and 4.5
shall survive payment of the Obligations and termination of this Agreement,
provided, that no Bank shall be entitled to compensation to the extent that such
compensation relates to any period of time more than 90 days after the
termination of this Agreement.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants that:
5.1. Incorporation and Good Standing. The Company is duly
incorporated, validly existing and in good standing under the laws of the State
of Michigan.
5.2. Corporate Power and Authority; No Conflicts. The execution,
delivery and performance by the Company of the Loan Documents are within the
Company's corporate powers, have been duly authorized by all necessary corporate
action and do not (i) violate the Company's charter, bylaws, the authorization
to issue, sell or guarantee secured and/or unsecured long-term debt granted to
the Company by the Federal Energy Regulatory Commission (the "FERC Approval"),
or any applicable law or regulation, or (ii) breach or result in an event of
default under any indenture or material agreement, and do not result in or
require the creation of any Lien upon or with respect to any of its properties
(except the lien of the Indenture securing the Bonds).
5.3. Governmental Approvals. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Company of any Loan Document, except for the FERC Approval. The FERC
TERM LOAN AGREEMENT, Page 14
Approval has been obtained and is in full force and effect. The Debt incurred
hereunder is permitted to be incurred under the FERC Approval. The Company has
complied with all requirements of the FERC Approval in connection with its
execution, delivery and performance of the Loan Documents.
5.4. Legally Enforceable Agreements. Each Loan Document constitutes
a legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, subject to (a) the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (b) the application of general principles of
equity (regardless of whether considered in a proceeding in equity or at law).
5.5. Financial Statements. The audited balance sheet of the Company
and its Consolidated Subsidiaries as at December 31, 2001, and the related
statements of income and cash flows of the Company and its Consolidated
Subsidiaries for the fiscal year then ended, as set forth in the Company's
Annual Report on Form 10-K/A (copies of which have been furnished to each Bank),
and the unaudited restated balance sheets of the Company and its Consolidated
Subsidiaries as at September 30, 2002, and the related restated statements of
income and cash flows of the Company and its Consolidated Subsidiaries for the
nine-month period then ended (copies of which have been furnished to each Bank),
fairly present the financial condition of the Company and its Consolidated
Subsidiaries as at such dates and the results of operations of the Company and
its Consolidated Subsidiaries for the periods ended on such dates, all in
accordance with GAAP.
5.6. Litigation. Except (i) to the extent described in the
Company's Annual Report on Form 10-K/A for the year ended December 31, 2001 and
the Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2002, in
each case as filed with the SEC, copies of which have been furnished to each
Bank, and (ii) such other similar actions, suits and proceedings predicated on
the occurrence of the same events giving rise to any actions, suits and
proceedings described in the Reports filed with the SEC set forth in clause (i)
hereof, there is no pending or threatened action or proceeding against the
Company or any of its Consolidated Subsidiaries before any court, governmental
agency or arbitrator, which, if adversely determined, might reasonably be
expected to materially adversely affect the financial condition, results of
operations, business, Property or prospects of the Company and its Consolidated
Subsidiaries, taken as a whole, or that would materially adversely affect the
Company's ability to perform its obligations under any Loan Document. As of the
Effective Date, there is no litigation challenging the validity or the
enforceability of any of the Loan Documents.
5.7. Margin Stock. The Company is not engaged in the business of
extending credit for the purpose of buying or carrying margin stock (within the
meaning of Regulation U), and no proceeds of any Term Loan will be used to buy
or carry any margin stock or to extend credit to others for the purpose of
buying or carrying any margin stock.
5.8. ERISA. No Termination Event has occurred or is reasonably
expected to occur with respect to any Plan. Neither the Company nor any of its
ERISA Affiliates is an employer under a Multiemployer Plan.
5.9. Insurance. All insurance required by Section 6.2 is in full
force and effect.
5.10. Taxes. The Company and its Subsidiaries have filed all tax
returns (Federal, state and local) required to be filed and paid all taxes shown
thereon to be due, including interest and penalties, or, to the extent the
Company or any of its Subsidiaries is contesting in good faith an assertion of
liability based on such returns, has provided adequate reserves for payment
thereof in accordance with GAAP.
5.11. Investment Company Act. The Company is not an investment
company (within the meaning of the Investment Company Act of 1940, as amended).
TERM LOAN AGREEMENT, Page 15
5.12. Public Utility Holding Company Act. The Company is exempt from
the registration requirements of the Public Utility Holding Company Act of 1935,
as amended, 15 USC 79, et seq.
5.13. Bonds. The issuance to the Agent of Bonds as evidence of the
Obligations: (i) will not violate any provision of the Indenture or any other
agreement or instrument, or any law or regulation, or judicial or regulatory
order, judgment or decree, to which the Company or any of its Subsidiaries is a
party or by which any of the foregoing is bound and (ii) will provide the Banks,
as beneficial holders of the Bonds through the Agent, the benefit of the Lien of
the Indenture equally and ratably with the holders of other First Mortgage
Bonds.
ARTICLE VI.
AFFIRMATIVE COVENANTS
So long as any Obligations shall remain unpaid, the Company shall:
6.1. Payment of Taxes, etc. Pay and discharge before the same shall
become delinquent, (a) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property, and (b) all lawful claims which, if
unpaid, might by law become a Lien upon its property, provided that the Company
shall not be required to pay or discharge any such tax, assessment, charge or
claim (i) which is being contested by it in good faith and by proper procedures
or (ii) the non-payment of which will not materially adversely affect the
financial condition or results of operations of the Company and its Consolidated
Subsidiaries, taken as a whole.
6.2. Maintenance of Insurance. Maintain insurance in such amounts
and covering such risks with respect to its business and properties as is
usually carried by companies engaged in similar businesses and owning similar
properties, either with reputable insurance companies or, in whole or in part,
by establishing reserves or one or more insurance funds, either alone or with
other corporations or associations.
6.3. Preservation of Corporate Existence, etc. Preserve and
maintain its corporate existence, rights and franchises, and qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary in view of its business and operations or the
ownership of its properties, provided that the Company shall not be required to
preserve any such right or franchise or to remain so qualified unless the
failure to do so would have a material adverse effect on the financial condition
or results of operations of the Company and its Consolidated Subsidiaries, taken
as a whole, or the ability of the Company to enter into, or to perform its
obligations under, any Loan Document.
6.4. Compliance with Laws, etc. Comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority,
the non-compliance with which would materially adversely affect the financial
condition or results of operations of the Company and its Consolidated
Subsidiaries, taken as a whole, or the ability of the Company to perform its
obligations under any Loan Document.
6.5. Visitation Rights. Subject to any necessary approval from the
Nuclear Regulatory Commission, at any reasonable time and from time to time,
permit the Agent, any of the Banks or any agents or representatives thereof to
examine and make copies of and abstracts from its records and books of account,
visit its properties and discuss its affairs, finances and accounts with any of
its officers,
TERM LOAN AGREEMENT, Page 16
6.6. Keeping of Books. Keep, and cause each Consolidated Subsidiary
to keep, adequate records and books of account, in which full and correct
entries shall be made of all of its financial transactions and its assets and
business so as to permit the Company and its Consolidated Subsidiaries to
present financial statements in accordance with GAAP.
6.7. Reporting Requirements. Furnish to the Agent, with sufficient
copies for each of the Banks:
(a) as soon as practicable and in any event within five
Business Days after becoming aware of the occurrence of any Default or Event of
Default, a statement of a Designated Officer as to the nature thereof, and as
soon as practicable and in any event within five Business Days thereafter, a
statement of a Designated Officer as to the action which the Company has taken,
is taking or proposes to take with respect thereto;
(b) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal year of the
Company, a consolidated balance sheet of the Company and its Consolidated
Subsidiaries as at the end of such quarter, and the related consolidated
statements of income, cash flows and common stockholder's equity of the Company
and its Consolidated Subsidiaries as at the end of and for the period commencing
at the end of the previous fiscal year and ending with the end of such quarter,
setting forth in each case in comparative form the corresponding figures for the
corresponding date or period of the preceding fiscal year, or statements
providing substantially similar information (which requirement shall be deemed
satisfied by the delivery of the Company's quarterly report on Form 10-Q for
such quarter), all in reasonable detail and duly certified (subject to the
absence of footnotes and to year-end audit adjustments) by a Designated Officer
as having been prepared in accordance with GAAP, together with a certificate of
a Designated Officer (which certificate shall also accompany the financial
statements delivered pursuant to clause (c) below) stating that such officer has
no knowledge (having made due inquiry with respect thereto) that a Default or
Event of Default has occurred and is continuing, or, if a Default or Event of
Default has occurred and is continuing, a statement as to the nature thereof and
the actions which the Company has taken, is taking or proposes to take with
respect thereto;
(c) as soon as available and in any event within 120 days
after the end of each fiscal year of the Company, a copy of the Annual Report on
Form 10-K (or any successor form) for the Company for such year, including
therein the consolidated balance sheet of the Company and its Consolidated
Subsidiaries as at the end of such year and the consolidated statements of
income, cash flows and common stockholder's equity of the Company and its
Consolidated Subsidiaries as at the end of and for such year, or statements
providing substantially similar information, in each case certified by
independent public accountants of recognized national standing selected by the
Company (and not objected to by the Majority Banks), together with a certificate
of such accounting firm addressed to the Banks stating that, in the course of
its examination of the consolidated financial statements of the Company and its
Consolidated Subsidiaries, which examination was conducted by such accounting
firm in accordance with GAAP, such accounting firm has obtained no knowledge
that an Event of Default, insofar as such Event of Default related to accounting
or financial matters, has occurred and is continuing, or if, in the opinion of
such accounting firm, such an Event of Default has occurred and is continuing, a
statement as to the nature thereof;
(d) promptly after the sending or filing thereof, copies
of all proxy statements which the Company sends to its stockholders, copies of
all regular, periodic and special reports (other than those which relate solely
to employee benefit plans) which the Company files with the SEC and notice of
the sending or filing of (and, upon the request of the Agent or any Bank, a copy
of) any final prospectus filed with the SEC;
TERM LOAN AGREEMENT, Page 17
(e) as soon as possible and in any event (i) within 30
days after the Company or any of its ERISA Affiliates knows or has reason to
know that any Termination Event described in clause (a) of the definition of
Termination Event with respect to any Plan has occurred and (ii) within ten days
after the Company or any of its ERISA Affiliates knows or has reason to know
that any other Termination Event with respect to any Plan has occurred, a
statement of the Chief Financial Officer of the Company describing such
Termination Event and the action, if any, which the Company or such ERISA
Affiliate, as the case may be, proposes to take with respect thereto;
(f) [Reserved];
(g) as soon as possible and in any event within five (5)
days after the occurrence of any material default under any material agreement
to which the Company or any of its Subsidiaries is a party, which default would
materially adversely affect the financial condition, business, results of
operations, Property or prospects of the Company and its Subsidiaries,
considered as a whole, any of which is continuing on the date of such
certificate, a certificate of the president or chief financial officer of the
Company setting forth the details of such material default and the action which
the Company or any such Subsidiary proposes to take with respect thereto; and
(h) such other information respecting the business,
properties or financial condition of the Company as the Agent or any Bank
through the Agent may from time to time reasonably request.
6.8. Use of Proceeds. The Company will use the proceeds of the Term
Loans to refinance existing indebtedness of the Company and for working capital
for the Company. The Company will not, nor will it permit any Subsidiary to, use
any of the proceeds of the Term Loans to purchase or carry any "margin stock"
(as defined in Regulation U).
6.9. Maintenance of Properties, etc. The Company shall, and shall
cause each of its Subsidiaries to, maintain in all material respects all of its
respective owned and leased Property in good and safe condition and repair to
the same degree as other companies engaged in similar businesses and owning
similar properties, and not permit, commit or suffer any waste or abandonment of
any such Property, and from time to time shall make or cause to be made all
material repairs, renewals and replacements thereof, including, without
limitation, any capital improvements which may be required; provided, however,
that such Property may be altered or renovated in the ordinary course of
Company's or its Subsidiaries' business; and provided, further, that the
foregoing shall not restrict the sale of any asset of the Company or any
Subsidiary to the extent not prohibited by Section 7.2.
6.10. Bonds. Beginning on the Effective Date and continuing until
all Obligations have been paid in full, cause the aggregate amount of the Bonds
outstanding to at all times be equal to or greater than the aggregate
outstanding Term Loans.
6.11. Recordation of Supplemental Indenture. The Company shall (i)
within ten days after the Effective Date, deliver the Supplemental Indenture in
recordable form to the appropriate real estate recording office in all
jurisdictions specified in the Supplemental Indenture for recording and deliver
to the office of the Secretary of State of Michigan a UCC-1 financing statement
in a form approved by the Agent for filing in such office and (ii) within 25
days after the Effective Date, deliver to the Agent a certificate signed by a
Designated Officer certifying that the actions required by the foregoing clause
(i) have been taken. Once all of the Supplemental Indentures and the UCC-1
financing statement have been filed, the Company shall provide the Agent with
copies of each Supplemental Indenture and UCC-1 financing statement with
official evidence of the recording thereof in all such jurisdictions.
TERM LOAN AGREEMENT, Page 18
ARTICLE VII.
NEGATIVE COVENANTS
So long as any Obligations shall remain unpaid, the Company shall not:
7.1. Liens. Create, incur, assume or suffer to exist any Lien upon
or with respect to any of its properties, now owned or hereafter acquired,
except:
(a) Liens created pursuant to the Indenture securing the
First Mortgage Bonds;
(b) Liens securing pollution control bonds, or bonds
issued to refund or refinance pollution control bonds (including Liens securing
obligations (contingent or otherwise) of the Company under letter of credit
agreements or other reimbursement or similar credit enhancement agreements with
respect to pollution control bonds), provided that the aggregate face amount of
any such bonds so issued shall not exceed the aggregate face amount of such
pollution control bonds, as the case may be, so refunded or refinanced;
(c) Liens in (and only in) assets acquired to secure Debt
incurred to finance the acquisition of such assets;
(d) Statutory and common law banker's Liens on bank
deposits;
(e) Liens in respect of accounts receivable sold,
transferred or assigned by the Company;
(f) Liens for taxes, assessments or other governmental
charges or levies not at the time delinquent or thereafter payable without
penalty or being contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside on its
books;
(g) Liens of carriers, warehousemen, mechanics,
materialmen and landlords incurred in the ordinary course of business for sums
not overdue or being contested in good faith by appropriate proceedings and for
which adequate reserves shall have been set aside on its books;
(h) Liens incurred in the ordinary course of business in
connection with workers' compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for borrowed money)
entered into in the ordinary course of business or to secure obligations on
surety or appeal bonds;
(i) Judgment Liens in existence less than 30 days after
the entry thereof or with respect to which execution has been stayed or the
payment of which is covered (subject to a customary deductible) by insurance;
(j) Zoning restrictions, easements, licenses, covenants,
reservations, utility company rights, restrictions on the use of real property
or minor irregularities of title incident thereto which do not in the aggregate
materially detract from the value of the property or assets of the Company or
materially impair the operation of its business;
(k) Liens arising in connection with the financing of the
Company's fuel resources, including, but not limited to, nuclear fuel;
TERM LOAN AGREEMENT, Page 19
(l) Liens arising pursuant to Michigan Complied Laws
324.20138; provided that the aggregate amount of all obligations secured by such
Liens (excluding any such Liens of which the Company has no knowledge or which
are permitted by subsection (f) above) shall not exceed $20,000,000;
(m) Liens arising in connection with the Securitized
Bonds;
(n) Liens on the Facility LC Collateral Account (as
defined in the Credit Agreement) or any funds therein in favor of the agent
under the Credit Agreement;
(o) Liens on natural gas, oil and minerals, or on 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 the Company; provided that (i) such liens secure
obligations not exceeding $500,000,000 in aggregate principal amount and (ii)
such liens shall also be permitted under the terms of the Credit Agreement; and
(p) Other Liens securing obligations in an aggregate
amount not in excess of $150,000,000.
7.2. Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of: (i)15% or more of its assets, calculated with reference to total
assets as reflected on the Company's consolidated balance sheet as at June 30,
2002; (ii) any of the primary property encumbered by the Indenture in exchange
for any property not related to the delivery, transmission or generation of
electric energy or natural gas; provided that the Company may sell, lease,
assign, transfer or otherwise dispose of any of the primary property encumbered
by the Indenture in exchange for any property not related to the delivery,
transmission or generation of electric energy or natural gas if the aggregate
book value of any such primary property so disposed of does not exceed
$5,000,000 in any twelve month period; nor (iii) any assets encumbered by the
Indenture and in exchange thereof acquire any form of equity or stock in another
utility company.
7.3. Mergers, etc. Merge with or into or consolidate with or into
any other Person, except that the Company may merge with any other Person,
provided that, in each case, immediately after giving effect thereto, (a) no
event shall occur and be continuing which constitutes a Default or Event of
Default, (b) the Company is the surviving corporation, (c) the Company shall not
be liable with respect to any Debt or allow its property to be subject to any
Lien which it could not become liable with respect to, or allow its property to
become subject to, under this Agreement on the date of such transaction and (d)
the Company's Net Worth shall be equal to or greater than its Net Worth
immediately prior to such merger.
7.4. Compliance with ERISA. Permit to exist any occurrence of any
Reportable Event, or any other event or condition which presents a material (in
the reasonable opinion of the Majority Banks) risk of a termination by the PBGC
of any Plan of the Company or any ERISA Affiliate, which termination will result
in any material (in the reasonable opinion of the Majority Banks) liability of
the Company or such ERISA Affiliate to the PBGC.
7.5. Change in Nature of Business. Make any material change in the
nature of its business as carried on as of the date hereof (such business being
a public utility engaged in the generation, transmission and distribution of
electrical energy and natural gas).
7.6. Restricted Payments. The Company: (a) will not declare or pay
any dividends or make any other distributions on its capital stock (other than
dividends payable solely in such capital stock) or redeem any such capital
stock; and (b) will not, and will not permit any Subsidiary to, purchase or
otherwise acquire or retire any of the Company's capital stock or make any loans
or advances to CMS or any Subsidiary thereof (other than the Company or any
Subsidiary thereof); provided that, so long as no
TERM LOAN AGREEMENT, Page 20
Default or Event of Default exists, the Company may pay dividends in an
aggregate amount not to exceed $300,000,000 during any calendar year.
7.7. Off-Balance Sheet Liabilities. Create, incur, assume or suffer
to exist, or permit any Subsidiary to create, incur, assume or suffer to exist,
Off-Balance Sheet Liabilities (exclusive of obligations pursuant to the
Receivables Sale Agreement and the Building Lease) in the aggregate in excess of
$150,000,000 at any time.
ARTICLE VIII.
RESERVED
ARTICLE IX.
EVENTS OF DEFAULT
9.1. Events of Default. The occurrence of any of the following
events shall constitute an "Event of Default":
(a) The Company shall fail to pay (i) any principal of
any Term Loan when due and payable, or (ii) any interest on any Term Loan or any
fee or other Obligation payable hereunder within five (5) days after such
interest or fee or other Obligation becomes due and payable;
(b) Any representation or warranty made by the Company
(or any of its officers) in this Agreement or any other Loan Document or in any
certificate, document, report, financial or other written statement furnished at
any time pursuant to any Loan Document shall prove to have been incorrect in any
material respect on or as of the date made;
(c) The Company shall fail to perform or observe any
term, covenant or agreement contained in Section 6.10, Section 6.11(i), or
Article VII. The Company shall fail to perform or observe any term, covenant or
agreement on its part to be performed or observed in this Agreement or in any
other Loan Document (other than the terms, covenants and agreements described in
the first sentence of this clause (c) and in clause (a) of this Section 9.1) and
such failure shall continue for 30 consecutive days after notice thereof by
means of facsimile, regular mail or written notice delivered in person (or
telephonic notice thereof confirmed in writing) shall have been given to the
Company by the Agent or the Majority Banks;
(d) The Company shall: (i) fail to pay any Debt (other
than the payment obligations described in subsection (a) above) in excess of
$25,000,000, or any interest or premium thereon, when due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) and such
failure shall continue after the applicable grace period, if any, specified in
the instrument or agreement relating to such Debt; or (ii) fail to perform or
observe any term, covenant or condition on its part to be performed or observed
under any agreement or instrument relating to any such Debt, when required to be
performed or observed, if the effect of such failure to perform or observe is to
accelerate, or to permit the acceleration of, the maturity of such Debt, unless
the obligee under or holder of such Debt shall have waived in writing such
circumstance, or such circumstance has been cured, so that such circumstance is
no longer continuing; or (iii) any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), in each case in accordance with the
TERM LOAN AGREEMENT, Page 21
terms of such agreement or instrument, prior to the stated maturity thereof; or
(iv) generally not, or shall admit in writing its inability to, pay its debts as
such debts become due;
(e) The Company: (i) shall make an assignment for the
benefit of creditors, or petition or apply to any tribunal for the appointment
of a custodian, receiver or trustee for it or a substantial part of its assets,
or (ii) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect, or (iii) shall have had
any such petition or application filed or any such proceeding shall have been
commenced, against it, in which an adjudication or appointment is made or order
for relief is entered, or which petition, application or proceeding remains
undismissed for a period of 30 consecutive days or more; or (iv) by any act or
omission shall indicate its consent to, approval of or acquiescence in any such
petition, application or proceeding or order for relief or the appointment of a
custodian, receiver or trustee for all or any substantial part of its property;
or (v) shall suffer any such custodianship, receivership or trusteeship to
continue undischarged for a period of 30 days or more; or (vi) shall take any
corporate action to authorize any of the actions set forth above in this
subsection (e);
(f) One or more judgments, decrees or orders for the
payment of money in excess of $25,000,000 in the aggregate shall be rendered
against the Company and either (i) enforcement proceedings shall have been
commenced by any creditor upon any such judgment or order or (ii) there shall be
any period of more than 30 consecutive days during which a stay of enforcement
of such judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect;
(g) Any Termination Event with respect to a Plan shall
have occurred, and 30 days after notice thereof shall have been given to the
Company by the Agent, (i) such Termination Event (if correctable) shall not have
been corrected and (ii) the then present value of such Plan's vested benefits
exceeds the then current value of the assets accumulated in such Plan by more
than the amount of $25,000,000 (or in the case of a Termination Event involving
the withdrawal of a "substantial employer" (as defined in Section 4001(A)(2) of
ERISA), the withdrawing employer's proportionate share of such excess shall
exceed such amount); or
(h) Any Bond shall cease to be in full force and effect
(except for Bonds surrendered by the Agent pursuant to Section 2.4 or 2.5); or
the Company shall deny that it has any liability or obligation under any Bond or
purport to revoke, terminate, rescind or redeem any Bond (other than in
accordance with the terms of the Bonds and the Indenture); or
(i) A default shall occur under the Indenture.
9.2. Remedies.
If any Event of Default shall occur and be continuing, the
Agent shall upon the request, or may with the consent, of the Majority Banks, by
notice to the Company, declare the Obligations to be forthwith due and payable,
whereupon the Obligations shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Company, provided that in the case of an Event of
Default referred to in Section 9.1(e) above, the Obligations shall automatically
become due and payable without notice, presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Company. The Agent and the Majority Banks may also exercise all other rights and
remedies they have available to them under the Indenture, the other Loan
Documents, at law, in equity or otherwise.
TERM LOAN AGREEMENT, Page 22
ARTICLE X.
WAIVERS, AMENDMENTS AND REMEDIES
10.1. Amendments. Subject to the provisions of this Article X, the
Majority Banks (or the Agent with the consent in writing of the Majority Banks)
and the Company may enter into written agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Banks or the Company hereunder or waiving any
Event of Default hereunder, provided that no such supplemental agreement shall,
without the consent of all of the Banks:
(a) Extend the maturity of any Term Loan or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest or fees thereon;
(b) Modify the percentage specified in the definition of
Majority Banks;
(c) Increase the amount of the Term Loan Commitment of
any Bank hereunder or permit the Company to assign its rights under this
Agreement; or
(d) Amend Section 6.10, Section 12.12 or this Section
10.1.
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent.
10.2. Preservation of Rights. No delay or omission of the Banks or
the Agent to exercise any right under the Loan Documents shall impair such right
or be construed to be a waiver of any Default or Event of Default or an
acquiescence therein, and the making of a Term Loan notwithstanding the
existence of a Default or Event of Default or the inability of the Company to
satisfy the conditions precedent to such Term Loan shall not constitute any
waiver or acquiescence. Any single or partial exercise of any such right shall
not preclude other or further exercise thereof or the exercise of any other
right, and no waiver, amendment or other variation of the terms, conditions or
provisions of the Loan Documents whatsoever shall be valid unless in writing
signed by the Banks required pursuant to Section 10.1, and then only to the
extent in such writing specifically set forth. All remedies contained in the
Loan Documents or by law afforded shall be cumulative and all shall be available
to the Agent and the Banks until the Obligations have been paid in full.
ARTICLE XI.
CONDITIONS PRECEDENT
11.1. Delivery of Documents. This Agreement shall not become
effective and the Banks shall not be required to make the Term Loans hereunder
on the Effective Date unless the Company has furnished to the Agent with
sufficient copies for the Banks:
(a) A certificate, signed by a Designated Officer of the
Company, stating that on the Effective Date no Default or Event of Default has
occurred and is continuing.
(b) Evidence satisfactory to the Agent of the issuance of
the Bonds in the form set forth in the Supplemental Indenture and in an
aggregate principal amount of $140,000,000 pursuant to the Bond Delivery
Agreement.
TERM LOAN AGREEMENT, Page 23
(c) Favorable opinions of:
(i) Michael D. VanHemert, Esq., Deputy General
Counsel of CMS, as to the matters set forth in Exhibit B-1 and as to such other
matters as the Agent may reasonably request; and
(ii) Miller, Canfield, Paddock and Stone,
P.L.C., special counsel to the Company, as to the matters set forth in Exhibit
B-2 and as to such other matters as the Agent may reasonably request.
Such opinions shall be addressed to the Agent and the Banks and shall be
satisfactory in form and substance to the Agent.
(d) Evidence, in form and substance satisfactory to the
Agent, that the Company has obtained all governmental approvals, if any,
necessary for it to enter into the Loan Documents.
(e) Evidence, in form and substance satisfactory to the
Agent, of the existence and good-standing of the Company and of the Company's
authority to enter into the Loan Documents.
(f) Such other documents as the Agent or any Bank may
reasonably request.
11.2. No Default, etc. No Bank shall be required to make any Term
Loan on the Effective Date unless (i) no Default or Event of Default then
exists, (ii) the representations and warranties contained in Article V are true
and correct as of the Effective Date and (iii) all legal matters incident to the
making of such Term Loan are satisfactory to such Bank and its counsel. The
Company represents and warrants that the conditions contained in subsections (i)
and (ii) above will be satisfied on the Effective Date.
ARTICLE XII.
GENERAL PROVISIONS
12.1. Successors and Assigns. (a) The terms and provisions of the
Loan Documents shall be binding upon and inure to the benefit of the Company and
the Banks and their respective successors and assigns, except that the Company
shall not have the right to assign its rights or obligations under the Loan
Documents. Any Bank may sell participations in all or a portion of its rights
and obligations under this Agreement pursuant to subsection (b) below and any
Bank may assign all or any part of its rights and obligations under this
Agreement pursuant to subsection (c) below. In connection with each assignment
by a Bank of all or any part of its rights and obligations under this Agreement
pursuant to subsection (c) below, the assigning Bank agrees to give the Company
at least 7 Business Days prior written notice of such assignment, which notice
shall identify the proposed assignee.
(b) Any Bank may sell participations to one or more banks
or other entities (each a "Participant") in all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Term Loan Commitment and its outstanding Term Loan), provided
that (i) such Bank's obligations under this Agreement (including, without
limitation, its Term Loan Commitment to the Company hereunder) shall remain
unchanged, (ii) such Bank shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) such Bank shall remain the
holder of the Term Loans of such Bank for all purposes of this Agreement and
(iv) the Company shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement. Each
Bank shall retain the sole right to approve, without the consent of any
Participant, any amendment, modification or waiver of any provision of the Loan
Documents other than any amendment, modification or waiver with respect to any
Term Loan or Term Loan Commitment in which such Participant has an interest
which would require consent of all of the
TERM LOAN AGREEMENT, Page 24
Banks pursuant to the terms of Section 10.1 or of any other Loan Document. The
Company agrees that each Participant shall be deemed to have the right of setoff
provided in Section 12.11 in respect of its participating interest in amounts
owing under the Loan Documents to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under the Loan
Documents, provided that each Bank shall retain the right of setoff provided in
Section 12.11 with respect to the amount of participating interests sold to each
Participant. The Banks agree to share with each Participant, and each
Participant, by exercising the right of setoff provided in Section 12.11, agrees
to share with each Bank, any amount received pursuant to the exercise of its
right of setoff, such amounts to be shared in accordance with Section 12.11 as
if each Participant were a Bank. The Company further agrees that each
Participant shall be entitled to the benefits of Sections 4.1, 4.3, 4.4 and 4.5
to the same extent as if it were a Bank and had acquired its interest by
assignment pursuant to Section 12.1(c); provided that (i) a Participant shall
not be entitled to receive any greater payment under Section 4.1, 4.3, 4.4 or
4.5 than the Bank who sold the participating interest to such Participant would
have received had it retained such interest for its own account, unless the sale
of such interest to such Participant is made with the prior written consent of
the Company, and (ii) any Participant not incorporated under the laws of the
United States of America or any State thereof agrees to comply with the
provisions of Section 4.5 to the same extent as if it were a Bank.
(c) Any Bank may, in the ordinary course of its business
and in accordance with applicable law, at any time assign to one or more
financial institutions all or any part of its rights and obligations under this
Agreement, provided that the minimum principal amount of any such assignment
(other than assignments to a Federal Reserve Bank, the Federal Home Loan Bank,
or to any other Bank or affiliate or Approved Fund of a Bank, or to any direct
or indirect contractual counterparties in swap agreements relating to the Term
Loans to the extent required in connection with the physical settlement of any
Bank's obligations pursuant thereto) shall be $1,000,000 (or such lesser amount
consented to by the Agent); provided that, unless such Bank is assigning all of
its rights and obligations hereunder, after giving effect to such assignment the
assigning Bank shall have Term Loans in the aggregate of not less than
$1,000,000 (unless otherwise consented to by the Agent).
(d) Any Bank may, in connection with any sale or
participation or proposed sale or participation pursuant to this Section 12.1
disclose to the purchaser or participant or proposed purchaser or participant
any information relating to the Company furnished to such Bank by or on behalf
of the Company, provided that prior to any such disclosure of non-public
information, the purchaser or participant or proposed purchaser or participant
(which purchaser or participant is not an affiliate of a Bank) shall agree to
preserve the confidentiality of any confidential information (except any such
disclosure as may be required by law or regulatory process) relating to the
Company received by it from such Bank.
(e) Assignments under this Section 12.1 shall be made
pursuant to an agreement (an "Assignment Agreement") substantially in the form
of Exhibit C hereto or in such other form as may be agreed to by the parties
thereto and shall not be effective until a $3,500 fee has been paid to the Agent
by the assignee, which fee shall cover the cost of processing such assignment,
provided, that such fee shall not be incurred in the event of an assignment by
any Bank of all or a portion of its rights under this Agreement to (i) a Federal
Reserve Bank or Federal Home Loan Bank or (ii) a Bank or an affiliate or
Approved Fund of the assigning Bank or (iii) to any direct or indirect
contractual counterparties in swap agreements relating to the Term Loans to the
extent required in connection with the physical settlement of any Bank's
obligations pursuant thereto.
(f) Notwithstanding anything to the contrary contained
herein, any Bank (a "Granting Bank") may grant to a special purpose funding
vehicle (an "SPC"), identified as such in writing from time to time by the
Granting Bank to the Agent and the Company, the option to provide to the
TERM LOAN AGREEMENT, Page 25
Company all or any part of any Term Loan that such Granting Bank is obligated to
make to the Company pursuant to this Agreement; provided that (i) nothing herein
shall constitute a commitment by any SPC to make any Term Loan, (ii) if an SPC
elects not to exercise such option or otherwise fails to provide all or any part
of such Term Loan, the Granting Bank shall remain obligated to make such Term
Loan pursuant to the terms hereof, (iii) the Company shall not be required to
pay any amount under Section 4.5 that is greater than the amount which it would
have been required to pay had there been no grant to an SPC and (iv) any SPC (or
assignee of an SPC) will comply, if applicable, with the provisions contained in
Section 4.5. No grant by any Granting Bank to an SPC agreeing to provide a Term
Loan or the making of such Term Loan by such SPC shall operate to relieve such
Granting Bank of its liabilities and obligations hereunder, except to the extent
of the making of such Term Loan by such SPC. The making of a Term Loan by an SPC
hereunder shall utilize the Term Loan Commitment of the Granting Bank to the
same extent, and as if, such Term Loan were made by such Granting Bank. Each
party hereto hereby agrees that no SPC shall be liable for any indemnity or
similar payment obligation under this Agreement (all liability for which shall
remain with the Granting Bank). In addition, each party hereto hereby agrees
(which agreement shall survive the termination of this Agreement) that any SPC
may (i) with notice to, but without the prior written consent of, the Company
and the Agent and without paying any processing fee therefor, assign all or a
portion of its interests in any Term Loans to the Granting Bank or to any
financial institutions (consented to by the Agent in its sole discretion)
providing liquidity and/or credit support to or for the account of such SPC to
support the funding or maintenance of Term Loans and (ii) disclose on a
confidential basis any non-public information relating to its Term Loans to any
rating agency, commercial paper dealer or provider of any surety, guarantee or
credit or liquidity enhancement to such SPC. This Section 12.1(f) may not be
amended without the written consent of any SPC that holds an option to provide
Term Loans. No recourse under any obligation, covenant, or agreement of the SPC
contained in this Agreement shall be had against any shareholder, officer, agent
or director of the SPC as such, by the enforcement of any assessment or by any
proceeding, by virtue of any statute or otherwise; it being expressly agreed and
understood that this Agreement is a corporate obligation of the SPC and no
personal liability shall attach to or be incurred by any officer, agent or
member of the SPC as such, or any of them under or by reason of any of the
obligations, covenants or agreements of the SPC contained in this Agreement, or
implied therefrom, and that any and all personal liability for breaches by the
SPC of any such obligations, covenants or agreements, either at law or by
statute or constitution, of every such shareholder, officer, agent or director
is hereby expressly waived by all parties to this Agreement as a condition of
and consideration for the SPC entering into this Agreement; provided, however,
that the foregoing shall not relieve any such person or entity of any liability
they might otherwise have as a result of fraudulent actions or omissions taken
by them. All parties to this Agreement acknowledge and agree that the SPC shall
only be liable for any claims that each of them may have against the SPC only to
the extent of the SPC's assets. The provisions of this clause shall survive the
termination of this Agreement.
(g) Any Bank may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Bank, including without limitation any pledge or assignment
to secure obligations to a Federal Reserve Bank or Federal Home Loan Bank;
provided that no such pledge or assignment shall release such Bank from any of
its obligations hereunder or substitute any such pledgee or assignee for such
Bank as a party hereto.
12.2. Survival of Representations. All representations and
warranties of the Company contained in this Agreement shall survive the making
of the Term Loans herein contemplated.
12.3. Governmental Regulation. Anything contained in this Agreement
to the contrary notwithstanding, no Bank shall be obligated to extend credit to
the Company in violation of any limitation or prohibition provided by any
applicable statute or regulation.
TERM LOAN AGREEMENT, Page 26
12.4. Taxes. Any taxes (excluding income taxes) payable or ruled
payable by any Federal or State authority in respect of the execution of the
Loan Documents shall be paid by the Company, together with interest and
penalties, if any.
12.5. Choice of Law; Waiver of Jury Trial. THE LOAN DOCUMENTS SHALL
BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF MICHIGAN AND
THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THE COMPANY HEREBY WAIVES
ANY RIGHT TO A JURY TRIAL IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
HEREUNDER OR UNDER ANY LOAN DOCUMENT.
12.6. Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
12.7. Entire Agreement. The Loan Documents embody the entire
agreement and understanding between the Company, the Agent and the Banks and
supersede all prior agreements and understandings between the Company, the Agent
and the Banks relating to the subject matter thereof.
12.8. Expenses; Indemnification. The Company shall (a) reimburse the
Agent for any reasonable costs, internal charges and out-of-pocket expenses
(including reasonable attorneys' fees and time charges of attorneys for the
Agent) paid or incurred by the Agent in connection with the preparation, review,
execution, delivery, syndication, distribution (including, without limitation,
via the internet), amendment and modification of the Loan Documents and (b)
reimburse the Agent and each Bank for any reasonable costs, internal charges and
out-of-pocket expenses (including reasonable attorneys' fees and time charges of
attorneys for the Agent or for such Bank) paid or incurred by the Agent or such
Bank in connection with the collection and enforcement of the Loan Documents.
The Company further agrees to indemnify the Agent and each Bank and their
respective directors, officers, employees, trustees, agents and advisors against
all losses, claims, damages, penalties, judgments, liabilities and reasonable
expenses (including, without limitation, all material expenses of litigation or
preparation therefor whether or not the Agent or any Bank is a party thereto)
which any of them may pay or incur arising out of or relating to this Agreement,
the other Loan Documents, the transactions contemplated hereby or the direct or
indirect application or proposed application of the proceeds of any Term Loan
hereunder, provided that the Company shall not be liable for any of the
foregoing to the extent they arise from the gross negligence or willful
misconduct of the Agent or any Bank. The obligations of the Company under this
Section shall survive the termination of this Agreement.
12.9. [Intentionally Omitted.]
12.10. Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
12.11. Setoff. In addition to, and without limitation of, any rights
of the Banks under applicable law, if the Company becomes insolvent, however
evidenced, or any Default or Event of Default occurs, any indebtedness from any
Bank to the Company (including all account balances, whether provisional or
final and whether or not collected or available) may be offset and applied
toward the payment of the Obligations owing to such Bank, whether or not the
Obligations, or any part hereof, shall then be due. The Company agrees that any
purchaser or participant under Section 12.1 may, to the fullest extent permitted
by law, exercise all its rights of payment with respect to such purchase or
participation as if it were the direct creditor of the Company in the amount of
such purchase or participation.
TERM LOAN AGREEMENT, Page 27
12.12. Ratable Payments. If any Bank, whether by setoff or otherwise,
has payment made to it upon its outstanding Term Loans in a greater proportion
than that received by any other Bank, such Bank agrees, promptly upon demand, to
purchase a portion of the aggregate outstanding Term Loans held by the other
Banks so that after such purchase each Bank will hold its Pro Rata Share of the
aggregate outstanding Term Loans. If any Bank, whether in connection with setoff
or amounts which might be subject to setoff or otherwise, receives collateral or
other protection for its Obligations or such amounts which may be subject to
setoff, such Bank agrees, promptly upon demand, to take such action necessary
such that all Banks share in the benefits of such collateral ratably in
proportion to their respective Pro Rata Share of the aggregate outstanding Term
Loans. In case any such payment is disturbed by legal process, or otherwise,
appropriate further adjustments shall be made.
12.13. Nonliability of Banks. The relationship between the Company,
on the one hand, and the Banks and the Agent, on the other hand, shall be solely
that of borrower and lender. Neither the Agent nor any Bank shall have any
fiduciary responsibilities to the Company. Neither the Agent nor any Bank
undertakes any responsibility to the Company to review or inform the Company of
any matter in connection with any phase of the Company's business or operations.
The Company shall rely entirely upon its own judgment with respect to its
business, and any review, inspection, supervision or information supplied to the
Company by the Banks is for the protection of the Banks and neither the Company
nor any third party is entitled to rely thereon. The Company agrees that neither
the Agent nor any Bank shall have liability to the Company (whether sounding in
tort, contract or otherwise) for losses suffered by the Company in connection
with, arising out of, or in any way related to, the transactions contemplated
and the relationship established by the Loan Documents, or any act, omission or
event occurring in connection therewith, unless it is determined in a final
non-appealable judgment by a court of competent jurisdiction that such losses
resulted from the gross negligence or willful misconduct of the party from which
recovery is sought. Neither the Agent nor any Bank shall have any liability with
respect to, and the Company hereby waives, releases and agrees not to sue for,
any special, indirect, consequential or punitive damages suffered by the Company
in connection with, arising out of, or in any way related to the Loan Documents
or the transactions contemplated thereby.
ARTICLE XIII.
THE AGENT
13.1. Appointment. Beal Bank, S.S.B. is hereby appointed Agent
hereunder, and each of the Banks irrevocably authorizes the Agent to act as the
contractual representative on behalf of such Bank. The Agent agrees to act as
such upon the express conditions contained in this Article XIII. The Agent shall
not have a fiduciary relationship in respect of any Bank by reason of this
Agreement. The Agent hereby acknowledges and agrees that it shall hold the Bonds
for the ratable benefit of the Banks.
13.2. Powers. The Agent shall have and may exercise such powers
hereunder as are specifically delegated to the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto. The Agent shall
not have any implied duties to the Banks or any obligation to the Banks to take
any action hereunder except any action specifically provided by this Agreement
to be taken by the Agent.
13.3. General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Banks or any Bank for any
action taken or omitted to be taken by it or them hereunder or in connection
herewith except for its or their own gross negligence or willful misconduct.
TERM LOAN AGREEMENT, Page 28
13.4. No Responsibility for Loans, Recitals, etc. The Agent shall
not be responsible to the Banks for any recitals, reports, statements,
warranties or representations herein or in any Loan Document or be bound to
ascertain or inquire as to the performance or observance of any of the terms of
this Agreement.
13.5. Action on Instructions of Banks. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder and under
any other Loan Document in accordance with written instructions signed by the
Majority Banks (or all of the Banks if required by Section 10.1), and such
instructions and any action taken or failure to act pursuant thereto shall be
binding on all of the Banks. The Banks hereby acknowledge that the Agent shall
be under no duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement or any other Loan Document unless
it shall be requested in writing to do so by the Majority Banks. The Agent shall
be fully justified in failing or refusing to take any action hereunder and under
any other Loan Document unless it shall first be indemnified to its satisfaction
by the Banks pro rata against any and all liability, cost and expense that it
may incur by reason of taking or continuing to take any such action.
13.6. Employment of Agents and Counsel. The Agent may execute any of
its duties as Agent hereunder by or through employees, agents and
attorneys-in-fact and shall not be answerable to the Banks, except as to money
or securities received by it or its authorized agents, for the default or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. The Agent shall be entitled to advice of counsel concerning all
matters pertaining to the agency hereby created and its duties hereunder.
13.7. Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
13.8. Agent's Reimbursement and Indemnification. The Banks agree to
reimburse and indemnify the Agent ratably in proportion to their respective Pro
Rata Shares (i) for any amounts not reimbursed by the Company for which the
Agent is entitled to reimbursement by the Company under the Loan Documents and
(ii) for any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
any way relating to or arising out of this Agreement or any other document
delivered in connection with this Agreement or the transactions contemplated
hereby or the enforcement of any of the terms hereof or of any such other
documents, provided that no Bank shall be liable for any of the foregoing to the
extent they arise from the gross negligence or willful misconduct of the Agent.
13.9. Rights as a Lender. With respect to its Term Loan Commitment,
if any, and any Term Loan made by it, Beal Bank, S.S.B. shall have the same
rights and powers hereunder as any Bank and may exercise the same as though it
were not the Agent, and the term "Bank" or "Banks" shall, unless the context
otherwise indicates, include Beal Bank, S.S.B. in its individual capacity. Beal
Bank, S.S.B. may accept deposits from, lend money to, and generally engage in
any kind of banking or trust business with the Company or any Subsidiary as if
it were not the Agent.
13.10. Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the financial statements prepared by the Company and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement Each Bank also acknowledges that it will,
independently and without reliance upon the Agent or any other Bank and based on
such documents and
TERM LOAN AGREEMENT, Page 29
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
13.11. Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Banks and the Company, and the Agent may be
removed at any time but only with cause by written notice received by the Agent
from the Majority Banks. Upon any such resignation or removal, the Majority
Banks shall have the right to appoint, on behalf of the Banks, a successor
Agent. If no successor Agent shall have been so appointed by the Majority Banks
and shall have accepted such appointment within thirty days after the retiring
Agent's giving notice of resignation, then the retiring Agent may appoint, on
behalf of the Banks, a successor Agent Such successor Agent shall be a
commercial bank having capital and retained earnings of at least $500,000,000.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations hereunder. After any
retiring Agent's resignation hereunder as Agent, the provisions of this Article
XIII shall continue in effect for its benefit in respect of any actions taken or
omitted to be taken by it while it was acting as the Agent hereunder.
ARTICLE XIV.
NOTICES
14.1. Giving Notice. Except as otherwise permitted by Section 2.5
with respect to Continuation Notices, all notices, requests and other
communications to any party hereunder shall be in writing (including electronic
transmission, facsimile transmission or similar writing) and shall be given to
such party; (x) in the case of the Company or the Agent, at its address or
facsimile number set forth on the signature pages hereof, or (y) in the case of
any Bank, at its address or facsimile number set forth in its Administrative
Details Form provided to the Agent. Each such notice, request or other
communication shall be effective (i) if given by facsimile transmission, when
transmitted to the facsimile number specified in this Section and confirmation
of receipt is received, (ii) if given by mail, 72 hours after such communication
is deposited in the mails with first class postage prepaid, addressed as
aforesaid, or (iii) if given by any other means, when delivered (or, in the case
of electronic transmission, received) at the address specified in this Section;
provided that notices to the Agent under Article II shall not be effective until
received.
14.2. Change of Address. The Company and the Agent may each change
the address for service of notice upon it by a notice in writing to the other
parties hereto in accordance with Section 14.1. Any Bank may change the address
for service of notice upon it by a notice in writing to the Company and the
Agent in accordance with Section 14.1.
ARTICLE XV.
COUNTERPARTS
This Agreement may be executed in any number of counterparts and on
telecopy counterparts, all of which taken together shall constitute one
agreement, and any of the parties hereto may execute this Agreement by signing
any such counterpart. This Agreement shall be effective when it has been
executed by the Company, the Agent and the Banks and each party has notified the
Agent by facsimile or telephone that it has taken such action.
TERM LOAN AGREEMENT, Page 30
ARTICLE XVI.
MAXIMUM INTEREST RATE
16.1. Recapture. No interest rate specified in any Loan Document
shall at any time exceed the Maximum Rate. If at any time the interest rate (the
"Contract Rate") for any Obligation shall exceed the Maximum Rate, thereby
causing the interest accruing on such Obligation to be limited to the Maximum
Rate, then any subsequent reduction in the Contract Rate for such Obligation
shall not reduce the rate of interest on such Obligation below the Maximum Rate
until the aggregate amount of interest accrued on such Obligation equals the
aggregate amount of interest which would have accrued on such Obligation if the
Contract Rate for such Obligation had at all times been in effect.
16.2. Savings Clause. No provision of any Loan Document shall
require the payment or the collection of interest in excess of the maximum
amount permitted by applicable law. If any excess of interest in such respect is
hereby provided for, or shall be adjudicated to be so provided, in any Loan
Document or otherwise in connection with this loan transaction, the provisions
of this Section shall govern and prevail and neither the Company nor he
sureties, guarantors, successors, or assigns of the Company shall be obligated
to pay the excess amount of such interest or any other excess sum paid for the
use, forbearance, or detention of sums loaned pursuant hereto. In the event any
Bank ever receives, collects, or applies as interest any such sum, such amount
which would be in excess of the maximum amount permitted by applicable law shall
be applied as a payment and reduction of the principal of the Obligations; and,
if the principal of the Obligations has been paid in full, any remaining excess
shall forthwith be paid to the Company. In determining whether or not the
interest paid or payable exceeds the Maximum Rate, the Company and each Bank
shall, to the extent permitted by applicable law, (a) characterize any
non-principal payment as an expense, fee, or premium rather than as interest,
(b) exclude voluntary prepayments and the effects thereof, and (c) amortize,
prorate, allocate, and spread in equal or unequal parts the total amount of
interest throughout the entire contemplated term of the Obligations so that
interest for the entire term does not exceed the Maximum Rate.
IN WITNESS WHEREOF, the Company, the Banks and the Agent have executed
this Agreement as of the date first above written.
CONSUMERS ENERGY COMPANY
By: /s/ Laura L. Mountcastle
------------------------------
Name: Laura L. Mountcastle
Title: Vice President
212 West Michigan Avenue
Jackson, MI 49201
Attention: Kimberly C. Wilson
Facsimile No.: (517) 788 - 0768
Confirmation Telephone No: (517) 788 - 2194
E-Mail Address: kcwilson@cmsenergy.com
TERM LOAN AGREEMENT, Page 31
BEAL BANK, S.S.B., as Agent and as the Bank
By: /s/ William T. Saurenmann
----------------------------
Name: William T. Saurenmann
Title: Senior Vice President
6000 Legacy Drive
Plano, Texas 75024-3601
Attention: William T. Saurenmann
Facsimile No.: 469,241,9568
Telephone No.: 469,467,5510
With a copy to:
CSG Investments, Inc.
6000 Legacy Drive
Plano, Texas 75024-360l
Attention: President
Facsimile No.: 469,241,9568
Telephone No.: 469,467,5000
TERM LOAN AGREEMENT, Page 32
EXHIBITS
Exhibit A Form of Supplemental Indenture
Exhibit B-1 Required Opinions from Michael D. VanHemert, Esq.
Exhibit B-2 Required Opinions from Miller, Canfield, Paddock and Stone, P.L.C.
Exhibit C Form of Assignment and Assumption Agreement
Exhibit D Form of Bond Delivery Agreement
SCHEDULES
Commitment Schedule
TERM LOAN AGREEMENT, Page 33
EXHIBIT A
SUPPLEMENTAL INDENTURE
Exhibit A
EIGHTY-SEVENTH SUPPLEMENTAL INDENTURE
PROVIDING AMONG OTHER THINGS FOR
FIRST MORTGAGE BONDS,
COLLATERAL SERIES DUE 2009
--------------
DATED AS OF MARCH 26, 2003
--------------
CONSUMERS ENERGY COMPANY
TO
JPMORGAN CHASE BANK,
TRUSTEE
Counterpart _____ of 80
THIS EIGHTY-SEVENTH SUPPLEMENTAL INDENTURE, dated as of March 26, 2003
(herein sometimes referred to as "this Supplemental Indenture"), made and
entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized
and existing under the laws of the State of Michigan, with its principal
executive office and place of business at 212 West Michigan Avenue, in Jackson,
Jackson County, Michigan 49201, formerly known as Consumers Power Company
(hereinafter sometimes referred to as the "Company"), and JPMORGAN CHASE BANK, a
corporation organized and existing under the laws of the State of New York, with
its corporate trust offices at 450 W. 33rd Street, in the Borough of Manhattan,
The City of New York, New York 10001 (hereinafter sometimes referred to as the
"Trustee"), as Trustee under the Indenture dated as of September 1, 1945 between
Consumers Power Company, a Maine corporation (hereinafter sometimes referred to
as the "Maine corporation"), and City Bank Farmers Trust Company (Citibank,
N.A., successor, hereinafter sometimes referred to as the "Predecessor
Trustee"), securing bonds issued and to be issued as provided therein
(hereinafter sometimes referred to as the "Indenture"),
WHEREAS at the close of business on January 30, 1959, City Bank Farmers
Trust Company was converted into a national banking association under the title
"First National City Trust Company"; and
WHEREAS at the close of business on January 15, 1963, First National
City Trust Company was merged into First National City Bank; and
WHEREAS at the close of business on October 31, 1968, First National
City Bank was merged into The City Bank of New York, National Association, the
name of which was thereupon changed to First National City Bank; and
WHEREAS effective March 1, 1976, the name of First National City Bank
was changed to Citibank, N.A.; and
WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company
succeeded Citibank, N.A. as Trustee under the Indenture; and
WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to
Manufacturers Hanover Trust Company as Trustee under the Indenture; and
WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National
Association), merged with and into Chemical Bank which thereafter was renamed
The Chase Manhattan Bank; and
WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged
with Morgan Guaranty Trust Company of New York and the surviving corporation was
renamed JPMorgan Chase Bank; and
WHEREAS the Indenture was executed and delivered for the purpose of
securing such bonds as may from time to time be issued under and in accordance
with the terms of the Indenture, the aggregate principal amount of bonds to be
secured thereby being limited to $5,000,000,000 at any one time outstanding
(except as provided in Section 2.01 of the Indenture), and the Indenture
describes and sets forth the property conveyed thereby and is filed in the
Office of the Secretary of State of the State of Michigan and is of record in
the Office of
-1-
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and
WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of the
Secretary of State of the State of Michigan and is of record in the Office of
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and
WHEREAS the Company and the Maine corporation entered into an Agreement
of Merger and Consolidation, dated as of February 14, 1968, which provided for
the Maine corporation to merge into the Company; and
WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was merged
into the Company and the name of the Company was changed from "Consumers Power
Company of Michigan" to "Consumers Power Company"; and
WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided,
among other things, for the assumption of the Indenture by the Company; and
WHEREAS said Sixteenth Supplemental Indenture became effective on the
effective date of such Agreement of Merger and Consolidation; and
WHEREAS the Company has succeeded to and has been substituted for the
Maine corporation under the Indenture with the same effect as if it had been
named therein as the mortgagor corporation; and
WHEREAS effective March 11, 1997, the name of Consumers Power Company
was changed to Consumers Energy Company; and
WHEREAS, the Company has entered into a Term Loan Agreement dated as of
March 26, 2003 (the "Term Loan Agreement") with Beal Bank, S.S.B. (the "Bank")
as administrative agent (in such capacity, the "Agent") for the Banks (as such
term is defined in the Term Loan Agreement) providing for the making of certain
financial accommodations thereunder, and pursuant to such Term Loan Agreement
the Company has agreed to issue to the Agent, as evidence of and security for
the Obligations (as such term is defined in the Term Loan Agreement), a new
series of bonds under the Indenture; and
WHEREAS, for such purposes the Company desires to issue a new series of
bonds, to be designated First Mortgage Bonds, Collateral Series due 2009, each
of which bonds shall also bear the descriptive title "First Mortgage Bond"
(hereinafter provided for and hereinafter sometimes referred to as the "2009
Collateral Series Bonds"), the bonds of which series are to be issued as
registered bonds without coupons and are to bear interest at the rate per annum
specified herein and are to mature March 26, 2009; and
WHEREAS, each of the registered bonds without coupons of the 2009
Collateral Series Bonds and the Trustee's Authentication Certificate thereon are
to be substantially in the following form, to wit:
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[FORM OF REGISTERED BOND OF THE 2009 COLLATERAL SERIES BONDS]
[FACE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
COLLATERAL SERIES DUE 2009
No. 1 $140,000,000
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Beal Bank, S.S.B.,
as agent (in such capacity, the "Agent") for the Banks under and as defined in
the Term Loan Agreement dated as of March 26, 2003 (the "Term Loan Agreement")
the principal sum of One Hundred Forty Million Dollars ($140,000,000) or such
lesser principal amount as shall be equal to the aggregate principal amount of
the Term Loans (as defined in the Term Loan Agreement) included in the
Obligations (as defined in the Term Loan Agreement) outstanding on March 26,
2009 (the "Maturity Date"), but not in excess, however, of the principal amount
of this bond, and to pay interest thereon at the Interest Rate (as defined
below) until the principal hereof is paid or duly made available for payment on
the Maturity Date, or, in the event of redemption of this bond, until the
redemption date, or, in the event of default in the payment of the principal
hereof, until the Company's obligations with respect to the payment of such
principal shall be discharged as provided in the Indenture (as defined on the
reverse hereof). Interest on this bond shall be payable on each Interest Payment
Date (as defined below), commencing on the first Interest Payment Date next
succeeding March 26, 2003. If the Maturity Date falls on a day which is not a
Business Day, as defined below, principal and any interest and/or fees payable
with respect to the Maturity Date will be paid on the immediately preceding
Business Day. The interest payable, and punctually paid or duly provided for, on
any Interest Payment Date will, subject to certain exceptions, be paid to the
person in whose name this bond (or one or more predecessor bonds) is registered
at the close of business on the Record Date (as defined below); provided,
however, that interest payable on the Maturity Date will be payable to the
person to whom the principal hereof shall be payable. Should the Company default
in the payment of interest ("Defaulted Interest"), the Defaulted Interest shall
be paid to the person in whose name this bond (or one or more predecessor bonds)
is registered on a subsequent record date fixed by the Company, which subsequent
record date shall be fifteen (15) days prior to the payment of such Defaulted
Interest. As used herein, (A) "Business Day" shall mean any day, other than a
Saturday or Sunday, on which banks generally are open in New York, New York and
Dallas, Texas for the conduct of substantially all of their commercial lending
activities and on which interbank wire transfers can be made on the Fedwire
system; (B) "Interest Payment Date" shall mean each date on which interest
and/or fees under the Term Loan Agreement are due and payable from time to time
pursuant to the Term Loan Agreement; (C) "Interest Rate" shall mean a rate of
interest per annum, adjusted as necessary, to result in an interest payment
equal to the aggregate amount of interest and fees due under the Term Loan
Agreement on the applicable Interest Payment Date; and (D) "Record Date" with
respect to any Interest Payment Date shall mean the day (whether or not a
Business Day) immediately next preceding such Interest Payment Date.
- 3 -
Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City of Jackson, Michigan, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.
This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.
IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to be
executed in its name by its Chairman of the Board, its President or one of its
Vice Presidents by his or her signature or a facsimile thereof, and its
corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon
and attested by its Secretary or one of its Assistant Secretaries by his or her
signature or a facsimile thereof.
CONSUMERS ENERGY COMPANY
Dated:
By: ________________________________
Printed: ___________________________
Title: _____________________________
Attest: _________________________
TRUSTEE'S AUTHENTICATION CERTIFICATE
This is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.
JPMORGAN CHASE BANK, Trustee
By_________________________________
Authorized Officer
- 4 -
[REVERSE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
COLLATERAL SERIES DUE 2009
This bond is one of the bonds of a series designated as First Mortgage
Bonds, Collateral Series due 2009 (sometimes herein referred to as the "2009
Collateral Series Bonds") issued under and in accordance with and secured by an
Indenture dated as of September 1, 1945, given by the Company (or its
predecessor, Consumers Power Company, a Maine corporation) to City Bank Farmers
Trust Company (JPMorgan Chase Bank, successor) (hereinafter sometimes referred
to as the "Trustee"), together with indentures supplemental thereto, heretofore
or hereafter executed, to which indenture and indentures supplemental thereto
(hereinafter referred to collectively as the "Indenture") reference is hereby
made for a description of the property mortgaged and pledged, the nature and
extent of the security and the rights, duties and immunities thereunder of the
Trustee and the rights of the holders of said bonds and of the Trustee and of
the Company in respect of such security, and the limitations on such rights. By
the terms of the Indenture, the bonds to be secured thereby are issuable in
series which may vary as to date, amount, date of maturity, rate of interest and
in other respects as provided in the Indenture.
The 2009 Collateral Series Bonds are to be issued and delivered to the
Agent in order to evidence and secure the obligation of the Company under the
Term Loan Agreement to make payments to the Banks under the Term Loan Agreement
and to provide the Banks the benefit of the lien of the Indenture with respect
to the 2009 Collateral Series Bonds.
The obligation of the Company to make payments with respect to the
principal of the 2009 Collateral Series Bonds shall be fully or partially, as
the case may be, satisfied and discharged to the extent that, at the time that
any such payment shall be due, the then due principal of the Term Loans included
in the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2009
Collateral Series Bonds shall be deemed discharged in the same amount as the
payment with respect to the Term Loans discharges the outstanding obligation
with respect to such Term Loans.
The obligation of the Company to make payments with respect to the
interest on the 2009 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2009 Collateral Series
- 5 -
Bonds shall be deemed discharged in the same amount as the payment with respect
to the Term Loans discharges the outstanding obligation with respect to such
Term Loans.
The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on this bond, so far as such payments at the time have become due, has
been fully satisfied and discharged unless and until the Trustee shall have
received a written notice from the Agent stating (i) that timely payment of
principal and interest on the 2009 Collateral Series Bonds has not been made,
(ii) that the Company is in arrears as to the payments required to be made by it
to the Agent pursuant to the Term Loan Agreement, and (iii) the amount of the
arrearage.
If an Event of Default (as defined in the Term Loan Agreement) with
respect to the payment of the principal of any Term Loans shall have occurred,
it shall be deemed to be a default for purposes of Section 11.01 of the
Indenture in the payment of the principal of the 2009 Collateral Series Bonds
equal to the amount of such unpaid principal (but in no event in excess of the
principal amount of the 2009 Collateral Series Bonds). If an Event of Default
(as defined in the Term Loan Agreement) with respect to the payment of interest
on any Term Loans or fees shall have occurred, it shall be deemed to be a
default for purposes of Section 11.01 of the Indenture in the payment of the
interest on the 2009 Collateral Series Bonds equal to the amount of such unpaid
interest or fees.
This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Term Loan Agreement
and the acceleration of the Obligations, as provided in Section 9.2 of the Term
Loan Agreement. This bond is not redeemable by the operation of the improvement
fund or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.
In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the Indenture, or (c) reduce
the percentage of the principal amount of the bonds the holders of which are
required to approve any such supplemental indenture.
- 6 -
The Company reserves the right, without any consent, vote or other
action by holders of the 2009 Collateral Series Bonds or any other series
created after the Sixty-eighth Supplemental Indenture to amend the Indenture to
reduce the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than any supplemental
indenture which is subject to the proviso contained in the immediately preceding
sentence) (a) from not less than seventy-five per centum (including sixty per
centum of each series affected) to not less than a majority in principal amount
of the bonds at the time outstanding or (b) in case fewer than all series are
affected, not less than a majority in principal amount of the bonds of all
affected series, voting together.
No recourse shall be had for the payment of the principal of or
interest on this bond, or for any claim based hereon, or otherwise in respect
hereof or of the Indenture, to or against any incorporator, stockholder,
director or officer, past, present or future, as such, of the Company, or of any
predecessor or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and owner hereof by
the acceptance of this bond and being likewise waived and released by the terms
of the Indenture.
This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.
The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Term Loans arising under the Term Loan
Agreement, and all of the fees payable pursuant to the Term Loan Agreement,
shall have been duly paid, and the Term Loan Agreement shall have been
terminated.
[END OF FORM OF REGISTERED BOND OF THE 2009 COLLATERAL SERIES BONDS]
- 7 -
AND WHEREAS all acts and things necessary to make the 2009 Collateral
Series Bonds, when duly executed by the Company and authenticated by the Trustee
or its agent and issued as prescribed in the Indenture, as heretofore
supplemented and amended, and this Supplemental Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute the Indenture,
as supplemented and amended as aforesaid, as well as by this Supplemental
Indenture, a valid, binding and legal instrument for the security thereof, have
been done and performed, and the creation, execution and delivery of this
Supplemental Indenture and the creation, execution and issuance of bonds subject
to the terms hereof and of the Indenture, as so supplemented and amended, have
in all respects been duly authorized;
NOW, THEREFORE, in consideration of the premises, of the acceptance and
purchase by the holders thereof of the bonds issued and to be issued under the
Indenture, as supplemented and amended as above set forth, and of the sum of One
Dollar duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$140,000,000 principal amount of the 2009 Collateral Series Bonds proposed to be
issued initially and all other bonds which shall be issued under the Indenture,
as supplemented and amended from time to time, and for the purpose of securing
the faithful performance and observance of all covenants and conditions therein,
and in any indenture supplemental thereto, set forth, the Company has given,
granted, bargained, sold, released, transferred, assigned, hypothecated,
pledged, mortgaged, confirmed, set over, warranted, alienated and conveyed and
by these presents does give, grant, bargain, sell, release, transfer, assign,
hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto
JPMorgan Chase Bank, as Trustee, as provided in the Indenture, and its successor
or successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and to all
the property, described in Section 11 hereof, together (subject to the
provisions of Article X of the Indenture) with the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, excepting, however, the
property, interests and rights specifically excepted from the lien of the
Indenture as set forth in the Indenture;
TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises, property,
franchises and rights, or any thereof, referred to in the foregoing granting
clause, with the reversion and reversions, remainder and remainders and (subject
to the provisions of Article X of the Indenture) the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, and all the estate,
right, title and interest and claim whatsoever, at law as well as in equity,
which the Company now has or may hereafter acquire in and to the aforesaid
premises, property, franchises and rights and every part and parcel thereof;
SUBJECT, HOWEVER, with respect to such premises, property, franchises
and rights, to excepted encumbrances as said term is defined in Section 1.02 of
the Indenture, and subject also to all defects and limitations of title and to
all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all
said premises, property, franchises and rights hereby conveyed, assigned,
pledged or mortgaged, or intended so to be, unto the Trustee, its successor or
successors in trust and their assigns forever;
- 8 -
BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or hereafter
authenticated and delivered under and secured by the Indenture and interest
coupons appurtenant thereto, pursuant to the provisions of the Indenture and of
any supplemental indenture, and for the enforcement of the payment of said bonds
and coupons when payable and the performance of and compliance with the
covenants and conditions of the Indenture and of any supplemental indenture,
without any preference, distinction or priority as to lien or otherwise of any
bond or bonds over others by reason of the difference in time of the actual
authentication, delivery, issue, sale or negotiation thereof or for any other
reason whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and premium,
if any, and interest on every such bond shall, subject to the terms thereof, be
equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the execution
and delivery thereof;
AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as supplemented
and amended as above set forth, are to be issued, authenticated and delivered,
and all said premises, property, franchises and rights hereby and by the
Indenture and indentures supplemental thereto conveyed, assigned, pledged or
mortgaged, or intended so to be, are to be dealt with and disposed of under,
upon and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes expressed in the Indenture, as supplemented and
amended as above set forth, and the parties hereto mutually agree as follows:
SECTION 1. There is hereby created one series of bonds (the "2009
Collateral Series Bonds") designated as hereinabove provided, which shall also
bear the descriptive title "First Mortgage Bond", and the form thereof shall be
substantially as hereinbefore set forth (the "Sample Bond"). The 2009 Collateral
Series Bonds shall be issued in the aggregate principal amount of $140,000,000,
shall mature on March 26, 2009 and shall be issued only as registered bonds
without coupons in denominations of $1,000 and any multiple thereof. The serial
numbers of the 2009 Collateral Series Bonds shall be such as may be approved by
any officer of the Company, the execution thereof by any such officer either
manually or by facsimile signature to be conclusive evidence of such approval.
The 2009 Collateral Series Bonds are to be issued to and registered in the name
of the Agent under the Term Loan Agreement (as such terms are defined in the
Sample Bond) to evidence and secure any and all Obligations (as such term is
defined in the Term Loan Agreement) of the Company under the Term Loan
Agreement.
The 2009 Collateral Series Bonds shall bear interest as set forth in
the Sample Bond. The principal of and the interest on said bonds shall be
payable as set forth in the Sample Bond.
The obligation of the Company to make payments with respect to the
principal of 2009 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2009
Collateral Series Bonds shall be deemed discharged in the
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same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.
The obligation of the Company to make payments with respect to the
interest on 2009 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2009 Collateral Series Bonds shall be deemed discharged in the
same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.
The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on the 2009 Collateral Series Bonds, so far as such payments at the
time have become due, has been fully satisfied and discharged unless and until
the Trustee shall have received a written notice from the Agent stating (i) that
timely payment of principal and interest on the 2009 Collateral Series Bonds has
not been made, (ii) that the Company is in arrears as to the payments required
to be made by it to the Agent pursuant to the Term Loan Agreement, and (iii) the
amount of the arrearage.
The 2009 Collateral Series Bonds shall be exchangeable for other
registered bonds of the same series, in the manner and upon the conditions
prescribed in the Indenture, upon the surrender of such bonds at the Investor
Services Department of the Company, as transfer agent. However, notwithstanding
the provisions of Section 2.05 of the Indenture, no charge shall be made upon
any registration of transfer or exchange of bonds of said series other than for
any tax or taxes or other governmental charge required to be paid by the
Company.
SECTION 2. The 2009 Collateral Series Bonds are not redeemable by the
operation of the maintenance and replacement provisions of this Indenture or
with the proceeds of released property.
SECTION 3. Upon the occurrence of an Event of Default under the Term
Loan Agreement and the acceleration of the Obligations, the 2009 Collateral
Series Bonds shall be redeemable in whole upon receipt by the Trustee of a
written demand from the Agent stating that there has occurred under the Term
Loan Agreement both an Event of Default and a declaration of acceleration of the
Obligations and demanding redemption of the 2009 Collateral Series Bonds
(including a description of the amount of principal, interest and fees which
comprise such Obligations). The Company waives any right it may have to prior
notice of such redemption under the Indenture. Upon surrender of the 2009
Collateral Series Bonds by the Agent to the Trustee, the 2009 Collateral Series
Bonds shall be redeemed at a redemption price equal to the aggregate amount of
the Obligations.
SECTION 4. The Company reserves the right, without any consent, vote or
other action by the holder of the 2009 Collateral Series Bonds or of any
subsequent series of bonds issued under the Indenture, to make such amendments
to the Indenture, as supplemented, as shall be necessary in order to amend
Section 17.02 to read as follows:
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SECTION 17.02. With the consent of the holders of not less
than a majority in principal amount of the bonds at the time
outstanding or their attorneys-in-fact duly authorized, or, if fewer
than all series are affected, not less than a majority in principal
amount of the bonds at the time outstanding of each series the rights
of the holders of which are affected, voting together, the Company,
when authorized by a resolution, and the Trustee may from time to time
and at any time enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Indenture or of any
supplemental indenture or modifying the rights and obligations of the
Company and the rights of the holders of any of the bonds and coupons;
provided, however, that no such supplemental indenture shall (1) extend
the maturity of any of the bonds or reduce the rate or extend the time
of payment of interest thereon, or reduce the amount of the principal
thereof, or reduce any premium payable on the redemption thereof,
without the consent of the holder of each bond so affected, or (2)
permit the creation of any lien, not otherwise permitted, prior to or
on a parity with the lien of this Indenture, without the consent of the
holders of all the bonds then outstanding, or (3) reduce the aforesaid
percentage of the principal amount of bonds the holders of which are
required to approve any such supplemental indenture, without the
consent of the holders of all the bonds then outstanding. For the
purposes of this Section, bonds shall be deemed to be affected by a
supplemental indenture if such supplemental indenture adversely affects
or diminishes the rights of holders thereof against the Company or
against its property. The Trustee may in its discretion determine
whether or not, in accordance with the foregoing, bonds of any
particular series would be affected by any supplemental indenture and
any such determination shall be conclusive upon the holders of bonds of
such series and all other series. Subject to the provisions of Sections
16.02 and 16.03 hereof, the Trustee shall not be liable for any
determination made in good faith in connection herewith.
Upon the written request of the Company, accompanied by a
resolution authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the
consent of bondholders as aforesaid (the instrument or instruments
evidencing such consent to be dated within one year of such request),
the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion but shall
not be obligated to enter into such supplemental indenture.
It shall not be necessary for the consent of the bondholders
under this Section to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
The Company and the Trustee, if they so elect, and either
before or after such consent has been obtained, may require the holder
of any bond consenting to the execution of any such supplemental
indenture to submit his bond to the Trustee or to ask such bank, banker
or trust company as may be designated by the Trustee
- 11 -
for the purpose, for the notation thereon of the fact that the holder
of such bond has consented to the execution of such supplemental
indenture, and in such case such notation, in form satisfactory to the
Trustee, shall be made upon all bonds so submitted, and such bonds
bearing such notation shall forthwith be returned to the persons
entitled thereto.
Prior to the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the
Company shall publish a notice, setting forth in general terms the
substance of such supplemental indenture, at least once in one daily
newspaper of general circulation in each city in which the principal of
any of the bonds shall be payable, or, if all bonds outstanding shall
be registered bonds without coupons or coupon bonds registered as to
principal, such notice shall be sufficiently given if mailed, first
class, postage prepaid, and registered if the Company so elects, to
each registered holder of bonds at the last address of such holder
appearing on the registry books, such publication or mailing, as the
case may be, to be made not less than thirty days prior to such
execution. Any failure of the Company to give such notice, or any
defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.
SECTION 5. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.
SECTION 6. Nothing contained in this Supplemental Indenture shall, or
shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, as supplemented and amended as above set forth, the
Company, the Trustee and the Agent, for the benefit of the Banks (as such term
is defined in the Term Loan Agreement), any right or interest to avail himself
of any benefit under any provision of the Indenture, as so supplemented and
amended.
SECTION 7. The Trustee assumes no responsibility for or in respect of
the validity or sufficiency of this Supplemental Indenture or of the Indenture
as hereby supplemented or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein (other than those
contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.
SECTION 8. This Supplemental Indenture may be simultaneously executed
in several counterparts and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.
SECTION 9. In the event the date of any notice required or permitted
hereunder shall not be a Business Day, then (notwithstanding any other provision
of the Indenture or of any supplemental indenture thereto) such notice 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 fixed for such notice.
"Business Day" means, with respect to this Section 9, any day, other than a
Saturday or Sunday, on which banks generally are open in New York, New York and
Dallas,
- 12 -
Texas for the conduct of substantially all of their commercial lending
activities and on which interbank wire transfers can be made on the Fedwire
system.
SECTION 10. This Supplemental Indenture and the 2009 Collateral Series
Bonds shall be governed by and deemed to be a contract under, and construed in
accordance with, the laws of the State of Michigan, and for all purposes shall
be construed in accordance with the laws of such state, except as may otherwise
be required by mandatory provisions of law.
SECTION 11. Detailed Description of Property Mortgaged:
I.
ELECTRIC GENERATING PLANTS AND DAMS
All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.
II.
ELECTRIC TRANSMISSION LINES
All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including towers, poles, pole lines, wires, switches, switch racks,
switchboards, insulators and other appliances and equipment, and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.
III.
ELECTRIC DISTRIBUTION SYSTEMS
All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including substations, transformers, switchboards,
- 13 -
towers, poles, wires, insulators, subways, trenches, conduits, manholes, cables,
meters and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or enjoyed in
connection with such distribution systems or any of them or adjacent thereto;
together with all real property, rights of way, easements, permits, privileges,
franchises, grants and rights, for or relating to the construction, maintenance
or operation thereof, through, over, under or upon any private property or any
public streets or highways within as well as without the corporate limits of any
municipal corporation.
IV.
ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES
All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, for transforming, regulating, converting or distributing or
otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.
V.
GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS, DESULPHURIZATION STATIONS,
METERING STATIONS, ODORIZING STATIONS, REGULATORS AND SITES
All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, for compressing, processing, desulphurizing, metering,
odorizing and regulating manufactured or natural gas at any of its plants and
elsewhere, together with all buildings, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of such
purposes, with sites to be used for such purposes.
VI.
GAS STORAGE FIELDS
The natural gas rights and interests of the Company, including wells
and well lines (but not including natural gas, oil and minerals), the gas
gathering system, the underground gas storage rights, the underground gas
storage wells and injection and withdrawal system used in connection therewith,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture: In the Overisel Gas Storage Field, located in the Township of
Overisel, Allegan County, and in the Township of Zeeland, Ottawa County,
Michigan; in the Northville Gas Storage Field located
- 14 -
in the Township of Salem, Washtenaw County, Township of Lyon, Oakland County,
and the Townships of Northville and Plymouth and City of Plymouth, Wayne County,
Michigan; in the Salem Gas Storage Field, located in the Township of Salem,
Allegan County, and in the Township of Jamestown, Ottawa County, Michigan; in
the Ray Gas Storage Field, located in the Townships of Ray and Armada, Macomb
County, Michigan; in the Lenox Gas Storage Field, located in the Townships of
Lenox and Chesterfield, Macomb County, Michigan; in the Ira Gas Storage Field,
located in the Township of Ira, St. Clair County, Michigan; in the Puttygut Gas
Storage Field, located in the Township of Casco, St. Clair County, Michigan; in
the Four Corners Gas Storage Field, located in the Townships of Casco, China,
Cottrellville and Ira, St. Clair County, Michigan; in the Swan Creek Gas Storage
Field, located in the Township of Casco and Ira, St. Clair County, Michigan; and
in the Hessen Gas Storage Field, located in the Townships of Casco and Columbus,
St. Clair, Michigan.
VII.
GAS TRANSMISSION LINES
All the gas transmission lines of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
gas mains, pipes, pipelines, gates, valves, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements, permits, privileges, franchises and rights
for or relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways,
within as well as without the corporate limits of any municipal corporation.
VIII.
GAS DISTRIBUTION SYSTEMS
All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including tunnels, conduits, gas mains and pipes, service pipes, fittings,
gates, valves, connections, meters and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such distribution systems or any of them
or adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises, grants and rights, for or relating to the
construction, maintenance or operation thereof, through, over, under or upon any
private property or any public streets or highways within as well as without the
corporate limits of any municipal corporation.
- 15 -
IX.
OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.
All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise acquired by
it and not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the lien of the Indenture, together with the land
on which the same are situated and all easements, rights of way and
appurtenances to said lands, together with all furniture and fixtures located in
said buildings.
X.
TELEPHONE PROPERTIES AND
RADIO COMMUNICATION EQUIPMENT
All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, used or available for use in the operation of its
properties, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such telephone
properties or any of them or adjacent thereto; together with all real estate,
rights of way, easements, permits, privileges, franchises, property, devices or
rights related to the dispatch, transmission, reception or reproduction of
messages, communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment installed in
buildings used as general and regional offices, substations and generating
stations and all telephone lines erected on towers and poles; and all radio
communication equipment of the Company, together with all property, real or
personal (except any in the Indenture expressly excepted), fixed stations,
towers, auxiliary radio buildings and equipment, and all appurtenances used in
connection therewith, wherever located, in the State of Michigan.
XI.
OTHER REAL PROPERTY
All other real property of the Company and all interests therein, of
every nature and description (except any in the Indenture expressly excepted)
wherever located, in the State of Michigan, acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the lien of the Indenture. Such real property includes but is not limited
to the following described property, such property is subject to any interests
that were excepted or reserved in the conveyance to the Company:
ALCONA COUNTY
Certain land in Caledonia Township, Alcona County, Michigan described
as:
The East 330 feet of the South 660 feet of the SW 1/4 of the
SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South
330 feet thereof; said land being more particularly described as
follows: To find the place of
- 16 -
beginning of this description, commence at the Southwest corner of said
section, run thence East along the South line of said section 1243 feet
to the place of beginning of this description, thence continuing East
along said South line of said section 66 feet to the West 1/8 line of
said section, thence N 02 degrees 09' 30" E along the said West 1/8
line of said section 660 feet, thence West 330 feet, thence S 02
degrees 09' 30" W, 330 feet, thence East 264 feet, thence S 02 degrees
09' 30" W, 330 feet to the place of beginning.
ALLEGAN COUNTY
Certain land in Lee Township, Allegan County, Michigan described as:
The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.
ALPENA COUNTY
Certain land in Wilson and Green Townships, Alpena County, Michigan
described as:
All that part of the S'ly 1/2 of the former Boyne City-Gaylord
and Alpena Railroad right of way, being the Southerly 50 feet of a 100
foot strip of land formerly occupied by said Railroad, running from the
East line of Section 31, T31N, R7E, Southwesterly across said Section
31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2
of Section 9, except the West 1646 feet thereof, all in T30N, R6E.
ANTRIM COUNTY
Certain land in Mancelona Township, Antrim County, Michigan described
as:
The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
therefrom all mineral, coal, oil and gas and such other rights as were
reserved unto the State of Michigan in that certain deed running from
the State of Michigan to August W. Schack and Emma H. Schack, his wife,
dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on
page 682 of Antrim County Records.
ARENAC COUNTY
Certain land in Standish Township, Arenac County, Michigan described
as:
A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
T18N, R4E, described as follows: To find the place of beginning of said
parcel of land, commence at the Northwest corner of Section 12, T18N,
R4E; run thence South along the West line of said section, said West
line of said section being also the center line of East City Limits
Road 2642.15 feet to the W 1/4 post of said section and the place of
beginning of said parcel of land; running thence N 88 degrees 26' 00" E
along the East and West 1/4 line of said section, 660.0 feet; thence
North parallel with the West line of said section, 310.0 feet; thence S
88 degrees 26' 00"
- 17 -
W, 330.0 feet; thence South parallel with the West line of said
section, 260.0 feet; thence S 88 degrees 26' 00" W, 330.0 feet to the
West line of said section and the center line of East City Limits Road;
thence South along the said West line of said section, 50.0 feet to the
place of beginning.
BARRY COUNTY
Certain land in Johnstown Township, Barry County, Michigan described
as:
A strip of land 311 feet in width across the SW 1/4 of the NE
1/4 of Section 31, T1N, R8W, described as follows: To find the place of
beginning of this description, commence at the E 1/4 post of said
section; run thence N 00 degrees 55' 00" E along the East line of said
section, 555.84 feet; thence N 59 degrees 36' 20" W, 1375.64 feet;
thence N 88 degrees 30' 00" W, 130 feet to a point on the East 1/8 line
of said section and the place of beginning of this description; thence
continuing N 88 degrees 30' 00" W, 1327.46 feet to the North and South
1/4 line of said section; thence S 00 degrees 39'35" W along said North
and South 1/4 line of said section, 311.03 feet to a point, which said
point is 952.72 feet distant N'ly from the East and West 1/4 line of
said section as measured along said North and South 1/4 line of said
section; thence S 88 degrees 30' 00" E, 1326.76 feet to the East 1/8
line of said section; thence N 00 degrees 47' 20" E along said East 1/8
line of said section, 311.02 feet to the place of beginning.
BAY COUNTY
Certain land in Frankenlust Township, Bay County, Michigan described
as:
The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
the SE 1/4 of Section 9, T13N, R4E.
BENZIE COUNTY
Certain land in Benzonia Township, Benzie County, Michigan described
as:
A parcel of land in the Northeast 1/4 of Section 7, Township
26 North, Range 14 West, described as beginning at a point on the East
line of said Section 7, said point being 320 feet North measured along
the East line of said section from the East 1/4 post; running thence
West 165 feet; thence North parallel with the East line of said section
165 feet; thence East 165 feet to the East line of said section; thence
South 165 feet to the place of beginning.
BRANCH COUNTY
Certain land in Girard Township, Branch County, Michigan described as:
A parcel of land in the NE 1/4 of Section 23 T5S, R6W,
described a beginning at a point on the North and South quarter line of
said section at a point
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1278.27 feet distant South of the North quarter post of said section,
said distance being measured along the North and South quarter line of
said section, running thence S89 degrees21'E 250 feet, thence North
along a line parallel with the said North and South quarter line of
said section 200 feet, thence N89 degrees21'W 250 feet to the North and
South quarter line of said section, thence South along said North and
South quarter line of said section 200 feet to the place of beginning.
CALHOUN COUNTY
Certain land in Convis Township, Calhoun County, Michigan described as:
A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
T1S, R6W, described as follows: To find the place of beginning of this
description, commence at the Southeast corner of said section; run
thence North along the East line of said section 1034.32 feet to the
place of beginning of this description; running thence N 89 degrees 39'
52" W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of
said section; thence S 89 degrees 39' 52" E along said South 1/8 line
of said section 333.0 feet to the East line of said section; thence
South along said East line of said section 290.0 feet to the place of
beginning. (Bearings are based on the East line of Section 32, T1S,
R6W, from the Southeast corner of said section to the Northeast corner
of said section assumed as North.)
CASS COUNTY
Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:
The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
R13W.
CHARLEVOIX COUNTY
Certain land in South Arm Township, Charlevoix County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
described as follows: Beginning at the Southwest corner of said section
and running thence North along the West line of said section 788.25
feet to a point which is 528 feet distant South of the South 1/8 line
of said section as measured along the said West line of said section;
thence N 89 degrees 30' 19" E, parallel with said South 1/8 line of
said section 442.1 feet; thence South 788.15 feet to the South line of
said section; thence S 89 degrees 29' 30" W, along said South line of
said section 442.1 feet to the place of beginning.
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CHEBOYGAN COUNTY
Certain land in Inverness Township, Cheboygan County, Michigan
described as:
A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
described as beginning at the Northwest corner of the SW frl 1/4,
running thence East on the East and West quarter line of said Section,
40 rods, thence South parallel to the West line of said Section 40
rods, thence West 40 rods to the West line of said Section, thence
North 40 rods to the place of beginning.
CLARE COUNTY
Certain land in Frost Township, Clare County, Michigan described as:
The East 150 feet of the North 225 feet of the NW 1/4 of the
NW 1/4 of Section 15, T20N, R4W.
CLINTON COUNTY
Certain land in Watertown Township, Clinton County, Michigan described
as:
The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
T5N, R3W.
CRAWFORD COUNTY
Certain land in Lovells Township, Crawford County, Michigan described
as:
A parcel of land in Section 1, T28N, R1W, described as:
Commencing at NW corner said section; thence South 89 degrees53'30"
East along North section line 105.78 feet to point of beginning; thence
South 89 degrees53'30" East along North section line 649.64 feet;
thence South 55 degrees 42'30" East 340.24 feet; thence South 55
degrees 44' 37"" East 5,061.81 feet to the East section line; thence
South 00 degrees 00' 08"" West along East section line 441.59 feet;
thence North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
degrees 42'30" West 877.76 feet to point of beginning.
EATON COUNTY
Certain land in Eaton Township, Eaton County, Michigan described as:
A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section; run
thence N 89 degrees 51' 30" E along the South line of said section 400
feet to the place of beginning of this description; thence continuing N
89 degrees 51' 30" E, 500 feet; thence N 00 degrees 50' 00" W, 600
feet; thence S 89 degrees 51' 30" W parallel with the South line of
said
- 20 -
section 500 feet; thence S 00 degrees 50' 00" E, 600 feet to the place
of beginning.
EMMET COUNTY
Certain land in Wawatam Township, Emmet County, Michigan described as:
The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
Section 23, T39N, R4W.
GENESEE COUNTY
Certain land in Argentine Township, Genesee County, Michigan described
as:
A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
being more particularly described as follows:
Beginning at a point of the West line of Duffield Road, 100
feet wide, (as now established) distant 829.46 feet measured N01
degrees42'56"W and 50 feet measured S88 degrees14'04"W` from the South
quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a
distance of 550 feet; thence N01 degrees42'56"W a distance of 500 feet
to a point on the North line of the South half of the Southwest quarter
of said Section 8; thence N88 degrees14'04"E along the North line of
South half of the Southwest quarter of said Section 8 a distance 550
feet to a point on the West line of Duffield Road, 100 feet wide (as
now established); thence S01 degrees42'56"E along the West line of said
Duffield Road a distance of 500 feet to the point of beginning.
GLADWIN COUNTY
Certain land in Secord Township, Gladwin County, Michigan described as:
The East 400 feet of the South 450 feet of Section 2, T19N,
R1E.
GRAND TRAVERSE COUNTY
Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:
A parcel of land in the Northwest 1/4 of Section 3, T25N,
R11W, described as follows: Commencing at the Northwest corner of said
section, running thence S 89 degrees19'15" E along the North line of
said section and the center line of Clouss Road 225 feet, thence South
400 feet, thence N 89 degrees19'15" W 225 feet to the West line of said
section and the center line of Hannah Road, thence North along the West
line of said section and the center line of Hannah Road 400 feet to the
place of beginning for this description.
- 21 -
GRATIOT COUNTY
Certain land in Fulton Township, Gratiot County, Michigan described as:
A parcel of land in the NE 1/4 of Section 7, Township 9 North,
Range 3 West, described as beginning at a point on the North line of
George Street in the Village of Middleton, which is 542 feet East of
the North and South one-quarter (1/4) line of said Section 7; thence
North 100 feet; thence East 100 feet; thence South 100 feet to the
North line of George Street; thence West along the North line of George
Street 100 feet to place of beginning.
HILLSDALE COUNTY
Certain land in Litchfield Village, Hillsdale County, Michigan
described as:
Lot 238 of Assessors Plat of the Village of Litchfield.
HURON COUNTY
Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:
The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.
INGHAM COUNTY
Certain land in Vevay Township, Ingham County, Michigan described as:
A parcel of land 660 feet wide in the Southwest 1/4 of Section
7 lying South of the centerline of Sitts Road as extended to the
North-South 1/4 line of said Section 7, T2N, R1W, more particularly
described as follows: Commence at the Southwest corner of said Section
7, thence North along the West line of said Section 2502.71 feet to the
centerline of Sitts Road; thence South 89 degrees54'45" East along said
centerline 2282.38 feet to the place of beginning of this description;
thence continuing South 89 degrees54'45" East along said centerline and
said centerline extended 660.00 feet to the North-South 1/4 line of
said section; thence South 00 degrees07'20" West 1461.71 feet; thence
North 89 degrees34'58" West 660.00 feet; thence North 00 degrees07'20"
East 1457.91 feet to the centerline of Sitts Road and the place of
beginning.
IONIA COUNTY
Certain land in Sebewa Township, Ionia County, Michigan described as:
A strip of land 280 feet wide across that part of the SW 1/4
of the NE 1/4 of Section 15, T5N, R6W, described as follows:
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To find the place of beginning of this description commence at
the E 1/4 corner of said section; run thence N 00 degrees 05' 38" W
along the East line of said section, 1218.43 feet; thence S 67 degrees
18' 24" W, 1424.45 feet to the East 1/8 line of said section and the
place of beginning of this description; thence continuing S 67 degrees
18' 24" W, 1426.28 feet to the North and South 1/4 line of said section
at a point which said point is 105.82 feet distant N'ly of the center
of said section as measured along said North and South 1/4 line of said
section; thence N 00 degrees 04' 47" E along said North and South 1/4
line of said section, 303.67 feet; thence N 67 degrees 18' 24" E,
1425.78 feet to the East 1/8 line of said section; thence S 00 degrees
00' 26" E along said East 1/8 line of said section, 303.48 feet to the
place of beginning. (Bearings are based on the East line of Section 15,
T5N, R6W, from the E 1/4 corner of said section to the Northeast corner
of said section assumed as N 00 degrees 05' 38" W.)
IOSCO COUNTY
Certain land in Alabaster Township, Iosco County, Michigan described
as:
A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run thence
South along the North and South 1/4 line of said section, 1354.40 feet
to the place of beginning of this description; thence continuing South
along the said North and South 1/4 line of said section, 165.00 feet to
a point on the said North and South 1/4 line of said section which said
point is 1089.00 feet distant North of the center of said section;
thence West 440.00 feet; thence North 165.00 feet; thence East 440.00
feet to the said North and South 1/4 line of said section and the place
of beginning.
ISABELLA COUNTY
Certain land in Chippewa Township, Isabella County, Michigan described
as:
The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
T14N, R3W.
JACKSON COUNTY
Certain land in Waterloo Township, Jackson County, Michigan described
as:
A parcel of land in the North fractional part of the N
fractional 1/2 of Section 2, T1S, R2E, described as follows: To find
the place of beginning of this description commence at the E 1/4 post
of said section; run thence N 01 degrees 03' 40" E along the East line
of said section 1335.45 feet to the North 1/8 line of said section and
the place of beginning of this description; thence N 89 degrees 32' 00"
W, 2677.7 feet to the North and South 1/4 line of said section; thence
S 00 degrees 59' 25" W along the North and South 1/4 line of said
section 22.38 feet to the North 1/8 line of said section; thence S 89
degrees 59' 10" W along the North 1/8 line of said section 2339.4 feet
to the center line of State Trunkline Highway M-52; thence N 53 degrees
46' 00" W along the center line of said State
- 23 -
Trunkline Highway 414.22 feet to the West line of said section; thence
N 00 degrees 55' 10" E along the West line of said section 74.35 feet;
thence S 89 degrees 32' 00" E, 5356.02 feet to the East line of said
section; thence S 01 degrees 03' 40" W along the East line of said
section 250 feet to the place of beginning.
KALAMAZOO COUNTY
Certain land in Alamo Township, Kalamazoo County, Michigan described
as:
The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
T1S, R12W, being more particularly described as follows: To find the
place of beginning of this description, commence at the Northwest
corner of said section; run thence S 00 degrees 36' 55" W along the
West line of said section 971.02 feet to the place of beginning of this
description; thence continuing S 00 degrees 36' 55" W along said West
line of said section 350.18 feet to the North 1/8 line of said section;
thence S 87 degrees 33' 40" E along the said North 1/8 line of said
section 1325.1 feet to the West 1/8 line of said section; thence N 00
degrees 38' 25" E along the said West 1/8 line of said section 350.17
feet; thence N 87 degrees 33' 40" W, 1325.25 feet to the place of
beginning.
KALKASKA COUNTY
Certain land in Kalkaska Township, Kalkaska County, Michigan described
as:
The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
therefrom all mineral, coal, oil and gas and such other rights as were
reserved unto the State of Michigan in that certain deed running from
the Department of Conservation for the State of Michigan to George
Welker and Mary Welker, his wife, dated October 9, 1934 and recorded
December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records,
and subject to easement for pipeline purposes as granted to Michigan
Consolidated Gas Company by first party herein on April 4, 1963 and
recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County
Records.
KENT COUNTY
Certain land in Caledonia Township, Kent County, Michigan described as:
A parcel of land in the Northwest fractional 1/4 of Section
15, T5N, R10W, described as follows: To find the place of beginning of
this description commence at the North 1/4 corner of said section, run
thence S 0 degrees 59' 26" E along the North and South 1/4 line of said
section 2046.25 feet to the place of beginning of this description,
thence continuing S 0 degrees 59' 26" E along said North and South 1/4
line of said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90
feet to a point herein designated "Point A" on the East bank of the
Thornapple River, thence continuing S 88 degrees 53' 30" W to the
center thread of the Thornapple River, thence NW'ly along the center
thread of said Thornapple
- 24 -
River to a point which said point is S 88 degrees 58' 30" W of a point
on the East bank of the Thornapple River herein designated "Point B",
said "Point B" being N 23 degrees 41' 35" W 360.75 feet from said
above-described "Point A", thence N 88 degrees 58' 30" E to said "Point
B", thence continuing N 88 degrees 58' 30" E 2650.13 feet to the place
of beginning. (Bearings are based on the East line of Section 15, T5N,
R10W between the East 1/4 corner of said section and the Northeast
corner of said section assumed as N 0 degrees 59' 55" W.)
LAKE COUNTY
Certain land in Pinora and Cherry Valley Townships, Lake County,
Michigan described as:
A strip of land 50 feet wide East and West along and adjoining
the West line of highway on the East side of the North 1/2 of Section
13 T18N, R12W. Also a strip of land 100 feet wide East and West along
and adjoining the East line of the highway on the West side of
following described land: The South 1/2 of NW 1/4, and the South 1/2 of
the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.
LAPEER COUNTY
Certain land in Hadley Township, Lapeer County, Michigan described as:
The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
T6N, R9E, except the West 1064 feet thereof.
LEELANAU COUNTY
Certain land in Cleveland Township, Leelanau County, Michigan described
as:
The North 200 feet of the West 180 feet of the SW 1/4 of the
SE 1/4 of Section 35, T29N, R13W.
LENAWEE COUNTY
Certain land in Madison Township, Lenawee County, Michigan described
as:
A strip of land 165 feet wide off the West side of the
following described premises: The E 1/2 of the SE 1/4 of Section 12.
The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13,
being all in T7S, R3E, excepting therefrom a parcel of land in the E
1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest
corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4
rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to
the place of beginning.
- 25 -
LIVINGSTON COUNTY
Certain land in Cohoctah Township, Livingston County, Michigan
described as:
Parcel 1
The East 390 feet of the East 50 rods of the SW 1/4 of Section
30, T4N, R4E.
Parcel 2
A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run thence N 89
degrees 13' 06" W along the North line of said section, 330 feet to the
place of beginning of this description; running thence S 00 degrees 52'
49" W, 2167.87 feet; thence N 88 degrees 59' 49" W, 60 feet; thence N
00 degrees 52' 49" E, 2167.66 feet to the North line of said section;
thence S 89 degrees 13' 06" E along said North line of said section, 60
feet to the place of beginning.
MACOMB COUNTY
Certain land in Macomb Township, Macomb County, Michigan described as:
A parcel of land commencing on the West line of the E 1/2 of
the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of
said E 1/2 of the NW 1/4 of Section 6; thence South on said West line
and the East line of A. Henry Kotner's Hayes Road Subdivision #15,
according to the recorded plat thereof, as recorded in Liber 24 of
Plats, on page 7, 24.36 chains to the East and West 1/4 line of said
Section 6; thence East on said East and West 1/4 line 8.93 chains;
thence North parallel with the said West line of the E 1/2 of the NW
1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of
beginning, all in T3N, R13E.
MANISTEE COUNTY
Certain land in Manistee Township, Manistee County, Michigan described
as:
A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
described as follows: To find the place of beginning of this
description, commence at the Southwest corner of said section; run
thence East along the South line of said section 832.2 feet to the
place of beginning of this description; thence continuing East along
said South line of said section 132 feet; thence North 198 feet; thence
West 132 feet; thence South 198 feet to the place of beginning,
excepting therefrom the South 2 rods thereof which was conveyed to
Manistee Township for highway purposes by a Quitclaim Deed dated June
13, 1919 and recorded July [11], 1919 in Liber 88 of Deeds on page 638
of Manistee County Records.
- 26 -
MASON COUNTY
Certain land in Riverton Township, Mason County, Michigan described as:
Parcel 1
The South 10 acres of the West 20 acres of the S 1/2 of the NE
1/4 of Section 22, T17N, R17W.
Parcel 2
A parcel of land containing 4 acres of the West side of
highway, said parcel of land being described as commencing 16 rods
South of the Northwest corner of the NW 1/4 of the SW 1/4 of Section
22, T17N, R17W, running thence South 64 rods, thence NE'ly and N'ly and
NW'ly along the W'ly line of said highway to the place of beginning,
together with any and all right, title, and interest of Howard C.
Wicklund and Katherine E. Wicklund in and to that portion of the
hereinbefore mentioned highway lying adjacent to the E'ly line of said
above described land.
MECOSTA COUNTY
Certain land in Wheatland Township, Mecosta County, Michigan described
as:
A parcel of land in the SW 1/4 of the SW 1/4 of Section 16,
T14N, R7W, described as beginning at the Southwest corner of said
section; thence East along the South line of Section 133 feet; thence
North parallel to the West section line 133 feet; thence West 133 feet
to the West line of said Section; thence South 133 feet to the place of
beginning.
MIDLAND COUNTY
Certain land in Ingersoll Township, Midland County, Michigan described
as:
The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
T13N, R2E.
MISSAUKEE COUNTY
Certain land in Norwich Township, Missaukee County, Michigan described
as:
A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
T24N, R6W, described as follows: Commencing at the Northwest corner of
said section, running thence N 89 degrees 01' 45" E along the North
line of said section 233.00 feet; thence South 233.00 feet; thence S 89
degrees 01' 45" W, 233.00 feet to the West line of said section; thence
North along said West line of said section 233.00 feet to the place of
beginning. (Bearings are based on the West line of Section 16, T24N,
R6W, between the Southwest and Northwest corners of said section
assumed as North.)
- 27 -
MONROE COUNTY
Certain land in Whiteford Township, Monroe County, Michigan described
as:
A parcel of land in the SW1/4 of Section 20, T8S, R6E,
described as follows: To find the place of beginning of this
description commence at the S 1/4 post of said section; run thence West
along the South line of said section 1269.89 feet to the place of
beginning of this description; thence continuing West along said South
line of said section 100 feet; thence N 00 degrees 50' 35" E, 250 feet;
thence East 100 feet; thence S 00 degrees 50' 35" W parallel with and
16.5 feet distant W'ly of as measured perpendicular to the West 1/8
line of said section, as occupied, a distance of 250 feet to the place
of beginning.
MONTCALM COUNTY
Certain land in Crystal Township, Montcalm County, Michigan described
as:
The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.
MONTMORENCY COUNTY
Certain land in the Village of Hillman, Montmorency County, Michigan
described as:
Lot 14 of Hillman Industrial Park, being a subdivision in the
South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to
the plat thereof recorded in Liber 4 of Plats on Pages 32-34,
Montmorency County Records.
MUSKEGON COUNTY
Certain land in Casnovia Township, Muskegon County, Michigan described
as:
The West 433 feet of the North 180 feet of the South 425 feet
of the SW 1/4 of Section 3, T10N, R13W.
NEWAYGO COUNTY
Certain land in Ashland Township, Newaygo County, Michigan described
as:
The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.
OAKLAND COUNTY
Certain land in Wixcom City, Oakland County, Michigan described as:
The E 75 feet of the N 160 feet of the N 330 feet of the W
526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more
particularly described as follows: Commence at the NW corner of said
Section 8, thence N 87 degrees 14' 29" E along the North line of said
Section 8 a distance of 451.84 feet to the place
- 28 -
of beginning for this description; thence continuing N 87 degrees 14'
29" E along said North section line a distance of 75.0 feet to the East
line of the West 526.84 feet of the NW 1/4 of the NW 1/4 of said
Section 8; thence S 02 degrees 37' 09" E along said East line a
distance of 160.0 feet; thence S 87 degrees 14' 29" W a distance of
75.0 feet; thence N 02 degrees 37' 09" W a distance of 160.0 feet to
the place of beginning.
OCEANA COUNTY
Certain land in Crystal Township, Oceana County, Michigan described as:
The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.
OGEMAW COUNTY
Certain land in West Branch Township, Ogemaw County, Michigan described
as:
The South 660 feet of the East 660 feet of the NE 1/4 of the
NE 1/4 of Section 33, T22N, R2E.
OSCEOLA COUNTY
Certain land in Hersey Township, Osceola County, Michigan described as:
A parcel of land in the North 1/2 of the Northeast 1/4 of
Section 13, T17N, R9W, described as commencing at the Northeast corner
of said Section; thence West along the North Section line 999 feet to
the point of beginning of this description; thence S 01 degrees 54' 20"
E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17' 05" W
along the North 1/8 line 330.89 feet; thence N 01 degrees 54' 20" W
1331.26 feet to the North Section line; thence East along the North
Section line 331 feet to the point of beginning.
OSCODA COUNTY
Certain land in Comins Township, Oscoda County, Michigan described as:
The East 400 feet of the South 580 feet of the W 1/2 of the SW
1/4 of Section 15, T27N, R3E.
OTSEGO COUNTY
Certain land in Corwith Township, Otsego County, Michigan described as:
Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
described as: Beginning at the N 1/4 corner of said section; running
thence S 89 degrees 04' 06" E along the North line of said section,
330.00 feet; thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89
degrees 04' 06" W, 330.00 feet to the North and
- 29 -
South 1/4 line of said section; thence N 00 degrees 28' 43" W along the
said North and South 1/4 line of said section, 400.00 feet to the point
of beginning; subject to the use of the N'ly 33.00 feet thereof for
highway purposes.
OTTAWA COUNTY
Certain land in Robinson Township, Ottawa County, Michigan described
as:
The North 660 feet of the West 660 feet of the NE 1/4 of the
NW 1/4 of Section 26, T7N, R15W.
PRESQUE ISLE COUNTY
Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:
Part of the South half of the Northeast quarter, Section 24,
T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E,
more fully described as: Commencing at the East 1/4 corner of said
Section 24; thence N 00 degrees15'47" E, 507.42 feet, along the East
line of said Section 24 to the point of beginning; thence S 88
degrees15'36" W, 400.00 feet, parallel with the North 1/8 line of said
Section 24; thence N 00 degrees15'47" E, 800.00 feet, parallel with
said East line of Section 24; thence N 88 degrees15'36"E, 800.00 feet,
along said North 1/8 line of Section 24 and said line extended; thence
S 00 degrees15'47" W, 800.00 feet, parallel with said East line of
Section 24; thence S 88 degrees15'36" W, 400.00 feet, parallel with
said North 1/8 line of Section 24 to the point of beginning.
Together with a 33 foot easement along the West 33 feet of the
Northwest quarter lying North of the North 1/8 line of Section 24,
Belknap Township, extended, in Section 19, T34N, R6E.
ROSCOMMON COUNTY
Certain land in Gerrish Township, Roscommon County, Michigan described
as:
A parcel of land in the NW 1/4 of Section 19, T24N, R3W,
described as follows: To find the place of beginning of this
description commence at the Northwest corner of said section, run
thence East along the North line of said section 1,163.2 feet to the
place of beginning of this description (said point also being the place
of intersection of the West 1/8 line of said section with the North
line of said section), thence S 01 degrees 01' E along said West 1/8
line 132 feet, thence West parallel with the North line of said section
132 feet, thence N 01 degrees 01' W parallel with said West 1/8 line of
said section 132 feet to the North line of said section, thence East
along the North line of said section 132 feet to the place of
beginning.
- 30 -
SAGINAW COUNTY
Certain land in Chapin Township, Saginaw County, Michigan described as:
A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section; run
thence North along the West line of said section 1581.4 feet to the
place of beginning of this description; thence continuing North along
said West line of said section 230 feet to the center line of a creek;
thence S 70 degrees 07' 00" E along said center line of said creek
196.78 feet; thence South 163.13 feet; thence West 185 feet to the West
line of said section and the place of beginning.
SANILAC COUNTY
Certain easement rights located across land in Minden Township, Sanilac
County, Michigan described as:
The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
R14E, excepting therefrom the South 83 feet of the East 83 feet
thereof.
SHIAWASSEE COUNTY
Certain land in Burns Township, Shiawassee County, Michigan described
as:
The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
T5N, R4E.
ST. CLAIR COUNTY
Certain land in Ira Township, St. Clair County, Michigan described as:
The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.
ST. JOSEPH COUNTY
Certain land in Mendon Township, St. Joseph County, Michigan described
as:
The North 660 feet of the West 660 feet of the NW 1/4 of SW
1/4, Section 35, T5S, R10W.
TUSCOLA COUNTY
Certain land in Millington Township, Tuscola County, Michigan described
as:
A strip of land 280 feet wide across the East 96 rods of the
South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
particularly described as commencing at the Northeast corner of Section
3, T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
distance of 1398.67 feet to the South 1/8
- 31 -
line of said Section 34 and the place of beginning for this
description; thence continuing N 18 degrees 11' 50" W a distance of
349.91 feet; thence N 89 degrees 57' 01" W a distance of 294.80 feet;
thence S 18 degrees 11' 50" E a distance of 350.04 feet to the South
1/8 line of said Section 34; thence S 89 degrees 58' 29" E along the
South 1/8 line of said section a distance of 294.76 feet to the place
of beginning.
VAN BUREN COUNTY
Certain land in Covert Township, Van Buren County, Michigan described
as:
All that part of the West 20 acres of the N 1/2 of the NE
fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the
North 80 rods, being more particularly described as follows: To find
the place of beginning of this description commence at the N 1/4 post
of said section; run thence N 89 degrees 29' 20" E along the North line
of said section 280.5 feet to the place of beginning of this
description; thence continuing N 89 degrees 29' 20" E along said North
line of said section 288.29 feet; thence S 00 degrees 44' 00" E,
1531.92 feet; thence S 89 degrees 33' 30" W, 568.79 feet to the North
and South 1/4 line of said section; thence N 00 degrees 44' 00" W along
said North and South 1/4 line of said section 211.4 feet; thence N 89
degrees 29' 20" E, 280.5 feet; thence N 00 degrees 44' 00" W, 1320 feet
to the North line of said section and the place of beginning.
WASHTENAW COUNTY
Certain land in Manchester Township, Washtenaw County, Michigan
described as:
A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
T4S, R3E, described as follows: To find the place of beginning of this
description commence at the Northwest corner of said section; run
thence East along the North line of said section 1355.07 feet to the
West 1/8 line of said section; thence S 00 degrees 22' 20" E along said
West 1/8 line of said section 927.66 feet to the place of beginning of
this description; thence continuing S 00 degrees 22' 20" E along said
West 1/8 line of said section 660 feet to the North 1/8 line of said
section; thence N 86 degrees 36' 57" E along said North 1/8 line of
said section 660.91 feet; thence N 00 degrees22' 20" W, 660 feet;
thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.
WAYNE COUNTY
Certain land in Livonia City, Wayne County, Michigan described as:
Commencing at the Southeast corner of Section 6, T1S, R9E;
thence North along the East line of Section 6 a distance of 253 feet to
the point of beginning; thence continuing North along the East line of
Section 6 a distance of 50 feet; thence Westerly parallel to the South
line of Section 6, a distance of 215 feet; thence Southerly parallel to
the East line of Section 6 a distance of 50 feet;
- 32 -
thence easterly parallel with the South line of Section 6 a distance of
215 feet to the point of beginning.
WEXFORD COUNTY
Certain land in Selma Township, Wexford County, Michigan described as:
A parcel of land in the NW 1/4 of Section 7, T22N, R10W,
described as beginning on the North line of said section at a point 200
feet East of the West line of said section, running thence East along
said North section line 450 feet, thence South parallel with said West
section line 350 feet, thence West parallel with said North section
line 450 feet, thence North parallel with said West section line 350
feet to the place of beginning.
SECTION 12. The Company is a transmitting utility under Section 9501(2)
of the Michigan Uniform Commercial Code (M.C.L. 440.9501 (2)) as defined in
M.C.L. 440.9102(1)(aaaa).
IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board, President, a Vice President or its Treasurer and its corporate seal
to be hereunto affixed and to be attested by its Secretary or an Assistant
Secretary, and said JPMorgan Chase Bank, as Trustee as aforesaid, to evidence
its acceptance hereof, has caused this Supplemental Indenture to be executed in
its corporate name by a Vice President and its corporate seal to be hereunto
affixed and to be attested by a Trust Officer, in several counterparts, all as
of the day and year first above written.
- 33 -
CONSUMERS ENERGY COMPANY
(SEAL) By ----------------------------
Paul A. Stadnikia
Attest: Treasurer
- ----------------------
Joyce H. Norkey
Assistant Secretary
Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of
- ----------------------
Kimberly C. Wilson
- ----------------------
Sammie B. Dalton
STATE OF MICHIGAN )
ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this
26th day of March, 2003, by Paul A. Stadnikia, Treasurer of CONSUMERS ENERGY
COMPANY, a Michigan corporation, on behalf of the corporation.
-----------------------------------
Margaret Hillman, Notary Public
[Seal] Jackson County, Michigan
My Commission Expires: June 14, 2004
S-1
JPMORGAN CHASE BANK, AS TRUSTEE
(SEAL) By
----------------------------
L. O'Brien
Attest: Vice President
- ------------------------------
VIRGINIA DOMINGUEZ
Trust Officer [ILLEGIBLE]
Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of
- ----------------------------
NATALIA RODRIGUEZ
VICE PRESIDENT
- ----------------------------
WILLIAM G. KEENAN
VICE PRESIDENT
STATE OF NEW YORK )
ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 26th
day of March, 2003, by L. O'Brien, a Vice President of JPMORGAN CHASE BANK, a
New York corporation, on behalf of the corporation.
-------------------------------------
Notary Public
[Seal] New York County, New York
My Commission Expires:
Prepared by: When recorded, return to:
Kimberly C. Wilson Consumers Energy Company
212 West Michigan Avenue Business Services Real Estate Dept.
Jackson, MI 49201 Attn: Nancy Fisher EP7-439
One Energy Plaza
Jackson, MI 49201
S-2
EXHIBIT B-1
REQUIRED OPINIONS FROM
MICHAEL D. VANHEMERT, ESQ.
MICHAEL D. VAN HEMERT, ESQ.
DEPUTY GENERAL COUNSEL
Facsimile Number: (313) 436-9225
Writer's Direct Dial Number: (313) 436-9602
March 26, 2003
To: The Agent and the Banks, which are
parties to the Agreement referred
to below
Ladies and Gentlemen:
I am Deputy General Counsel for CMS Energy Corporation, a Michigan corporation.
CMS Energy Corporation is the parent company of Consumers Energy Company, a
Michigan corporation ("the Company"). As special counsel for the Company, I, or
an attorney or attorneys under my general supervision, have represented the
Company in connection with its execution and delivery of a Term Loan Agreement
between the Company and Beal Bank, S.S.B., as agent for the banks named therein
(the "Banks") dated as of March 26, 2003 (the "Agreement"). All capitalized
terms used in this opinion shall have the meanings attributed to them in the
Agreement.
I, or an attorney or attorneys under my general supervision, have examined the
Company's Restated Articles of Incorporation, as amended, ("Articles of
Incorporation") and bylaws, resolutions of the Board of Directors of the
Company, the Loan Documents and such other documents and records as I have
deemed necessary in order to render this opinion. Based upon the foregoing, it
is my opinion that:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Michigan.
2. The execution and delivery of the Loan Documents by the
Company and the performance by the Company of the Obligations
have been duly authorized by all necessary corporate action
and proceedings on the part of the Company and will not:
(a) contravene the Company's Restated Articles of
Incorporation, as amended, or bylaws;
(b) contravene any law, including usury laws, or any
contractual restriction imposed by any indenture or
any other agreement or instrument evidencing or
governing indebtedness for borrowed money of the
Company; or
(c) result in or require the creation of any Lien upon or
with respect to any of the Company's properties
except the lien of the Indenture securing the Bonds.
Fairlane Plaza South . 330 Town Center Drive . Suite 1000 . Dearborn, MI
48126-2712
2
3. The Loan Documents have been duly executed and delivered by
the Company and constitute the legal, valid and binding
obligations of the Company enforced in accordance with their
respective term subject to (a) the effect of applicable
bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the enforcement of creditors' rights
generally and (b) the application of general principles of
equity (regardless of whether considered in a preceding in
equity or at law).
4. To the best of my knowledge, there is no pending or threatened
action or proceeding against the Company or any of its
Consolidated Subsidiaries before any court, governmental
agency or arbitrator (except (i) to the extent described in
the Company's annual report on Form 10-K/A for the year ended
December 31, 2001, and the quarterly report on Form 10-Q/A for
the quarter ended September 30, 2002, in each case as filed
with the SEC, and (ii) such other similar actions, suits and
proceedings predicated on the occurrence of the same events
giving rise to any actions, suits and proceedings described in
the reports filed with the SEC set forth in clause (i) of this
paragraph 4) which might reasonably be expected to materially
adversely affect the financial condition or results of
operations of the Company and its Consolidated Subsidiaries,
taken as a whole, or that would materially adversely affect
the Company's ability to perform its obligations under any
Loan Document. To the best of my knowledge, there is no
litigation challenging the validity or enforceability of any
of the Loan Documents.
5. No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and
performance by the Company of any Loan Document, except for
the authorization to issue, sell or guarantee secured and/or
unsecured long-term debt granted by the Federal Energy
Regulatory Commission (hereinafter the "FERC") in Docket No.
ES02-36-001 and for the waiver of the competitive bidding and
negotiated placement requirements granted by the FERC in
Docket No. ES02-36-001 (hereinafter collectively the "FERC
Orders"). The FERC Orders are in full force and effect as of
the date hereof.
6. The Bonds, assuming the execution of the authentication
contained thereon by the Trustee, are in due and proper form
and, when delivered to the Agent pursuant to the Bond Delivery
Agreement, will evidence and secure the Obligations owing
under the Agreement and will be valid and enforceable
obligations of the Company in accordance with their terms,
secured by the lien of the Indenture on an equal and ratable
basis with all other bonds issued thereunder and otherwise
entitled to the benefits provided by the Indenture.
7. The Indenture has been qualified under the Trust Indenture Act
of 1939, as amended, and the execution and delivery of the
Supplemental Indenture will not cause the Indenture to not be
so qualified.
8. The Company is not an "investment company" or a company
"controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.
9. The Company (i) is a "public utility" and a "subsidiary
company" of a "holding company", as such terms are defined in
the Public Utility Holding Company Act of 1935, as amended
(the "Holding Company Act"), and (ii) is currently exempt from
all provisions of the Holding Company Act, except Section
9(a)(2) thereof.
Fairlane Plaza South . 330 Town Center Drive . Suite 1000 . Dearborn, MI
48126-2712
3
The opinions set forth in paragraph 2(b) above are subject to the qualification
that the laws of the State of Michigan provide that while a corporation may
agree in writing to pay any rate of interest, MCLA 450.1275; MSA 21.200(275), it
is criminal usury to charge more than 25 percent interest, MCLA 438.41; MSA
19.15(51). I note that the Michigan Attorney General has opined that the
criminal usury rate applies to corporations and thus, the interest rate that a
corporation may agree to pay may be limited to 25 percent. 1979-1980 OAG, No.
5,740 at 877 (July 17, 1980).
I am a member of the bar of the State of Michigan, and as such, have made no
investigation of, and give no opinion on, the laws of any state or country other
than those of the State of Michigan, and, to the extent pertinent, of the United
States of America.
This opinion may be relied upon, and is solely for the benefit of, the Agent and
the Banks and their participants and assignees under the Agreement, and is not
to be otherwise used, circulated, quoted, referred to or relied upon for any
purpose without my express written permission.
Sincerely,
Michael D. Van Hemert
Deputy General Counsel
Fairlane Plaza South . 330 Town Center Drive . Suite 1000 . Dearborn, MI
48126-2712
EXHIBIT B-2
REQUIRED OPINIONS FROM
MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.
1. The Bonds, assuming the execution of the authentication
contained thereon by the Trustee, are in due and proper form and, when delivered
to the Agent pursuant to the Bond Delivery Agreement, will evidence and secure
the Obligations owing under the Agreement and will be valid and enforceable
obligations of the Company in accordance with their terms, secured by the lien
of the Indenture on an equal and ratable basis with all other bonds issued
thereunder and otherwise entitled to the benefits provided by the Indenture.
EXHIBIT C
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption (the "Assignment and Assumption") is
dated as of the Effective Date set forth below and is entered into by and
between [Insert name of Assignor], (the "Assignor") and [Insert name of
Assignee] (the "Assignee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Loan Agreement identified below (as
amended, the "Loan Agreement"), receipt of a copy of which is hereby
acknowledged by the Assignee. The Terms and Conditions set forth in Annex 1
attached hereto are hereby agreed to and incorporated herein by reference and
made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and
assigns to the Assignee, and the Assignee hereby irrevocably purchases and
assumes from the Assignor, subject to and in accordance with the Standard Terms
and Conditions and the Loan Agreement, as of the Effective Date inserted by the
Agent as contemplated below, the interest in and to all of the Assignor's rights
and obligations in its capacity as a Bank under the Loan Agreement and any other
documents or instruments delivered pursuant thereto that represents the amount
and percentage interest identified below of all of the Assignor's outstanding
rights and obligations under the respective facilities identified below
(including without limitation, to the extent permitted to be assigned under
applicable law, all claims (including without limitation contract claims, tort
claims, malpractice claims, statutory claims and all other claims at law or in
equity), suits, causes of action and any other right of the Assignor against any
Person whether known or unknown arising under or in connection with the Loan
Agreement, any other documents or instruments delivered pursuant thereto or the
loan transactions governed thereby) (the "Assigned Interest"). Such sale and
assignment is without recourse to the Assignor and, except as expressly provided
in this Assignment and Assumption, without representation or warranty by the
Assignor.
1 Assignor: ________________________
2. Assignee: ________________________ [and is an affiliate of
Assignor]
3 Borrower: CONSUMERS ENERGY COMPANY
4. Agent: Beal Bank, S.S.B., as the Agent under the Loan
Agreement.
5. Loan Agreement: The Term Loan Agreement dated as of March 26, 2003
among Consumers Energy Company, the Banks party thereto, and Beal Bank, S.S.B.,
as Agent.
ASSIGNMENT AND ASSUMPTION AGREEMENT, Page 1
6. Assigned Interest:
- --------------------------------------------------------------------------------------------
Aggregate Amount of Percentage Assigned of
Outstanding Term Amount of Outstanding Outstanding Term
Facility Assigned Loans for all Banks* Term Loans Assigned* Loans(1)
- --------------------------------------------------------------------------------------------
Term Loans $______________ $________________ _______%
- --------------------------------------------------------------------------------------------
7. Trade Date: _______________________________________(2)
Effective Date: _____________, 20__ [TO BE INSERTED BY AGENT AND WHICH SHALL BE
THE EFFECTIVE DATE OF RECORDATION OF TRANSFER BY THE AGENT]
The terms set forth in this Assignment and Assumption are hereby agreed
to:
ASSIGNOR
[NAME OF ASSIGNOR]
By: _______________________
Title: ________________
ASSIGNEE
[NAME OF ASSIGNEE]
By: _______________________
Title: ________________
Consented to and Accepted:
BEAL BANK, S.S.B., as Agent
By: ___________________________
Title: ____________________
- -----------------------------
* Amount to be adjusted by the counterparties to take into account any
payments or prepayments made between the Trade Date and the Effective Date.
(1) Set forth, to at least 9 decimals, as a percentage of the Term Loans of
all Banks thereunder.
(2) Insert if satisfaction of minimum amounts is to be determined as of the
Trade Date.
ASSIGNMENT AND ASSUMPTION AGREEMENT, Page 2
ANNEX 1
TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties.
1.1 Assignor. The Assignor represents and warrants that (i) it is
the legal and beneficial owner of the Assigned Interest, (ii) the Assigned
Interest is free and clear of any lien, encumbrance or other adverse claim and
(iii) it has full power and authority, and has taken all action necessary, to
execute and deliver this Assignment and Assumption and to consummate the
transactions contemplated hereby. Neither the Assignor nor any of its officers,
directors, employees, agents or attorneys shall be responsible for (i) any
statements, warranties or representations made in or in connection with the Loan
Agreement or any other Loan Document, (ii) the execution, legality, validity,
enforceability, genuineness, sufficiency, perfection, priority, collectibility,
or value of the Loan Documents or any collateral thereunder, (iii) the financial
condition of the Company, any of its Subsidiaries or Affiliates or any other
Person obligated in respect of any Loan Document, (iv) the performance or
observance by the Company, any of its Subsidiaries or Affiliates or any other
Person of any of their respective obligations under any Loan Document, (v)
inspecting any of the property, books or records of the Company, or any
guarantor, or (vi) any mistake, error of judgment, or action taken or omitted to
be taken in connection with the Term Loans or the Loan Documents.
1.2. Assignee. The Assignee (a) represents and warrants that (i) it
has full power and authority, and has taken all action necessary, to execute and
deliver this Assignment and Assumption and to consummate the transactions
contemplated hereby and to become a Bank under the Loan Agreement, (ii) from and
after the Effective Date, it shall be bound by the provisions of the Loan
Agreement as a Bank thereunder and, to the extent of the Assigned Interest,
shall have the obligations of a Bank thereunder, (iii) agrees that its payment
instructions and notice instructions are as set forth in Schedule 1 to this
Assignment and Assumption, (iv) confirms that none of the funds, monies, assets
or other consideration being used to make the purchase and assumption hereunder
are "plan assets" as defined under ERISA and that its rights, benefits and
interests in and under the Loan Documents will not be "plan assets" under ERISA,
(v) agrees to indemnify and hold the Assignor harmless against all losses, costs
and expenses (including, without limitation, reasonable attorneys' fees) and
liabilities incurred by the Assignor in connection with or arising in any manner
from the Assignee's non-performance of the obligations assumed under this
Assignment and Assumption, (vi) it has received a copy of the Loan Agreement,
together with copies of financial statements and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Assumption and to purchase the
Assigned Interest on the basis of which it has made such analysis and decision
independently and without reliance on the Agent or any other Bank, and (vii)
attached as Schedule 1 to this Assignment and Assumption is any documentation
required to be delivered by the Assignee with respect to its tax status pursuant
to the terms of the Loan Agreement, duly completed and executed by the Assignee
and (b) agrees that (i) it will, independently and without reliance on the
Agent, the Assignor or any other Bank, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Loan Documents, and
(ii) it will perform in accordance with their terms all of the obligations which
by the terms of the Loan Documents are required to be performed by it as a Bank.
2. Payments. The Assignee shall pay the Assignor, on the
Effective Date, the amount agreed to by the Assignor and the Assignee. From and
after the Effective Date, the Agent shall make all payments in respect of the
Assigned Interest (including payments of principal, interest, fees and other
amounts) to the Assignor for amounts which have accrued to but excluding the
Effective Date and to the Assignee for amounts which have accrued from and after
the Effective Date.
ANNEX 1, Page 1
3. General Provisions. This Assignment and Assumption shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns. This Assignment and Assumption may be
executed in any number of counterparts, which together shall constitute one
instrument. Delivery of an executed counterpart of a signature page of this
Assignment and Assumption by telecopy shall be effective as delivery of a
manually executed counterpart of this Assignment and Assumption. This Assignment
and Assumption shall be governed by, and construed in accordance with, the law
of the State of Michigan.
ANNEX 1, Page 2
ADMINISTRATIVE DETAILS FORM
DEAL NAME: CONSUMERS ENERGY COMPANY
GENERAL INFORMATION
YOUR INSTITUTIONS LEGAL NAME:
TAX WITHHOLDING:
Note: To avoid the potential of having interest income withheld, all investors
must deliver all current and appropriate tax forms.
Tax ID #:
SUB-ALLOCATION: (United States only)
Note: If your institution is sub-allocating its allocation, please fill out the
information below. Additionally, an administrative detail form is required for
each legal entity. Execution copies (e.g. Credit Agreement/Assignment Agreement)
will be sent for signature to the Sub-Allocation Contact below.
Sub-Allocated Amount: $________________
Signing Credit Agreement? Yes No
Coming In Via Assignment? Yes No
SUB-ALLOCATION CONTACT:
NAME:
Address: ___________________________________ E-mail: _____________
___________________________________
City: ______________ State: ___________ Phone #: _____________
Postal Code ______________ Country: ___________ Fax #: _____________
CONTACT LIST
BUSINESS/CREDIT MATTERS: (Responsible for trading and credit approval process of
the deal)
Primary:
NAME:
Address: ___________________________________ E-mail: _____________
___________________________________
City: ______________ State: ___________ Phone #: _____________
Postal Code ______________ Country: ___________ Fax #: _____________
Backup:
NAME:
Address: ___________________________________ E-mail: _____________
___________________________________
City: ______________ State: ___________ Phone #: _____________
Postal Code ______________ Country: ___________ Fax #: _____________
Administrative Detail Form, Page 1
ADMINISTRATIVE DETAILS FORM
ADMIN/OPERATIONS MATTERS: (Responsible for interest, fee, principal payment,
borrowing & pay-downs)
Primary:
NAME:
Address: ___________________________________ E-mail: _____________
___________________________________
City: ______________ State: ___________ Phone #: _____________
Postal Code ______________ Country: ___________ Fax #: _____________
Backup:
NAME:
Address: ___________________________________ E-mail: _____________
___________________________________
City: ______________ State: ___________ Phone #: _____________
Postal Code ______________ Country: ___________ Fax #: _____________
CLOSING CONTACT: (Responsible for Deal Closing matters)
NAME:
Address: ___________________________________ E-mail: _____________
___________________________________
City: ______________ State: ___________ Phone #: _____________
Postal Code ______________ Country: ___________ Fax #: _____________
DISCLOSURE CONTACT: (Receives disclosure materials, such as financial reports,
via our web site)
NAME:
Address: ___________________________________ E-mail: _____________
___________________________________
City: ______________ State: ___________ Phone #: _____________
Postal Code ______________ Country: ___________ Fax #: _____________
Administrative Detail Form, Page 2
ADMINISTRATIVE DETAILS FORM
ROUTING INSTRUCTIONS
ROUTING INSTRUCTIONS FOR THIS DEAL:
CORRESPONDENT BANK:
City: _________ State: ______ ACCOUNT NAME: ____________
Postal Code _________ ACCOUNT #:
Payment Type: BENEF. ACCT. NAME: ____________
[ ]Fed [ ]ABA [ ]CHIPS BENEF. ACCT. #: ____________
ABA/CHIPS #:
REFERENCE: __________________
Attention: __________________
ADMINISTRATIVE AGENT INFORMATION
BANK LOANS SYNDICATION - AGENT CONTACT AGENT WIRING INSTRUCTIONS
Name:
Telephone:
Fax:
Address:
INITIAL FUNDING STANDARDS: LIBOR - Fund 2 days after rates are set.
Administrative Detail Form, Page 3
EXHIBIT D
BOND DELIVERY AGREEMENT
BOND DELIVERY AGREEMENT
CONSUMERS ENERGY COMPANY
to
BEAL BANK, S.S.B., as Agent
Dated as of March 26, 2003
-------------------
Relating to
First Mortgage Bonds, Collateral Series due March 26, 2009
------------------
BOND DELIVERY AGREEMENT, Page 1
THIS BOND DELIVERY AGREEMENT (this "Agreement"), dated as of March 26,
2003, is between Consumers Energy Company (the "Company") and Beal Bank, S.S.B.,
as agent (the "Agent") under the Term Loan Agreement (as amended, supplemented
or otherwise modified from time to time, the "Loan Agreement") dated as of March
26, 2003, among the Company, the financial institutions parties thereto (the
"Banks"), and the Agent. Capitalized terms used but not otherwise defined herein
have the respective meanings assigned to such terms in the Loan Agreement.
Whereas, the Company has established its First Mortgage Bonds,
Collateral Series due 2009, in the aggregate principal amount of $140,000,000
(the "Bonds"), to be issued under and in accordance with the Eighty-Seventh
Supplemental Indenture dated as of March 26, 2003 (the "Supplemental Indenture")
to the Indenture; and
Whereas, the Company proposes to issue and deliver to the Agent, for
the benefit of the Banks, the Bonds in order to provide the Bonds as evidence of
(and the benefit of the lien of the Indenture with respect to the Bonds for) the
Obligations of the Company arising under the Loan Agreement;
Now, therefore, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the Company and the Agent hereby agree as follows:
ARTICLE I
THE BONDS
Section 1.1 Delivery of Bonds.
In order to provide the Bonds as evidence of (and through the Bonds the
benefit of the Lien of the Indenture for) the Obligations of the Company under
the Loan Agreement as aforesaid, the Company hereby delivers to the Agent the
Bonds in the aggregate principal amount of $140,000,000, maturing on March 26,
2009 and bearing interest as provided in the Supplemental Indenture. The
obligation of the Company to pay the principal of and interest on the Bonds
shall be deemed to have been satisfied and discharged in full or in part, as the
case may be, to the extent of payment by the Company of the Obligations, all as
set forth in the Bonds and in Section 1 of the Supplemental Indenture.
The Bonds are registered in the name of the Agent and shall be owned
and held by the Agent, subject to the provisions of this Agreement, for the
benefit of the Banks, and the Company shall have no interest therein. The Agent
shall be entitled to exercise all rights of bondholders under the Indenture with
respect to the Bonds.
The Agent acknowledges receipt of the Bonds.
Section 1.2 Payments on the Bonds.
Any payments received by the Agent on account of the principal of or
interest on the Bonds shall be deemed to be and treated in all respects as
payments on the Obligations, and such payments shall be distributed by the Agent
to the Banks in accordance with the provisions of the Loan Agreement applicable
to payments received by the Agent in respect of the Obligations (and the Company
hereby consents to such distributions).
BOND DELIVERY AGREEMENT, Page 1
ARTICLE II
NO TRANSFER OF BONDS; SURRENDER OF BONDS
Section 2.1 No Transfer of the Bonds.
The Agent shall not sell, assign or otherwise transfer any Bonds
delivered to it under this Agreement except to a successor administrative agent
under the Loan Agreement. The Company may take such actions as it shall deem
necessary, desirable or appropriate to effect compliance with such restrictions
on transfer, including the issuance of stop-transfer instructions to the trustee
under the Indenture or any other transfer agent thereunder.
Section 2.2 Surrender of Bonds.
(a) The Agent shall forthwith surrender to or upon the order of
the Company all Bonds held by it at the first time at which all Obligations
shall have been paid in full.
(b) Upon any prepayments of Term Loans pursuant to the terms of
the Loan Agreement, the Agent shall forthwith surrender to or upon the order of
the Company Bonds in an aggregate principal amount equal to the excess of the
aggregate principal amount of Bonds held by the Agent over the aggregate
outstanding Tern Loans.
ARTICLE III
GOVERNING LAW
This Agreement shall construed in accordance with and governed by the
laws of the State of Michigan and the applicable laws of the United States of
America.
IN WITNESS WHEREOF, the Company and the Agent have caused this
Agreement to be executed and delivered as of the date first above written.
CONSUMERS ENERGY COMPANY
By: /s/ Laura L. Mountcastle
---------------------------
Name: Laura L. Mountcastle
---------------------
Title: Vice President
BEAL BANK, S.S.B., as Agent
By: ___________________________
William T. Saurenmann
Title: Senior Vice President
BOND DELIVERY AGREEMENT, Page 2
ARTICLE II
NO TRANSFER OF BONDS; SURRENDER OF BONDS
Section 2.1 No Transfer of the Bonds.
The Agent shall not sell, assign or otherwise transfer any Bonds
delivered to it under this Agreement except to a successor administrative agent
under the Loan Agreement. The Company may take such actions as it shall deem
necessary, desirable or appropriate to effect compliance with such restrictions
on transfer, including the issuance of stop-transfer instructions to the trustee
under the Indenture or any other transfer agent thereunder.
Section 2.2 Surrender of Bonds.
(a) The Agent shall forthwith Surrender to upon the order of the
Company all Bonds held by it at the first time at which all Obligations shall
have been paid in full.
(b) Upon any prepayments of Term Loans pursuant to the terms of
the Loan Agreement, the Agent shall forthwith surrender to or upon the order of
the Company Bonds in an aggregate principal mount equal to the excess of the
aggregate principal amount of Bonds held by the Agent over the aggregate
outstanding Term Loans.
ARTICLE III
GOVERNING LAW
This Agreement shall construed in accordance with and governed by the
laws of the State of Michigan and the applicable laws of the United States of
America.
IN WITNESS WHEREOF, the Company and the Agent have caused this
Agreement to be executed and delivered as of the date first above written.
By: ___________________________
Name: ______________________
Title: ______________________
BEAL BANK, S.S.B., as Agent
By: /s/ William T. Saurenmann
---------------------------
William T. Saurenmann
Title: Senior Vice President
BOND DELIVERY AGREEMENT, Page 2
COMMITMENT SCHEDULE
BANKS TERM LOAN COMMITMENT
Beal Bank, S.S.B. $140,000,000
AGGREGATE TERM LOAN COMMITMENTS $140,000,000
EXHIBIT 4(f)
EXECUTION COPY
================================================================================
CREDIT AGREEMENT
Dated as of March 27, 2003
among
CONSUMERS ENERGY COMPANY,
as the Borrower,
THE FINANCIAL INSTITUTIONS NAMED HEREIN,
as the Banks,
BANK ONE, NA,
as Agent
and
CITICORP NORTH AMERICA, INC.,
JP MORGAN CHASE BANK,
UNION BANK OF CALIFORNIA, N.A.,
as Co-Documentation Agents
================================================================================
BANC ONE CAPITAL MARKETS, INC.
and
BARCLAYS CAPITAL
as Co-Lead Arrangers and Joint Book Runners
================================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS........................................................................... 1
1.1 Definitions............................................................................... 1
1.2 Singular and Plural....................................................................... 11
1.3 Accounting Terms.......................................................................... 11
ARTICLE II THE ADVANCES.......................................................................... 12
2.1 Commitment................................................................................ 12
2.2 Required Payments; Termination; Extension of Termination Date............................. 12
2.3 Ratable Loans............................................................................. 12
2.4 Types of Advances......................................................................... 12
2.5 Commitment Fee and Reductions of Commitment............................................... 12
2.6 Minimum Amount of Advances................................................................ 13
2.7 Optional Principal Payments............................................................... 13
2.8 Method of Selecting Types and Interest Periods for New Advances........................... 13
2.9 Conversion and Continuation of Outstanding Advances....................................... 14
2.10 Interest Rates, Interest Payment Dates.................................................... 14
2.11 Rate after Maturity....................................................................... 15
2.12 Method of Payment......................................................................... 15
2.13 Bonds; Record-keeping; Telephonic Notices................................................. 16
2.14 Lending Installations..................................................................... 16
2.15 Non-Receipt of Funds by the Agent......................................................... 16
ARTICLE III LETTER OF CREDIT FACILITY............................................................. 17
3.1 Issuance.................................................................................. 17
3.2 Participations............................................................................ 17
3.3 Notice.................................................................................... 17
3.4 LC Fees................................................................................... 17
3.5 Administration; Reimbursement by Banks.................................................... 18
3.6 Reimbursement by Company.................................................................. 18
3.7 Obligations Absolute...................................................................... 19
3.8 Actions of LC Issuer...................................................................... 19
3.9 Indemnification........................................................................... 19
3.10 Banks' Indemnification.................................................................... 20
3.11 Rights as a Bank.......................................................................... 20
ARTICLE IV CHANGE IN CIRCUMSTANCES............................................................... 20
4.1 Yield Protection.......................................................................... 20
4.2 Replacement Bank.......................................................................... 22
4.3 Availability of Eurodollar Rate Loans..................................................... 22
4.4 Funding Indemnification................................................................... 22
4.5 Taxes..................................................................................... 22
4.6 Bank Certificates, Survival of Indemnity.................................................. 24
ARTICLE V REPRESENTATIONS AND WARRANTIES........................................................ 25
5.1 Incorporation and Good Standing........................................................... 25
5.2 Corporate Power and Authority: No Conflicts............................................... 25
5.3 Governmental Approvals.................................................................... 25
5.4 Legally Enforceable Agreements............................................................ 25
5.5 Financial Statements...................................................................... 25
5.6 Litigation................................................................................ 25
5.7 Margin Stock.............................................................................. 26
5.8 ERISA..................................................................................... 26
5.9 Insurance................................................................................. 26
5.10 Taxes..................................................................................... 26
5.11 Investment Company Act.................................................................... 26
5.12 Public Utility Holding Company Act........................................................ 26
5.13 Bonds..................................................................................... 26
ARTICLE VI AFFIRMATIVE COVENANTS................................................................. 26
6.1 Payment of Taxes, Etc..................................................................... 26
6.2 Maintenance of Insurance.................................................................. 27
6.3 Preservation of Corporate Existence, Etc.................................................. 27
6.4 Compliance with Laws, Etc................................................................. 27
6.5 Visitation Rights......................................................................... 27
6.6 Keeping of Books.......................................................................... 27
6.7 Reporting Requirements.................................................................... 27
6.8 Use of Proceeds........................................................................... 29
6.9 Maintenance of Properties, Etc............................................................ 29
6.10 Bonds..................................................................................... 29
ARTICLE VII NEGATIVE COVENANTS.................................................................... 30
7.1 Liens..................................................................................... 30
7.2 Sale of Assets............................................................................ 31
7.3 Mergers, Etc.............................................................................. 31
7.4 Compliance with ERISA..................................................................... 31
7.5 Change in Nature of Business.............................................................. 31
7.6 Restricted Payments....................................................................... 31
7.7 Off-Balance Sheet Liabilities............................................................. 32
ARTICLE VIII FINANCIAL COVENANTS................................................................... 32
8.1 Debt to Capital Ratio..................................................................... 32
8.2 Interest Coverage Ratio................................................................... 32
ARTICLE IX EVENTS OF DEFAULT..................................................................... 32
9.1 Events of Default......................................................................... 32
9.2 Remedies.................................................................................. 34
ARTICLE X WAIVERS, AMENDMENTS AND REMEDIES...................................................... 35
10.1 Amendments................................................................................ 35
10.2 Preservation of Rights.................................................................... 35
ARTICLE XI CONDITIONS PRECEDENT.................................................................. 36
11.1 Initial Credit Extension.................................................................. 36
11.2 Each Credit Extension..................................................................... 37
ARTICLE XII GENERAL PROVISIONS.................................................................... 37
12.1 Successors and Assigns.................................................................... 37
12.2 Survival of Representations............................................................... 39
12.3 Governmental Regulation................................................................... 39
12.4 Taxes..................................................................................... 39
12.5 Choice of Law............................................................................. 39
12.6 Headings.................................................................................. 40
12.7 Entire Agreement.......................................................................... 40
12.8 Expenses; Indemnification................................................................. 40
12.9 Severability of Provisions................................................................ 40
12.10 Setoff.................................................................................... 40
12.11 Ratable Payments.......................................................................... 41
12.12 Nonliability of Bank...................................................................... 41
ARTICLE XIII THE AGENT............................................................................. 41
13.1 Appointment............................................................................... 41
13.2 Powers.................................................................................... 41
13.3 General Immunity.......................................................................... 42
13.4 No Responsibility for Loans, Recitals, Etc................................................ 42
13.5 Action on Instructions of Banks........................................................... 42
13.6 Employment of Agents and Counsel.......................................................... 42
13.7 Reliance on Documents; Counsel............................................................ 42
13.8 Agent's Reimbursement and Indemnification................................................. 42
13.9 Rights as a Lender........................................................................ 43
13.10 Bank Credit Decision...................................................................... 43
13.11 Successor Agent........................................................................... 43
13.12 Agent and Arranger Fees................................................................... 43
ARTICLE XIV NOTICES............................................................................... 43
14.1 Giving Notice............................................................................. 43
14.2 Change of Address......................................................................... 44
ARTICLE XV TERMINATION OF PRIOR AGREEMENT........................................................ 44
ARTICLE XVI COUNTERPARTS.......................................................................... 45
SCHEDULES
PRICING SCHEDULE
COMMITMENT SCHEDULE
EXHIBITS
--------
Exhibit A Form of Supplemental Indenture
Exhibit B-1 Required Opinions from Michael D. VanHemert, Esq.
Exhibit B-2 Required Opinions from Skadden, Arps, Slate, Meagher & Flom, LLP
Exhibit B-3 Required Opinions from Miller, Canfield, Paddock and Stone, P.L.C.
Exhibit C Form of Compliance Certificate
Exhibit D Form of Assignment and Assumption Agreement
Exhibit E Terms of Subordination (Junior Subordinated Debt)
Exhibit F Terms of Subordination (Guaranty of Hybrid Preferred Securities)
Exhibit G Form of Bond Delivery Agreement
CREDIT AGREEMENT
This Credit Agreement, dated as of March 27, 2003, is among Consumers
Energy Company, a Michigan corporation (the "Company"), the financial
institutions listed on the signature pages hereof (together with their
respective successors and assigns, the "Banks") and Bank One, NA, a national
banking association having its principal office in Chicago, Illinois, as Agent
and as LC Issuer.
W I T N E S S E T H:
WHEREAS, the Company has requested, and the Banks have agreed to enter
into, a credit facility in an aggregate amount of $250,000,000;
NOW THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement:
"Accounting Changes" - see Section 1.3.
"Adjusted Face Amount" means, with respect to any Zero Rate Bond, the
Face Amount of such Zero Rate Bond minus all payments under this Agreement
which, in accordance with the terms set forth in the Supplemental Indenture,
reduce the principal amount of such Zero Rate Bond.
"Advance" means a group of Loans made by the Banks hereunder of the
same Type, made, converted or continued on the same day and, in the case of
Eurodollar Rate Loans, having the same Interest Period.
"Agent" means Bank One in its capacity as administrative agent for the
Banks pursuant to Article XIII, and not in its individual capacity as a Bank,
and any successor Agent appointed pursuant to Article XIII.
"Aggregate Commitment" means the aggregate amount of the Commitments of
all Banks.
"Aggregate Outstanding Credit Exposure" means, at any time, the
aggregate of the Outstanding Credit Exposure of all the Banks.
"Agreement" means this Credit Agreement, as amended from time to time.
"Alternate Base Rate" means, for any day, a rate per annum equal to the
higher of (i) the Prime Rate for such day and (ii) the sum of the Federal Funds
Effective Rate for such day plus 1/2% per annum.
"Applicable Margin" means, with respect to Advances of any Type at any
time, the percentage rate per annum which is applicable at such time with
respect to Advances of such Type as set forth in the Pricing Schedule.
"Arranger" - see Section 13.12.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Assignment Agreement" - see Section 12.1(e).
"Available Aggregate Commitment" means, at any time, the Available
Commitment then in effect minus the Aggregate Outstanding Credit Exposure at
such time.
"Available Commitment" means, at any time, the lesser of (i) the
Aggregate Commitment and (ii) the sum of the Face Amount of Interest Bearing
Bonds and the Adjusted Face Amount of Zero Rate Bonds.
"Banks" - see the preamble.
"Bank One" means Bank One, NA (Main Office - Chicago), in its
individual capacity, and its successors and assigns.
"Base Eurodollar Rate" means, with respect to a Eurodollar Advance for
the relevant Interest Period, the per annum interest rate determined by the
offered rate per annum at which deposits in U.S. dollars, for a period equal or
comparable to such Interest Period, appears on Telerate page 3750 (or any
successor page) as of 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest Period, or in the event such offered rate is not
available from the Telerate page, the rate offered on deposits in U.S. dollars,
for a period equal or comparable to such Interest Period, by Bank One's London
Office to prime banks in the London interbank market at approximately 11:00 a.m.
(London time), two Business Days prior to the first day of such Interest Period,
and in an amount substantially equal to the amount of Bank One's relevant
Eurodollar Rate Loan for such Interest Period.
"Bonds" means, collectively, the Interest Bearing Bonds and the Zero
Rate Bonds.
"Bond Delivery Agreement" means a bond delivery agreement whereby the
Agent (x) acknowledges delivery of the Bonds and (y) agrees to hold the Bonds
for the benefit of the Banks and to distribute all payments made by the Company
on account thereof to the Banks, substantially in the form of Exhibit G.
"Borrowing Date" means a date on which a Credit Extension is made
hereunder.
"Borrowing Notice" - see Section 2.8.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago, Illinois and New York, New York for
the conduct of substantially all of their
commercial lending activities, interbank wire transfers can be made on the
Fedwire system and dealings in United States dollars are carried on in the
London interbank market and (ii) for all other purposes, a day (other than a
Saturday or Sunday) on which banks generally are open in Chicago, Illinois and
New York, New York for the conduct of substantially all of their commercial
lending activities and interbank wire transfers can be made on the Fedwire
system.
"Capital Lease" means any lease which has been or would be capitalized
on the books of the lessee in accordance with GAAP.
"CMS" means CMS Energy Corporation, a Michigan corporation.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Collateral Shortfall Amount" - see Section 9.2.
"Commitment" means, for each Bank, the obligation of such Bank to make
Loans to, and participate in Facility LCs issued upon the application of, the
Company in an aggregate amount not exceeding the amount set forth on the
Commitment Schedule or as set forth in any Assignment Agreement that has become
effective pursuant to Section 12.1, as such amount may be modified from time to
time.
"Commitment Fee" - see Section 2.5.
"Commitment Fee Rate" means, at any time, the percentage rate per annum
at which Commitment Fees are accruing on the Unused Commitment as set forth in
the Pricing Schedule.
"Commitment Schedule" means the Schedule identifying each Bank's
Commitment as of the date hereof attached hereto and identified as such.
"Company" - see the preamble.
"Consolidated EBIT" means, for any period, Consolidated Net Income for
such period plus (i) to the extent deducted from revenues in determining such
Consolidated Net Income (without duplication), (a) Consolidated Interest
Expense, (b) expense for taxes paid or accrued, and (c) any non-cash write-offs
and write-downs contained in the Company's Consolidated Net Income, including,
without limitation, write-offs or write-downs related to the sale of assets,
impairment of assets and loss on contracts minus (ii) to the extent included in
such Consolidated Net Income, extraordinary gains realized other than in the
ordinary course of business, all calculated for the Company and its Subsidiaries
on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means with respect to any period for
which the amount thereof is to be determined, an amount equal to interest
expense on Debt, including payments in the nature of interest under Capital
Leases but excluding dividends paid on Hybrid Preferred Securities, all
calculated for the Company and its Subsidiaries on a consolidated basis in
accordance with GAAP.
"Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Company and its Subsidiaries calculated on a
consolidated basis for such period.
"Consolidated Subsidiary" means any Subsidiary whose accounts are or
are required to be consolidated with the accounts of the Company in accordance
with GAAP.
"Credit Documents" means this Agreement, the Facility LC Applications,
the Supplemental Indenture and the Bonds.
"Credit Extension" means the making of an Advance or the issuance of a
Facility LC hereunder.
"Debt" means, with respect to any Person, and without duplication, (a)
all indebtedness of such Person for borrowed money, (b) all indebtedness of such
Person for the deferred purchase price of property or services (other than trade
accounts payable arising in the ordinary course of business which are not
overdue), (c) all Unfunded Vested Liabilities of such Person (if such Person is
not the Company, determined in a manner analogous to that of determining
Unfunded Vested Liabilities of the Company), (d) all obligations of such Person
arising under acceptance facilities, (e) all obligations of such Person as
lessee under Capital Leases, (f) all obligations of such Person arising under
any interest rate swap, "cap", "collar" or other hedging agreement; provided
that for purposes of the calculation of Debt for this clause (f) only, the
actual amount of Debt of such Person shall be determined on a net basis to the
extent such agreements permit such amounts to be calculated on a net basis, and
(g) all guaranties, endorsements (other than for collection in the ordinary
course of business) and other contingent obligations of such Person to assure a
creditor against loss (whether by the purchase of goods or services, the
provision of funds for payment, the supply of funds to invest in any Person or
otherwise) in respect of indebtedness or obligations of any other Person of the
kinds referred to in clauses (a) through (f) above.
"Default" means an event which but for the giving of notice or lapse of
time, or both, would constitute an Event of Default.
"Designated Officer" means the Chief Financial Officer, the Treasurer,
an Assistant Treasurer, any Vice President in charge of financial or accounting
matters or the principal accounting officer of the Company.
"Discounted Amount" means, with respect to any Zero Rate Bond, the
Adjusted Face Amount of such Bond minus the product of (x) such Adjusted Face
Amount multiplied by (y) a percentage equal to the sum of the highest interest
rate then applicable to any Eurodollar Rate Loan hereunder (or, if no Eurodollar
Rate Loans are then outstanding hereunder, the rate that would be applicable to
a Eurodollar Rate Loan borrowed on the most recent Business Day for a one-month
Interest Period) plus the then applicable Commitment Fee Rate multiplied by (z)
a fraction, the numerator of which is the number of days remaining until the
Termination Date and the denominator of which is 360.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Company or is under common control (within
the meaning of Section 414(c) of the Code) with the Company.
"Eurodollar Advance" means an Advance consisting of Eurodollar Rate
Loans.
"Eurodollar Rate" means, with respect to a Eurodollar Advance for the
relevant Interest Period, an interest rate per annum equal to the sum of (i) the
quotient obtained by dividing (a) the Base Eurodollar Rate applicable to such
Interest Period by (b) one minus the Reserve Requirement (expressed as a
decimal) applicable to such Interest Period, plus (ii) the Applicable Margin.
"Eurodollar Rate Loan" means a Loan which bears interest by reference
to the Eurodollar Rate.
"Event of Default" means an event described in Article IX.
"Excluded Taxes" means, in the case of each Bank, the LC Issuer or
applicable Lending Installation and the Agent, taxes imposed on its overall net
income, and franchise taxes imposed on it, by (i) the jurisdiction under the
laws of which such Bank, the LC Issuer or the Agent is incorporated or organized
or (ii) the jurisdiction in which the Agent's, the LC Issuer's or such Bank's
principal executive office or such Bank's or the LC Issuer's applicable Lending
Installation is located.
"Face Amount" means, with respect to any Bond, the face amount of such
Bond.
"Facility LC" - see Section 3.1.
"Facility LC Application" - see Section 3.3.
"Facility LC Collateral Account" means a special, interest-bearing
account maintained (pursuant to arrangements satisfactory to the Agent) at the
Agent's office at the address specified pursuant to Article XII, which account
shall be in the name of the Company but under the sole dominium and control of
the Agent, for the benefit of the Banks.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations at approximately 10:00 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"First Mortgage Bonds" means bonds issued by the Company pursuant to
the Indenture.
"Fitch" means Fitch, Inc. or any successor thereto.
"Floating Rate" means a rate per annum equal to (i) the Alternate Base
Rate plus (ii) the Applicable Margin, changing when and as the Alternate Base
Rate or the Applicable Margin changes.
"Floating Rate Advance" means an Advance consisting of Floating Rate
Loans.
"Floating Rate Loan" means a Loan which bears interest at the Floating
Rate.
"FRB" means the Board of Governors of the Federal Reserve System or any
successor thereto.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect on the date hereof, applied on a basis consistent
with those used in the preparation of the financial statements referred to in
Section 5.5 (except, for purposes of the financial statements required to be
delivered pursuant to Sections 6.7(b) and (c), for changes concurred in by the
Company's independent public accountants).
"Hybrid Preferred Securities" means any preferred securities issued by
a Hybrid Preferred Securities Subsidiary, where such preferred securities have
the following characteristics:
(i) such Hybrid Preferred Securities Subsidiary lends
substantially all of the proceeds from the issuance of such preferred
securities to the Company or a wholly-owned direct or indirect
Subsidiary of the Company in exchange for Junior Subordinated Debt
issued by the Company or such wholly-owned direct or indirect
Subsidiary, respectively;
(ii) such preferred securities contain terms providing for
the deferral of interest payments corresponding to provisions providing
for the deferral of interest payments on the Junior Subordinated Debt;
and
(iii) the Company or a wholly-owned direct or indirect
Subsidiary of the Company (as the case may be) makes periodic interest
payments on the Junior Subordinated Debt, which interest payments are
in turn used by the Hybrid Preferred Securities Subsidiary to make
corresponding payments to the holders of the preferred securities.
"Hybrid Preferred Securities Subsidiary" means any Delaware business
trust (or similar entity) (i) all of the common equity interest of which is
owned (either directly or indirectly through one or more wholly-owned
Subsidiaries of the Company) at all times by the Company or a wholly-owned
direct or indirect Subsidiary of the Company, (ii) that has been formed for the
purpose of issuing Hybrid Preferred Securities and (iii) substantially all of
the assets of which consist at all times solely of Junior Subordinated Debt
issued by the Company or a wholly-owned direct or indirect Subsidiary of the
Company (as the case may be) and payments made from time to time on such Junior
Subordinated Debt.
"Indenture" means the Indenture, dated as of September 1, 1945, as
supplemented and amended from time to time, from the Company to JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank), as successor Trustee.
"Initial Borrowing Date" means March 27, 2003.
"Interest Bearing Bonds" means a series of interest-bearing First
Mortgage Bonds created under the Supplemental Indenture issued in favor of, and
in form and substance satisfactory to, the Agent.
"Interest Period" means, with respect to a Eurodollar Advance, a period
of one, two, three or six months, or such shorter period agreed to by the
Company and the Banks, commencing on a Business Day selected by the Company
pursuant to this Agreement. Such Interest Period shall end on the day which
corresponds numerically to such date one, two, three or six months thereafter
(or such shorter period agreed to by the Company and the Banks), provided,
however, that if there is no such numerically corresponding day in such next,
second, third or sixth succeeding month (or such shorter period, as applicable),
such Interest Period shall end on the last Business Day of such next, second,
third or sixth succeeding month (or such shorter period, as applicable). If an
Interest Period would otherwise end on a day which is not a Business Day, such
Interest Period shall end on the next succeeding Business Day, provided,
however, that if said next succeeding Business Day falls in a new calendar
month, such Interest Period shall end on the immediately preceding Business Day.
The Company may not select any Interest Period that ends after the scheduled
Termination Date.
"Junior Subordinated Debt" means any unsecured Debt of the Company or a
Subsidiary of the Company (i) issued in exchange for the proceeds of Hybrid
Preferred Securities and (ii) subordinated to the rights of the Banks hereunder
and under the other Credit Documents pursuant to terms of subordination
substantially similar to those set forth in Exhibit E, or pursuant to other
terms and conditions satisfactory to the Majority Banks.
"LC Fee" - see Section 3.4.
"LC Issuer" means Bank One (or any subsidiary or affiliate of Bank One
designated by Bank One) in its capacity as issuer of Facility LCs hereunder.
"LC Obligations" means, at any time, the sum, without duplication, of
(i) the aggregate undrawn stated amount under all Facility LCs outstanding at
such time plus (ii) the aggregate unpaid amount at such time of all
Reimbursement Obligations.
"LC Payment Date" - see Section 3.5.
"Lending Installation" means any office, branch, subsidiary or
affiliate of a Bank.
"Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.
"Loan" - see Section 2.1.
"Majority Banks" means, as of any date of determination, Banks in the
aggregate having more than 50% of the Aggregate Commitment as of such date or,
if the Aggregate Commitment has been terminated, Banks in the aggregate holding
more than 50% of the aggregate unpaid principal amount of the Aggregate
Outstanding Credit Exposure as of such date.
"Modify" and "Modification" - see Section 3.1.
"Moody's" means Moody's Investors Service, Inc. or any successor
thereto.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA.
"Net Proceeds" means, with respect to any sale or issuance of
securities or incurrence of Debt by any Person, the excess of (i) the gross cash
proceeds received by or on behalf of such Person in respect of such sale,
issuance or incurrence (as the case may be) over (ii) customary underwriting
commissions, auditing and legal fees, printing costs, rating agency fees and
other customary and reasonable fees and expenses incurred by such Person in
connection therewith.
"Net Worth" means, with respect to any Person, the excess of such
Person's total assets over its total liabilities, total assets and total
liabilities each to be determined in accordance with GAAP consistently applied,
excluding, however, from the determination of total assets (i) goodwill,
organizational expenses, research and development expenses, trademarks, trade
names, copyrights, patents, patent applications, licenses and rights in any
thereof, and other similar intangibles, (ii) cash held in a sinking or other
analogous fund established for the purpose of redemption, retirement or
prepayment of capital stock or Debt, and (iii) any items not included in clauses
(i) or (ii) above, that are treated as intangibles in conformity with GAAP.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Loans, all Reimbursement Obligations, all accrued and unpaid
commitment fees and all other obligations of the Company to the Banks or to any
Bank, the LC Issuer or the Agent arising under the Credit Documents.
"Off-Balance Sheet Liability" of a Person means (i) any repurchase
obligation or liability of such Person with respect to accounts or notes
receivable sold by such Person, (ii) any liability under any sale and leaseback
transaction which is not a Capital Lease, (iii) any liability under any
so-called "synthetic lease" transaction entered into by such Person, or (iv) any
obligation arising with respect to any other transaction which is the functional
equivalent of or takes the place of borrowing but which does not constitute a
liability on the balance sheets of such Person, but excluding from this clause
(iv) Operating Leases.
"Operating Lease" of a Person means any lease of Property (other than a
Capital Lease) by such Person as lessee.
"Other Taxes" - see Section 4.5(b).
"Outstanding Credit Exposure" means, as to any Bank at any time, the
sum of (i) the aggregate principal amount of its Loans outstanding at such time,
plus (ii) an amount equal to its Pro Rata Share of the LC Obligations at such
time.
"Payment Date" means the second Business Day of each calendar quarter
occurring after the Initial Borrowing Date.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"Plan" means any employee benefit plan (other than a Multiemployer
Plan) maintained for employees of the Company or any ERISA Affiliate and covered
by Title IV of ERISA.
"Pricing Schedule" means the Schedule attached hereto identified as
such.
"Prime Rate" means a rate per annum equal to the prime rate of interest
announced from time to time by Bank One or its parent (which is not necessarily
the lowest rate charged to any customer), changing when and as said prime rate
changes.
"Prior Agreement" means the 364-Day Credit Agreement dated as of July
12, 2002 among the Company, various financial institutions and Bank One, NA, as
Agent.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.
"Pro Rata Share" means, with respect to a Bank, a portion equal to a
fraction the numerator of which is such Bank's Commitment and the denominator of
which is the Aggregate Commitment.
"Regulation D" means Regulation D of the FRB from time to time in
effect and shall include any successor or other regulation or official
interpretation of said FRB relating to reserve requirements applicable to member
banks of the Federal Reserve System.
"Regulation U" means Regulation U of the FRB from time to time in
effect and shall include any successor or other regulation or official
interpretation of said FRB relating to the extension of credit by banks,
non-banks and non-broker-dealers for the purpose of purchasing or carrying
margin stocks.
"Reimbursement Obligations" means, at any time, the aggregate of all
obligations of the Company then outstanding under Article III to reimburse the
LC Issuer for amounts paid by the LC Issuer in respect of any one or more
drawings under Facility LCs.
"Reportable Event" has the meaning assigned to that term in Title IV of
ERISA.
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"S&P" means Standard and Poor's Rating Services, a division of The
McGraw Hill Companies, Inc. or any successor thereto.
"SEC" means the Securities and Exchange Commission or any governmental
authority which may be substituted therefor.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Securitized Bonds" shall mean any nonrecourse bonds or similar
asset-backed securities issued by a special-purpose Subsidiary of the Company
which are payable solely from specialized charges authorized by the utility
commission of the relevant state in connection with the recovery of (x) stranded
regulatory costs, (y) stranded clean air and pension costs and (z) other
"Qualified Costs" (as defined in M.C.L. Section 460.10h(g)) authorized to be
securitized by the Michigan Public Service Commission.
"Senior Debt" means the First Mortgage Bonds.
"Single Employer Plan" means a Plan maintained by the Company or any
ERISA Affiliate for employees of the Company or any ERISA Affiliate.
"Subsidiary" means, as to any Person, any corporation or other entity
of which at least a majority of the securities or other ownership interests
having ordinary voting power (absolutely or contingently) for the election of
directors or other Persons performing similar functions are at the time owned
directly or indirectly by such Person.
"Supplemental Indenture" means a supplemental indenture substantially
in the form of Exhibit A.
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities with
respect to the foregoing, but excluding Excluded Taxes and Other Taxes.
"Termination Date" means the earlier of (i) March 26, 2004, or such
later date to which the Termination Date may be extended pursuant to Section
2.2(b), or (ii) the date on which the Commitments are terminated.
"Termination Event" means (a) a Reportable Event described in Section
4043 of ERISA and the regulations issued thereunder (other than a Reportable
Event not subject to the provision for 30-day notice to the PBGC under such
regulations), or (b) the withdrawal of the Company or any of its ERISA
Affiliates from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001 (a) (2) of ERISA, or (c) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of proceedings
to terminate a Plan by the PBGC or to appoint a trustee to administer any Plan.
"Total Consolidated Capitalization" means, at any date of
determination, the sum of (a) Total Consolidated Debt, (b) equity of the common
stockholders of the Company, (c) equity of
the preference stockholders of the Company and (d) equity of the preferred
stockholders of the Company, in each case determined at such date.
"Total Consolidated Debt" means, at any date of determination, the
aggregate Debt of the Company and its Consolidated Subsidiaries; provided that
Total Consolidated Debt shall exclude (i) the principal amount of any
Securitized Bonds, (ii) any Junior Subordinated Debt owned by any Hybrid
Preferred Securities Subsidiary, (iii) any guaranty by the Company of payments
with respect to any Hybrid Preferred Securities, provided that such guaranty is
subordinated to the rights of the Banks hereunder and under the other Credit
Documents pursuant to terms of subordination substantially similar to those set
forth in Exhibit F, or pursuant to other terms and conditions satisfactory to
the Majority Banks, (iv) such percentage of the Net Proceeds from any issuance
of hybrid debt/equity securities (other than Junior Subordinated Debt and Hybrid
Preferred Securities) by the Company or any Consolidated Subsidiary as shall be
agreed to be deemed equity by the Agent and the Company prior to the issuance
thereof (which determination shall be based on, among other things, the
treatment (if any) given to such securities by the applicable rating agencies).
"Type" - see Section 2.4.
"Unfunded Vested Liabilities" means, (i) in the case of Single Employer
Plans, the amount (if any) by which the present value of all vested
nonforfeitable benefits under such Plan exceeds the fair market value of all
Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, and (ii) in the case of Multiemployer
Plans, the withdrawal liability of the Company and its ERISA Affiliates.
"Unused Commitment" means, at any time, the Aggregate Commitment then
in effect minus the Aggregate Outstanding Credit Exposure at such time.
"Zero Rate Bonds" means a series of zero coupon First Mortgage Bonds
created under the Supplemental Indenture issued in favor of, and in form and
substance satisfactory to, the Agent.
1.2 Singular and Plural. The foregoing definitions shall be
equally applicable to both the singular and plural forms of the defined terms.
1.3 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. If any changes in
generally accepted accounting principles are hereafter required or permitted and
are adopted by the Company or any of its Subsidiaries, or the Company or any of
its Subsidiaries shall change its application of generally accepted accounting
principles with respect to any Off-Balance Sheet Liabilities, in each case with
the agreement of its independent certified public accountants, and such changes
result in a change in the method of calculation of any of the financial
covenants, tests, restrictions or standards herein or in the related definitions
or terms used therein ("Accounting Changes"), the parties hereto agree, at the
Company's request, to enter into negotiations, in good faith, in order to amend
such provisions in a credit neutral manner so as to reflect equitably such
changes with the desired result that the criteria for evaluating the Company's
and its Subsidiaries' financial condition shall be the same after such changes
as if such changes had not been made; provided, however, until
such provisions are amended in a manner reasonably satisfactory to the Agent,
the Arranger and the Majority Banks, no Accounting Change shall be given effect
in such calculations. In the event such amendment is entered into, all
references in this Agreement to GAAP shall mean generally accepted accounting
principles as of the date of such amendment.
ARTICLE II
THE ADVANCES
2.1 Commitment. From and including the Initial Borrowing Date and
prior to the Termination Date, each Bank severally agrees, on the terms and
conditions set forth in this Agreement, (a) to make loans to the Company from
time to time (the "Loans"), and (b) to participate in Facility LCs issued upon
the request of the Company from time to time, provided, that, after giving
effect to the making of each such Loan and the issuance of each such Facility
LC, such Bank's Outstanding Credit Exposure shall not exceed its Commitment. In
no event may the Aggregate Outstanding Credit Exposure exceed the Available
Commitment. Subject to the terms and conditions of this Agreement, the Company
may borrow, repay and reborrow at any time prior to the Termination Date. The
Commitments shall expire on the Termination Date.
2.2 Required Payments; Termination; Extension of Termination Date.
(a) The Aggregate Outstanding Credit Exposure and all other unpaid
obligations of the Company hereunder shall be paid in full on the Termination
Date.
(b) Unless the Company gives notice to the Agent (which shall
promptly notify each Bank) not more than 30 nor less than 15 days prior to the
then-scheduled Termination Date that the Company does not want an extension of
the Termination Date pursuant to this Section 2.2, the scheduled Termination
Date shall be automatically extended to (i) in the case of an extension during
2004, March 25, 2005 and (ii) in the case of an extension during 2005, March 24,
2006. The scheduled Termination Date may not be extended past March 24, 2006
(pursuant to this Section 2.2 or any other provision of this Agreement) without
the prior written consent of all Banks.
2.3 Ratable Loans. Each Advance shall consist of Loans made by the
several Banks ratably according to their Pro Rata Shares.
2.4 Types of Advances. The Advances may be Floating Rate Advances
or Eurodollar Advances (each a "Type" of Advance), or a combination thereof, as
selected by the Company in accordance with Sections 2.8 and 2.9.
2.5 Commitment Fee and Reductions of Commitment.
(a) The Company agrees to pay to the Agent for the account of each
Bank according to its Pro Rata Share a commitment fee (the "Commitment Fee") at
the Commitment Fee Rate on the daily Unused Commitment from the Initial
Borrowing Date to but not including the date on which this Agreement is
terminated in full and all of the Obligations hereunder have been paid in full.
The Commitment Fee shall be payable quarterly in arrears on each Payment Date
(for the quarter then most recently ended) and on the Termination Date (for the
period then ended for
which such fee has not previously been paid). The Commitment Fee shall be
calculated for actual days elapsed on the basis of a 360 day year.
(b) The Company may permanently reduce the Aggregate Commitment in
whole, or in part ratably among the Banks in the minimum amount of $10,000,000
(and in multiples of $1,000,000 if in excess thereof), upon at least five
Business Days' written notice to the Agent, which shall specify the amount of
any such reduction, provided that the Aggregate Commitment may not be reduced
below the Aggregate Outstanding Credit Exposure. All accrued Commitment Fees
shall be payable on the effective date of any termination of the obligation of
the Banks to make Credit Extensions hereunder. Upon any permanent reduction in
the Aggregate Commitment pursuant to the terms of this Section 2.5(b), the Agent
shall, upon request of the Company, promptly surrender to or upon the order of
the Company one or more Bonds specified by the Company; provided that (i) the
Company remains in compliance with Section 6.10; and (ii) the Agent shall not be
required to surrender any Interest Bearing Bonds so long as any Zero Rate Bonds
remain outstanding.
2.6 Minimum Amount of Advances. Each Advance shall be in the
minimum amount of $10,000,000 (and in integral multiples of $1,000,000 if in
excess thereof), provided that any Floating Rate Advance may be in the amount of
the Available Aggregate Commitment (rounded down, if necessary, to an integral
multiple of $1,000,000).
2.7 Optional Principal Payments. The Company may from time to time
prepay, without penalty or premium, all outstanding Floating Rate Advances or,
in a minimum aggregate amount of $10,000,000 or a higher integral multiple of
$1,000,000, any portion of the outstanding Floating Rate Advances upon one
Business Day's prior notice to the Agent. The Company may from time to time pay,
subject to the payment of any funding indemnification amounts required by
Section 4.4 but without penalty or premium, all outstanding Eurodollar Advances
or, in a minimum aggregate amount of $10,000,000 or a higher integral multiple
of $1,000,000, any portion of any outstanding Eurodollar Advance upon three
Business Days' prior notice to the Agent; provided that if after giving effect
to any such prepayment the principal amount of any Eurodollar Advance is less
than $10,000,000, such Eurodollar Advance shall automatically convert into a
Floating Rate Advance. All payments made pursuant to this Section 2.7 shall be
deemed to be payments of Obligations evidenced by Zero Rate Bonds (except to the
extent such payment results in the Aggregate Outstanding Credit Exposure being
less than the face amount of all Interest Bearing Bonds).
2.8 Method of Selecting Types and Interest Periods for New
Advances. The Company shall select the Type of Advance and, in the case of each
Eurodollar Advance, the Interest Period applicable thereto from time to time.
The Company shall give the Agent irrevocable notice (a "Borrowing Notice") not
later than 11:00 a.m. (Chicago time) on the Borrowing Date of each Floating Rate
Advance and not later than 11:00 a.m. (Chicago time) three Business Days before
the Borrowing Date for each Eurodollar Advance, specifying:
(i) the Borrowing Date, which shall be a Business Day,
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected, and
(iv) in the case of each Eurodollar Advance, the initial Interest
Period applicable thereto.
Promptly after receipt thereof, the Agent will notify each Bank of the contents
of each Borrowing Notice. Not later than noon (Chicago time) on each Borrowing
Date, each Bank shall make available its Loan in funds immediately available in
Chicago to the Agent at its address specified pursuant to Section 14. To the
extent funds are received from the Banks, the Agent will make such funds
available to the Company at the Agent's aforesaid address. No Bank's obligation
to make any Loan shall be affected by any other Bank's failure to make any Loan.
2.9 Conversion and Continuation of Outstanding Advances. Floating
Rate Advances shall continue as Floating Rate Advances unless and until such
Floating Rate Advances are converted into Eurodollar Advances pursuant to this
Section 2.9 or are repaid in accordance with Section 2.2 or 2.7. Each Eurodollar
Advance shall continue as a Eurodollar Advance until the end of the then
applicable Interest Period therefor, at which time such Eurodollar Advance shall
be automatically converted into a Floating Rate Advance unless (x) such
Eurodollar Advance is or was repaid in accordance with Section 2.2 or 2.7 or (y)
the Company shall have given the Agent a Conversion/Continuation Notice (as
defined below) requesting that, at the end of such Interest Period, such
Eurodollar Advance continue as a Eurodollar Advance for the same or another
Interest Period. Subject to the terms of Section 2.6, the Company may elect from
time to time to convert all or any part of a Floating Rate Advance into a
Eurodollar Advance. The Company shall give the Agent irrevocable notice (a
"Conversion/Continuation Notice") of each conversion of a Floating Rate Advance
into a Eurodollar Advance or continuation of a Eurodollar Advance not later than
11:00 a.m. (Chicago time) at least three Business Days prior to the date of the
requested conversion or continuation, specifying:
(i) the requested date, which shall be a Business Day, of such
conversion or continuation;
(ii) the aggregate amount and Type of the Advance which is to be
converted or continued; and
(iii) the amount of the Advance which is to be converted into or
continued as a Eurodollar Advance and the duration of the
Interest Period applicable thereto.
provided that no Advance may be continued as, or converted into, a Eurodollar
Advance if (x) such continuation or conversion would violate any provision of
this Agreement or (y) a Default or Event of Default exists.
2.10 Interest Rates, Interest Payment Dates. (a)Subject to Section
2.11, each Advance shall bear interest as follows:
(i) at any time such Advance is a Floating Rate Advance,
at a rate per annum equal to the Floating Rate from time to time in
effect; and
(ii) at any time such Advance is a Eurodollar Advance, at
a rate per annum equal to the Eurodollar Rate for each applicable
Interest Period therein.
Changes in the rate of interest on that portion or any Advance maintained as a
Floating Rate Advance will take effect simultaneously with each change in the
Floating Rate.
(b) Interest accrued on each Floating Rate Advance shall be
payable on each Payment Date and at maturity. Interest accrued on each
Eurodollar Advance shall be payable on the last day of its applicable Interest
Period, on any date on which such Eurodollar Advance is prepaid and at maturity.
Interest accrued on each Eurodollar Advance having an Interest Period longer
than three months shall also be payable on the last day of each three-month
interval during such Interest Period. Interest on Eurodollar Advances, interest
on Floating Rate Advances based on the Federal Funds Effective Rate and the LC
Fee shall be calculated for actual days elapsed on the basis of a 360-day year.
Interest on Floating Rate Advances based on the Prime Rate shall be calculated
for actual days elapsed on the basis of a 365- or 366-day year, as appropriate.
Interest on each Advance shall accrue from and including the date such Advance
is made to but excluding the date payment thereof is received in accordance with
Section 2.12. If any payment of principal of or interest on an Advance shall
become due on a day which is not a Business Day, such payment shall be made on
the next succeeding Business Day (unless, in the case of a Eurodollar Advance,
such next succeeding Business Day falls in a new calendar month, in which case
such payment shall be due on the immediately preceding Business Day) and, in the
case of a principal payment, such extension of time shall be included in
computing interest in connection with such payment.
2.11 Rate after Maturity. Any Advance not paid by the Company at
maturity, whether by acceleration or otherwise, shall bear interest until paid
in full at a rate per annum equal to the higher of the rate otherwise applicable
thereto plus 1% or the Floating Rate plus 1%.
2.12 Method of Payment. All payments of principal, interest and
fees hereunder shall be made in immediately available funds to the Agent at its
address specified on its signature page to this Agreement (or at any other
Lending Installation of the Agent specified in writing by the Agent to the
Company) not later than noon (Chicago time) on the date when due and shall
(except in the case of Reimbursement Obligations for which the LC Issuer has not
been fully indemnified by the Banks, or as otherwise specifically required
hereunder) be applied ratably by the Agent among the Banks. Funds received after
such time shall be deemed received on the following Business Day unless the
Agent shall have received from, or on behalf of, the Company a Federal Reserve
reference number with respect to such payment before 3:00 p.m. (Chicago time) on
the date of such payment. Each payment delivered to the Agent for the account of
any Bank shall be delivered promptly by the Agent in the same type of funds
received by the Agent to such Bank at the address specified for such Bank on its
signature page to this Agreement or at any Lending Installation specified in a
notice received by the Agent from such Bank. The Agent is hereby authorized to
charge the account of the Company maintained with Bank One, if any, for each
payment of principal, interest, Reimbursement Obligation and fees as such
payment becomes due hereunder. Each reference to the Agent in this Section 2.12
shall also be deemed to refer, and shall apply equally, to the LC Issuer, in the
case of payments required to be made by the Company to the LC Issuer pursuant to
Section 3.6.
2.13 Bonds; Record-keeping; Telephonic Notices.
(a) The obligation of the Company to repay the Obligations shall
be evidenced by one or more Bonds.
(b) Each Bank shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Company to such Bank
resulting from each Loan made by such Bank from time to time, including the
amounts of principal and interest payable and paid to such Bank from time to
time hereunder.
(c) The Agent shall also maintain accounts in which it will record
(i) the amount of each Loan made hereunder, the Type thereof and the Interest
Period with respect thereto, (ii) the amount of any principal or interest due
and payable or to become due and payable from the Company to each Bank
hereunder, (iii) the original stated amount of each Facility LC and the amount
of LC Obligations outstanding at any time, and (iv) the amount of any sum
received by the Agent hereunder from the Company and each Bank's share thereof.
(d) The entries maintained in the accounts maintained pursuant to
paragraphs (b) and (c) above shall be prima facie evidence of the existence and
amounts of the Obligations therein recorded; provided, however, that the failure
of the Agent or any Bank to maintain such accounts or any error therein shall
not in any manner affect the obligation of the Company to repay the Obligations
in accordance with their terms.
(e) The Company hereby authorizes the Banks and the Agent to make
Advances based on telephonic notices made by any person or persons the Agent or
any Bank in good faith believes to be acting on behalf of the Company. The
Company agrees to deliver promptly to the Agent a written confirmation of each
telephonic notice signed by a Designated Officer. If the written confirmation
differs in any material respect from the action taken by the Agent and the
Banks, the records of the Agent and the Banks shall govern absent manifest
error.
2.14 Lending Installations. Subject to the provisions of Section
4.6, each Bank may book its Loans and its participation in any LC Obligations
and the LC Issuer may book the Facility LCs at any Lending Installation selected
by such Bank or the LC Issuer, as the case may be, and may change its Lending
Installation from time to time. All terms of this Agreement shall apply to any
such Lending Installation and the Loans shall be deemed held by the applicable
Bank for the benefit of such Lending Installation. Each Bank may, by written or
facsimile notice to the Company, designate a Lending Installation through which
Loans will be made by it or Facility LC's will be issued by it and for whose
account payments on the Loans or payments with respect to Facility LCs are to be
made.
2.15 Non-Receipt of Funds by the Agent. Unless a Bank or the
Company, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Bank, the
proceeds of a Loan or (ii) in the case of the Company, a payment of principal,
interest or fees to the Agent for the account of the Banks, that it does not
intend to make such payment, the Agent may assume that such payment has been
made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Bank or the Company, as the case
may be, has not in fact made such payment to the Agent, the recipient of such
payment shall, on demand by the Agent, repay to the Agent the amount so made
available together with interest thereon in respect of each day during the
period commencing on the date such amount was so made available by the Agent
until the date the Agent recovers such amount at a rate per annum equal to (i)
in the case of payment by a Bank, the Federal Funds Rate for such day or (ii) in
the case of payment by the Company, the interest rate applicable to the relevant
Loan.
ARTICLE III
LETTER OF CREDIT FACILITY
3.1 Issuance. The LC Issuer hereby agrees, on the terms and
conditions set forth in this Agreement, to issue standby and commercial letters
of credit (each, a "Facility LC") and to renew, extend, increase, decrease or
otherwise modify each Facility LC ("Modify," and each such action a
"Modification"), from time to time from and including the date hereof and prior
to the Termination Date upon the request of the Company; provided that
immediately after each such Facility LC is issued or Modified, (i) the aggregate
amount of the outstanding LC Obligations shall not exceed $100,000,000 and (ii)
the Aggregate Outstanding Credit Exposure shall not exceed the Available
Commitment. No Facility LC shall have an expiry date later than the fifth
Business Day prior to the scheduled Termination Date.
3.2 Participations. Upon the issuance or Modification by the LC
Issuer of a Facility LC in accordance with this Article III, the LC Issuer shall
be deemed, without further action by any party hereto, to have unconditionally
and irrevocably sold to each Bank, and each Bank shall be deemed, without
further action by any party hereto, to have unconditionally and irrevocably
purchased from the LC Issuer, a participation in such Facility LC (and each
Modification thereof) and the related LC Obligations in proportion to its Pro
Rata Share.
3.3 Notice. Subject to Section 3.1, the Company shall give the LC
Issuer notice prior to 11:00 a.m. (Chicago time) at least three Business Days
prior to the proposed date of issuance or Modification of each Facility LC,
specifying the beneficiary, the proposed date of issuance (or Modification) and
the expiry date of such Facility LC, and describing the proposed terms of such
Facility LC and the nature of the transactions proposed to be supported thereby.
Upon receipt of such notice, the LC Issuer shall promptly notify the Agent, and
the Agent shall promptly notify each Bank, of the contents thereof and of the
amount of such Bank's participation in such proposed Facility LC. The issuance
or Modification by the LC Issuer of any Facility LC shall, in addition to the
conditions precedent set forth in Article XI (the satisfaction of which the LC
Issuer shall have no duty to ascertain), be subject to the conditions precedent
that such Facility LC shall be satisfactory to the LC Issuer and that the
Company shall have executed and delivered such application agreement and/or such
other instruments and agreements relating to such Facility LC as the LC Issuer
shall have reasonably requested (each, a "Facility LC Application"). In the
event of any conflict between the terms of this Agreement and the terms of any
Facility LC Application, the terms of this Agreement shall control.
3.4 LC Fees. The Company shall pay to the Agent, for the account
of the Banks ratably in accordance with their respective Pro Rata Shares, a
letter of credit fee (the "LC Fee") at a per annum rate equal to the Applicable
Margin for Eurodollar Rate Loans in effect from time to time on the average
daily undrawn stated amount under each Facility LC, such fee to be
payable in arrears on each Payment Date and the Termination Date (and, if
applicable, thereafter on demand). The Company shall also pay to the LC Issuer
for its own account (x) at the time of issuance of each Facility LC, a fronting
fee in an amount equal to 0.15% of the initial stated amount (or, with respect
to a Modification of any such Facility LC which increases the stated amount
thereof, such increase in the stated amount) thereof, and (y) documentary and
processing charges in connection with the issuance or Modification of and draws
under Facility LCs in accordance with the LC Issuer's standard schedule for such
charges as in effect from time to time.
3.5 Administration; Reimbursement by Banks. Upon receipt from the
beneficiary of any Facility LC of any demand for payment under such Facility LC,
the LC Issuer shall notify the Agent and the Agent shall promptly notify the
Company and each other Bank as to the amount to be paid by the LC Issuer as a
result of such demand and the proposed payment date (the "LC Payment Date"). The
responsibility of the LC Issuer to the Company and each Bank shall be only to
determine that the documents (including each demand for payment) delivered under
each Facility LC in connection with such presentment shall be in conformity in
all material respects with such Facility LC. The LC Issuer shall endeavor to
exercise the same care in the issuance and administration of the Facility LCs as
it does with respect to letters of credit in which no participations are
granted, it being understood that in the absence of any gross negligence or
willful misconduct by the LC Issuer, each Bank shall be unconditionally and
irrevocably liable without regard to the occurrence of any Default or any
condition precedent whatsoever, to reimburse the LC Issuer on demand for (i)
such Bank's Pro Rata Share of the amount of each payment made by the LC Issuer
under each Facility LC to the extent such amount is not reimbursed by the
Company pursuant to Section 3.6 below, plus (ii) interest on the foregoing
amount to be reimbursed by such Bank, for each day from the date of the LC
Issuer's demand for such Reimbursement (or, if such demand is made after 11:00
a.m. (Chicago time) on such date, from the next succeeding Business Day) to the
date on which such Bank pays the amount to be reimbursed by it, at a rate of
interest per annum equal to the Federal Funds Effective Rate for the first three
days and, thereafter, at a rate of interest equal to the rate applicable to
Floating Rate Advances.
3.6 Reimbursement by Company. The Company shall be irrevocably and
unconditionally obligated to reimburse the LC Issuer on the applicable LC
Payment Date for any amounts to be paid by the LC Issuer upon any drawing under
any Facility LC, without presentment, demand, protest or other formalities of
any kind; provided that neither the Company nor any Bank shall hereby be
precluded from asserting any claim for direct (but not consequential) damages
suffered by the Company or such Bank to the extent, but only to the extent,
caused by (i) the willful misconduct or gross negligence of the LC Issuer in
determining whether a request presented under any Facility LC issued by it
complied with the terms of such Facility LC or (ii) the LC Issuer's failure to
pay under any Facility LC issued by it after the presentation to it of a request
strictly complying with the terms and conditions of such Facility LC. All such
amounts paid by the LC Issuer and remaining unpaid by the Company shall bear
interest, payable on demand, for each day until paid at a rate per annum equal
to (x) the rate applicable to Floating Rate Advances for such day if such day
falls on or before the applicable LC Payment Date and (y) the sum of 1% plus the
rate applicable to Floating Rate Advances for such day if such day falls after
such LC Payment Date. The LC Issuer will pay to each Bank ratably in accordance
with its Pro Rata Share all amounts received by it from the Company for
application in payment, in whole or in part, of the Reimbursement Obligation in
respect of any Facility LC issued by the LC Issuer, but only to the extent such
Bank has made payment to the LC Issuer in respect of such Facility LC pursuant
to Section 3.5. Subject to the terms and conditions of this Agreement (including
without limitation the submission of a Borrowing Notice in compliance with
Section 2.8 and the satisfaction of the applicable conditions precedent set
forth in Article XI), the Company may request an Advance hereunder for the
purpose of satisfying any Reimbursement Obligation.
3.7 Obligations Absolute. The Company's obligations under this
Article III shall be absolute and unconditional under any and all circumstances
and irrespective of any setoff, counterclaim or defense to payment which the
Company may have or have had against the LC Issuer, any Bank or any beneficiary
of a Facility LC. The Company further agrees with the LC Issuer and the Banks
that the LC Issuer and the Banks shall not be responsible for, and the Company's
Reimbursement Obligation in respect of any Facility LC shall not be affected by,
among other things, the validity or genuineness of documents or of any
endorsements thereon, even if such documents should in fact prove to be in any
or all respects invalid, fraudulent or forged, or any dispute between or among
the Company, any of its affiliates, the beneficiary of any Facility LC or any
financing institution or other party to whom any Facility LC may be transferred
or any claims or defenses whatsoever of the Company or of any of its affiliates
against the beneficiary of any Facility LC or any such transferee. The LC Issuer
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Facility LC. The Company agrees that any
action taken or omitted by the LC Issuer or any Bank under or in connection with
each Facility LC and the related drafts and documents, if done without gross
negligence or willful misconduct, shall be binding upon the Company and shall
not put the LC Issuer or any Bank under any liability to the Company. Nothing in
this Section 3.7 is intended to limit the right of the Company to make a claim
against the LC Issuer for damages as contemplated by the proviso to the first
sentence of Section 3.6.
3.8 Actions of LC Issuer. The LC Issuer shall be entitled to rely,
and shall be fully protected in relying, upon any Facility LC, draft, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, telecopy, telex or teletype message, statement, order or other
document believed by it to be genuine and correct and to have been signed, sent
or made by the proper Person or Persons, and upon advice and statements of legal
counsel, independent accountants and other experts selected by the LC Issuer.
The LC Issuer shall be fully justified in failing or refusing to take any action
under this Agreement unless it shall first have received such advice or
concurrence of the Majority Banks as it reasonably deems appropriate or it shall
first be indemnified to its reasonable satisfaction by the Banks against any and
all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Notwithstanding any other provision of this
Article III, the LC Issuer shall in all cases be fully protected in acting, or
in refraining from acting, under this Agreement in accordance with a request of
the Majority Banks, and such request and any action taken or failure to act
pursuant thereto shall be binding upon the Banks and any future holders of a
participation in any Facility LC.
3.9 Indemnification. The Company hereby agrees to indemnify and
hold harmless each Bank, the LC Issuer and the Agent, and their respective
directors, officers, agents and
employees from and against any and all claims and damages, losses, liabilities,
reasonable costs or expenses which such Bank, the LC Issuer or the Agent may
incur (or which may be claimed against such Bank, the LC Issuer or the Agent by
any Person whatsoever) by reason of or in connection with the issuance,
execution and delivery or transfer of or payment or failure to pay under any
Facility LC or any actual or proposed use of any Facility LC, including, without
limitation, any claims, damages, losses, liabilities, costs or expenses which
the LC Issuer may incur by reason of or in connection with (i) the failure of
any other Bank to fulfill or comply with its obligations to the LC Issuer
hereunder (but nothing herein contained shall affect any rights the Company may
have against any defaulting Bank) or (ii) by reason of or on account of the LC
Issuer issuing any Facility LC which specifies that the term "Beneficiary"
included therein includes any successor by operation of law of the named
Beneficiary, but which Facility LC does not require that any drawing by any such
successor Beneficiary be accompanied by a copy of a legal document, satisfactory
to the LC Issuer, evidencing the appointment of such successor Beneficiary;
provided that the Company shall not be required to indemnify any Bank, the LC
Issuer or the Agent for any claims, damages, losses, liabilities, costs or
expenses to the extent, but only to the extent, caused by (x) the willful
misconduct or gross negligence of the LC Issuer in determining whether a request
presented under any Facility LC complied with the terms of such Facility LC or
(y) the LC Issuer's failure to pay under any Facility LC after the presentation
to it of a request strictly complying with the terms and conditions of such
Facility LC. Nothing in this Section 3.9 is intended to limit the obligations of
the Company under any other provision of this Agreement.
3.10 Banks' Indemnification. Each Bank shall, ratably in accordance
with its Pro Rata Share, indemnify the LC Issuer, its affiliates and their
respective directors, officers, agents and employees (to the extent not
reimbursed by the Company) against any cost, expense (including reasonable
counsel fees and disbursements), claim, demand, action, loss or liability
(except such as result from such indemnitees' gross negligence or willful
misconduct or the LC Issuer's failure to pay under any Facility LC after the
presentation to it of a request strictly complying with the terms and conditions
of the Facility LC) that such indemnitees may suffer or incur in connection with
this Article III or any action taken or omitted by such indemnitees hereunder.
3.11 Rights as a Bank. In its capacity as a Bank, the LC Issuer
shall have the same rights and obligations as any other Bank.
ARTICLE IV
CHANGE IN CIRCUMSTANCES
4.1 Yield Protection. (a)If any change in law or any governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law), or any interpretation thereof by any agency or authority having
jurisdiction over any Bank or the LC Issuer,
(i) subjects any Bank or any applicable Lending
Installation or the LC Issuer to any increased tax, duty, charge or
withholding on or from payments due from the Company (excluding
taxation measured by or attributable to the overall net income of such
Bank or applicable Lending Installation, whether overall or in any
geographic area), or changes the rate of taxation of payments to any
Bank or LC Issuer in respect of its
Credit Extensions (including any participations in Facility LCs) or
other amounts due it hereunder, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by any Bank, the LC Issuer or any applicable Lending
Installation (including, without limitation, any reserve costs under
Regulation D with respect to Eurocurrency liabilities (as defined in
Regulation D)), or
(iii) imposes any other condition the result of which is to
increase the cost to any Bank, the LC Issuer or any applicable Lending
Installation of making, funding or maintaining Credit Extensions
(including any participations in Facility LCs), or reduces any amount
receivable by any Bank, the LC Issuer or any applicable Lending
Installation in connection with Credit Extensions (including any
participations in Facility LCs) or requires any Bank, the LC Issuer or
any applicable Lending Installation to make any payment calculated by
reference to its Outstanding Credit Exposure or interest received by
it, by an amount deemed material by such Bank or the LC Issuer, or
(iv) affects the amount of capital required or expected to
be maintained by any Bank, the LC Issuer or Lending Installation or any
corporation controlling any Bank or LC Issuer and such Bank or the LC
Issuer, as applicable, determines the amount of capital required is
increased by or based upon the existence of this Agreement or its
obligation to make Credit Extensions (including any participations in
Facility LCs) hereunder or of commitments of this type,
then, upon presentation by such Bank or the LC Issuer to the Company of a
certificate (as referred to in the immediately succeeding sentence of this
Section 4.1) setting forth the basis for such determination and the additional
amounts reasonably determined by such Bank or the LC Issuer for the period of up
to 90 days prior to the date on which such certificate is delivered to the
Company and the Agent, to be sufficient to compensate such Bank or the LC
Issuer, as applicable, in light of such circumstances, the Company shall within
30 days of such delivery of such certificate pay to the Agent for the account of
such Bank or the LC Issuer, as applicable, the specified amounts set forth on
such certificate. The affected Bank or the LC Issuer, as applicable, shall
deliver to the Company and the Agent a certificate setting forth the basis of
the claim and specifying in reasonable detail the calculation of such increased
expense, which certificate shall be prima facie evidence as to such increase and
such amounts. An affected Bank or the LC Issuer, as applicable, may deliver more
than one certificate to the Company during the term of this Agreement. In making
the determinations contemplated by the above-referenced certificate, any Bank
and the LC Issuer may make such reasonable estimates, assumptions, allocations
and the like that such Bank or the LC Issuer, as applicable, in good faith
determines to be appropriate, and such Bank's or the LC Issuer's selection
thereof in accordance with this Section 4.1 shall be conclusive and binding on
the Company, absent manifest error.
(b) Neither the LC Issuer nor any Bank shall be entitled to demand
compensation or be compensated hereunder to the extent that such compensation
relates to any period of time more than 90 days prior to the date upon which
such Bank or the LC Issuer, as applicable, first notified the Company of the
occurrence of the event entitling such Bank or the LC Issuer, as
applicable, to such compensation (unless, and to the extent, that any such
compensation so demanded shall relate to the retroactive application of any
event so notified to the Company).
4.2 Replacement Bank. (a)If any Bank shall make a demand for
payment under Section 4.1, then within 30 days after such demand, the Company
may, with the approval of the Agent (which approval shall not be unreasonably
withheld) and provided that no Default or Event of Default shall then have
occurred and be continuing, demand that such Bank assign to one or more
financial institutions designated by the Company and approved by the Agent all
(but not less than all) of such Bank's Commitment and Outstanding Credit
Exposure within the period ending on the later of such 30th day and the last day
of the longest of the then current Interest Periods or maturity dates for such
Outstanding Credit Exposure. It is understood that such assignment shall be
consummated on terms satisfactory to the assigning Bank, provided that such
Bank's consent to such an assignment shall not be unreasonably withheld.
(b) If the Company shall elect to replace a Bank pursuant to
clause (a) above, the Company shall prepay the Outstanding Credit Exposure of
such Bank, and the bank or banks selected by the Company shall replace such Bank
as a Bank hereunder pursuant to an instrument satisfactory to the Company, the
Agent and the Bank being replaced by making Credit Extensions to the Company in
the amount of the Outstanding Credit Exposure of such assigning Bank and
assuming all the same rights and responsibilities hereunder as such assigning
Bank and having the same Commitment as such assigning Bank.
4.3 Availability of Eurodollar Rate Loans. If
(a) any Bank determines that maintenance of a Eurodollar Rate Loan
at a suitable Lending Installation would violate any applicable law, rule,
regulation or directive, whether or not having the force of law, or
(b) the Majority Banks determine that (i) deposits of a type and
maturity appropriate to match fund Eurodollar Rate Loans are not available or
(ii) the Base Eurodollar Rate does not accurately reflect the cost of making or
maintaining a Eurodollar Rate Loan,
then the Agent shall suspend the availability of Eurodollar Rate Loans and, in
the case of clause (a), require any Eurodollar Rate Loans to be converted to
Floating Rate Loans on such date as is required by the applicable law, rule,
regulation or directive.
4.4 Funding Indemnification. If any payment of a Eurodollar Rate
Loan occurs on a date which is not the last day of an applicable Interest
Period, whether because of prepayment or otherwise, or a Eurodollar Rate Loan is
not made on the date specified by the Company for any reason other than default
by the Banks, the Company will indemnify each Bank for any loss or cost (but not
lost profits) incurred by it resulting therefrom, including, without limitation,
any loss or cost in liquidating or employing deposits acquired to fund or
maintain such Eurodollar Rate Loan; provided that the Company shall not be
liable for any of the foregoing to the extent they arise because of acceleration
by any Bank.
4.5 Taxes.
(a) All payments by the Company to or for the account of any Bank,
the LC Issuer or the Agent hereunder or under any Bond or Facility LC
Application shall be made free and clear of and without deduction for any and
all Taxes. If the Company shall be required by law to deduct any Taxes from or
in respect of any sum payable hereunder to any Bank, the LC Issuer or the Agent,
(i) the sum payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 4.5) such Bank, the LC Issuer or the Agent (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Company shall make such deductions, (iii) the
Company shall pay the full amount deducted to the relevant authority in
accordance with applicable law and (iv) the Company shall furnish to the Agent
the original copy of a receipt evidencing payment thereof within 30 days after
such payment is made.
(b) In addition, the Company hereby agrees to pay any present or
future stamp or documentary taxes and any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or under
any Bond or Facility LC Application or from the execution or delivery of, or
otherwise with respect to, this Agreement or any Bond or Facility LC Application
("Other Taxes").
(c) The Company hereby agrees to indemnify the Agent, the LC
Issuer and each Bank for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed on amounts payable under
this Section 3.5) paid by the Agent, the LC Issuer or such Bank and any
liability (including penalties, interest and expenses) arising therefrom or with
respect thereto. Payments due under this indemnification shall be made within 30
days of the date the Agent, the LC Issuer or such Bank makes demand therefor
pursuant to Section 4.6.
(d) Each Bank that is not incorporated under the laws of the
United States of America or a state thereof (each a "Non-U.S. Bank") agrees that
it will, not more than ten Business Days after the date hereof, or, if later,
not more than ten Business Days after becoming a Bank hereunder, (i) deliver to
each of the Company and the Agent two (2) duly completed copies of United States
Internal Revenue Service Form W8BEN or W8ECI, certifying in either case that
such Bank is entitled to receive payments under this Agreement without deduction
or withholding of any United States federal income taxes, and (ii) deliver to
each of the Company and the Agent a United States Internal Revenue Form W-8 or
W-9, as the case may be, and certify that it is entitled to an exemption from
United States backup withholding tax. Each Non-U.S. Bank further undertakes to
deliver to each of the Company and the Agent (x) renewals or additional copies
of such form (or any successor form) on or before the date that such form
expires or becomes obsolete, and (y) after the occurrence of any event requiring
a change in the most recent forms so delivered by it, such additional forms or
amendments thereto as may be reasonably requested by the Company or the Agent.
All forms or amendments described in the preceding sentence shall certify that
such Bank is entitled to receive payments under this Agreement without deduction
or withholding of any United States federal income taxes, unless an event
(including without limitation any change in treaty, law or regulation) has
occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent such
Bank from duly completing and delivering any such form or amendment with respect
to it and such Bank advises the Company and the Agent that it
is not capable of receiving payments without any deduction or withholding of
United States federal income tax.
(e) For any period during which a Non-U.S. Bank has failed to
provide the Company with an appropriate form pursuant to clause (d), above
(unless such failure is due to a change in treaty, law or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, occurring subsequent to the date on which a form originally was
required to be provided), such Non-U.S. Bank shall not be entitled to
indemnification under this Section 4.5 with respect to Taxes imposed by the
United States; provided that, should a Non-U.S. Bank which is otherwise exempt
from or subject to a reduced rate of withholding tax become subject to Taxes
because of its failure to deliver a form required under clause (d) above, the
Company shall take such steps as such Non-U.S. Bank shall reasonably request to
assist such Non-U.S. Bank to recover such Taxes.
(f) Any Bank that is entitled to an exemption from or reduction of
withholding tax with respect to payments under this Agreement or any Bond
pursuant to the law of any relevant jurisdiction or any treaty shall deliver to
the Company (with a copy to the Agent), at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed by
applicable law as will permit such payments to be made without withholding or at
a reduced rate.
(g) If the U.S. Internal Revenue Service or any other governmental
authority of the United States or any other country or any political subdivision
thereof asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Bank (because the appropriate form was
not delivered or properly completed, because such Bank failed to notify the
Agent of a change in circumstances which rendered its exemption from withholding
ineffective, or for any other reason), such Bank shall indemnify the Agent fully
for all amounts paid, directly or indirectly, by the Agent as tax, withholding
therefor, or otherwise, including penalties and interest, and including taxes
imposed by any jurisdiction on amounts payable to the Agent under this
subsection, together with all costs and expenses related thereto (including
attorneys fees and time charges of attorneys for the Agent, which attorneys may
be employees of the Agent). The obligations of the Banks under this Section
4.5(g) shall survive the payment of the Obligations and termination of this
Agreement.
4.6 Bank Certificates, Survival of Indemnity. To the extent
reasonably possible, each Bank shall designate an alternate Lending Installation
with respect to Eurodollar Rate Loans to reduce any liability of the Company to
such Bank under Section 4.1 or to avoid the unavailability of Eurodollar Rate
Loan under Section 4.3, so long as such designation is not disadvantageous to
such Bank. A certificate of such Bank as to the amount due under Section 4.1,
4.4 or 4.5 shall be final, conclusive and binding on the Company in the absence
of manifest error. Determination of amounts payable under such Sections in
connection with a Eurodollar Rate Loan shall be calculated as though each Bank
funded each Eurodollar Rate Loan through the purchase of a deposit of the type
and maturity corresponding to the deposit used as a reference in determining the
Base Eurodollar Rate applicable to such Loan whether in fact that is the case or
not. Unless otherwise provided herein, the amount specified in any certificate
shall be payable on demand after receipt by the Company of such certificate. The
obligations of the Company under Sections 4.1, 4.4 and 4.5 shall survive payment
of the Obligations and termination of this
Agreement, provided, that no Bank shall be entitled to compensation to the
extent that such compensation relates to any period of time more than 90 days
after the termination of this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants that:
5.1 Incorporation and Good Standing. The Company is duly
incorporated, validly existing and in good standing under the laws of the State
of Michigan.
5.2 Corporate Power and Authority: No Conflicts. The execution,
delivery and performance by the Company of the Credit Documents are within the
Company's corporate powers, have been duly authorized by all necessary corporate
action and do not (i) violate the Company's charter, bylaws or any applicable
law, or (ii) breach or result in an event of default under any indenture or
material agreement, and do not result in or require the creation of any Lien
upon or with respect to any of its properties (except the lien of the Indenture
securing the Bonds and any Lien in favor of the Agent on the Facility LC
Collateral Account or any funds therein)
5.3 Governmental Approvals. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Company of any Credit Document, except for the authorization to issue, sell
or guarantee secured and/or unsecured short-term debt granted by the Federal
Energy Regulatory Commission, which authorization has been obtained and is in
full force and effect.
5.4 Legally Enforceable Agreements. Each Credit Document
constitutes a legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, subject to (a) the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (b) the application of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).
5.5 Financial Statements. The audited balance sheet of the Company
and its Consolidated Subsidiaries as at December 31, 2001, and the related
statements of income and cash flows of the Company and its Consolidated
Subsidiaries for the fiscal year then ended, as set forth in the Company's
Annual Report on Form 10-K/A (copies of which have been furnished to each Bank),
and the unaudited restated balance sheet of the Company and its Consolidated
Subsidiaries as at September 30, 2002 (copies of which have been furnished to
each Bank) fairly present the financial condition of the Company and its
Consolidated Subsidiaries as at such dates and the results of operations of the
Company and its Consolidated Subsidiaries for the periods ended on such dates,
all in accordance with GAAP, and except to the extent described in the Company's
Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2002 (copies
of which have been furnished to each Bank), since December 31, 2001, there has
been no material adverse change in such financial condition or results of
operations of the Company and its Consolidated Subsidiaries, taken as a whole,
that would
materially adversely affect the Company's ability to perform its obligations
under any Credit Document.
5.6 Litigation. Except (i) to the extent described in the
Company's Annual Report on Form 10-K/A for the year ended December 31, 2001 and
Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2002, in
each case as filed with the SEC, and (ii) such other similar actions, suits and
proceedings predicated on the occurrence of the same events giving rise to any
actions, suits and proceedings described in the Reports referred to in the
foregoing clause (i), there is no pending or threatened action or proceeding
against the Company or any of its Consolidated Subsidiaries before any court,
governmental agency or arbitrator, which, if adversely determined, might
reasonably be expected to materially adversely affect the financial condition or
results of operations of the Company and its Consolidated Subsidiaries, taken as
a whole, or that would materially adversely affect the Company's ability to
perform its obligations under any Credit Document. As of the Initial Borrowing
Date, there is no litigation challenging the validity or the enforceability of
any of the Credit Documents.
5.7 Margin Stock. The Company is not engaged in the business of
extending credit for the purpose of buying or carrying margin stock (within the
meaning of Regulation U), and no proceeds of any Credit Extension will be used
to buy or carry any margin stock or to extend credit to others for the purpose
of buying or carrying any margin stock.
5.8 ERISA. No Termination Event has occurred or is reasonably
expected to occur with respect to any Plan. Neither the Company nor any of its
ERISA Affiliates is an employer under a Multiemployer Plan.
5.9 Insurance. All insurance required by Section 6.2 is in full
force and effect.
5.10 Taxes. The Company and its Subsidiaries have filed all tax
returns (Federal, state and local) required to be filed and paid all taxes shown
thereon to be due, including interest and penalties, or, to the extent the
Company or any of its Subsidiaries is contesting in good faith an assertion of
liability based on such returns, has provided adequate reserves for payment
thereof in accordance with GAAP.
5.11 Investment Company Act. The Company is not an investment
company (within the meaning of the Investment Company Act of 1940, as amended).
5.12 Public Utility Holding Company Act. The Company is exempt from
the registration requirements of the Public Utility Holding Company Act of 1935,
as amended, 15 USC 79, et seq.
5.13 Bonds. The issuance to the Agent of Bonds as evidence of the
Obligations (i) will not violate any provision of the Indenture or any other
agreement or instrument, or any law or regulation, or judicial or regulatory
order, judgment or decree, to which the Company or any of its Subsidiaries is a
party or by which any of the foregoing is bound and (ii) will provide the Banks,
as beneficial holders of the Bonds through the Agent, the benefit of the Lien of
the Indenture equally and ratably with the holders of other First Mortgage
Bonds.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Obligations shall remain unpaid or any Bank shall have
any Commitment under this Agreement, the Company shall:
6.1 Payment of Taxes, Etc. Pay and discharge before the same shall
become delinquent, (a) all taxes, assessments and governmental charges or levies
imposed upon it or upon its property, and (b) all lawful claims which, if
unpaid, might by law become a Lien upon its property, provided that the Company
shall not be required to pay or discharge any such tax, assessment, charge or
claim (i) which is being contested by it in good faith and by proper procedures
or (ii) the non-payment of which will not materially adversely affect the
financial condition or results of operations of the Company and its Consolidated
Subsidiaries, taken as a whole.
6.2 Maintenance of Insurance. Maintain insurance in such amounts
and covering such risks with respect to its business and properties as is
usually carried by companies engaged in similar businesses and owning similar
properties, either with reputable insurance companies or, in whole or in part,
by establishing reserves or one or more insurance funds, either alone or with
other corporations or associations.
6.3 Preservation of Corporate Existence, Etc. Preserve and
maintain its corporate existence, rights and franchises, and qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary in view of its business and operations or the
ownership of its properties, provided that the Company shall not be required to
preserve any such right or franchise or to remain so qualified unless the
failure to do so would have a material adverse effect on the financial condition
or results of operations of the Company and its Consolidated Subsidiaries, taken
as a whole, or the ability of the Company to enter into, or to perform its
obligations under, any Credit Document.
6.4 Compliance with Laws, Etc. Comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority,
the non-compliance with which would materially adversely affect the financial
condition or results of operations of the Company and its Consolidated
Subsidiaries, taken as a whole, or the ability of the Company to perform its
obligations under any Credit Document.
6.5 Visitation Rights. Subject to any necessary approval from the
Nuclear Regulatory Commission, at any reasonable time and from time to time,
permit the Agent, any of the Banks or any agents or representatives thereof to
examine and make copies of and abstracts from its records and books of account,
visit its properties and discuss its affairs, finances and accounts with any of
its officers.
6.6 Keeping of Books. Keep, and cause each Consolidated Subsidiary
to keep, adequate records and books of account, in which full and correct
entries shall be made of all of its financial transactions and its assets and
business so as to permit the Company and its Consolidated Subsidiaries to
present financial statements in accordance with GAAP.
6.7 Reporting Requirements. Furnish to the Agent, with sufficient
copies for each of the Banks:
(a) as soon as practicable and in any event within five Business
Days after becoming aware of the occurrence of any Default or Event of Default,
a statement of a Designated Officer as to the nature thereof, and as soon as
practicable and in any event within five Business Days thereafter, a statement
of a Designated Officer as to the action which the Company has taken, is taking
or proposes to take with respect thereto;
(b) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of the Company, a
consolidated balance sheet of the Company and its Consolidated Subsidiaries as
at the end of such quarter, and the related consolidated statements of income,
cash flows and common stockholder's equity of the Company and its Consolidated
Subsidiaries as at the end of and for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting forth in
each case in comparative form the corresponding figures for the corresponding
date or period of the preceding fiscal year, or statements providing
substantially similar information (which requirement shall be deemed satisfied
by the delivery of the Company's quarterly report of Form 10-Q for such
quarter), all in reasonable detail and duly certified (subject to the absence of
footnotes and to year-end audit adjustments) by a Designated Officer as having
been prepared in accordance with GAAP, together with (i) a certificate of a
Designated Officer (which certificate shall also accompany the financial
statements delivered pursuant to clause (c) below) stating that such officer has
no knowledge (having made due inquiry with respect thereto) that a Default or
Event of Default has occurred and is continuing, or, if a Default or Event of
Default has occurred and is continuing, a statement as to the nature thereof and
the actions which the Company has taken, is taking or proposes to take with
respect thereto, and (ii) a certificate of a Designated Officer, in
substantially the form of Exhibit C hereto, setting forth the Company's
computation of the financial ratios specified in Sections 8.1 and 8.2 as of the
end of the immediately preceding fiscal quarter or year, as the case may be, of
the Company;
(c) as soon as available and in any event within 120 days after
the end of each fiscal year of the Company, a copy of the Annual Report on Form
10-K (or any successor form) for the Company for such year, including therein
the consolidated balance sheet of the Company and its Consolidated Subsidiaries
as at the end of such year and the consolidated statements of income, cash flows
and common stockholder's equity of the Company and its Consolidated Subsidiaries
as at the end of and for such year, or statements providing substantially
similar information, in each case certified by independent public accountants of
recognized national standing selected by the Company (and not objected to by the
Majority Banks), together with a certificate of such accounting firm addressed
to the Banks stating that, in the course of its examination of the consolidated
financial statements of the Company and its Consolidated Subsidiaries, which
examination was conducted by such accounting firm in accordance with GAAP, (1)
such accounting firm has obtained no knowledge that an Event of Default, insofar
as such Event of Default related to accounting or financial matters, has
occurred and is continuing, or if, in the opinion of such accounting firm, such
an Event of Default has occurred and is continuing, a statement as to the nature
thereof, and (2) such accounting firm has examined a certificate prepared by the
Company setting forth the computations made by the Company in determining, as of
the end of such fiscal year, the ratios specified in Sections 8.1 and 8.2, which
certificate
shall be attached to the certificate of such accounting firm, and such
accounting firm confirms that such computations accurately reflect such ratios;
(d) promptly after the sending or filing thereof, copies of all
proxy statements which the Company sends to its stockholders, copies of all
regular, periodic and special reports (other than those which relate solely to
employee benefit plans) which the Company files with the SEC and notice of the
sending or filing of (and, upon the request of the Agent or any Bank, a copy of)
any final prospectus filed with the SEC;
(e) as soon as possible and in any event (i) within 30 days after
the Company or any of its ERISA Affiliates knows or has reason to know that any
Termination Event described in clause (a) of the definition of Termination Event
with respect to any Plan has occurred and (ii) within ten days after the Company
or any of its ERISA Affiliates knows or has reason to know that any other
Termination Event with respect to any Plan has occurred, a statement of the
Chief Financial Officer of the Company describing such Termination Event and the
action, if any, which the Company or such ERISA Affiliate, as the case may be,
proposes to take with respect thereto;
(f) promptly upon becoming aware thereof, notice of any upgrading
or downgrading of the rating of the Senior Debt by Fitch, Moody's or S&P;
(g) as soon as possible and in any event within five (5) days
after the occurrence of any material default under any material agreement to
which the Company or any of its Subsidiaries is a party, which default would
materially adversely affect the financial condition, business, results of
operations or property of the Company and its Subsidiaries, considered as a
whole, any of which is continuing on the date of such certificate, a certificate
of the president or chief financial officer of the Company setting forth the
details of such material default and the action which the Company or any such
Subsidiary proposes to take with respect thereto; and
(h) such other information respecting the business, properties or
financial condition of the Company as the Agent or any Bank through the Agent
may from time to time reasonably request.
6.8 Use of Proceeds. The Company will use the proceeds of the
Credit Extensions for general corporate purposes, working capital and
refinancing the Debt under the Prior Agreement. The Company will not, nor will
it permit any Subsidiary to, use any of the proceeds of the Credit Extensions to
purchase or carry any "margin stock" (as defined in Regulation U).
6.9 Maintenance of Properties, Etc. The Company shall, and shall
cause each of its Subsidiaries to, maintain in all material respects all of its
respective owned and leased Property in good and safe condition and repair to
the same degree as other companies engaged in similar businesses and owning
similar properties, and not permit, commit or suffer any waste or abandonment of
any such Property, and from time to time make or cause to be made all material
repairs, renewals and replacements thereof, including, without limitation, any
capital improvements which may be required; provided, however, that such
Property may be altered or renovated in the ordinary course of the Company's or
its Subsidiaries' business; and provided,
further, that the foregoing shall not restrict the sale of any asset of the
Company or any Subsidiary to the extent not prohibited by Section 7.2.
6.10 Bonds. Beginning on the Initial Borrowing Date and continuing
until the Commitments have terminated and all Obligations have been paid in
full, cause (a) the sum of (i) the face amount of all Interest Bearing Bonds
plus (ii) the Discounted Amount of all Zero Rate Bonds to at all times be equal
to or greater than (b) the sum of the Aggregate Outstanding Credit Exposure plus
all accrued and unpaid Commitment Fees, LC Fees and interest hereunder.
ARTICLE VII
NEGATIVE COVENANTS
So long as any Obligations shall remain unpaid or any Bank shall have
any Commitment under this Agreement, the Company shall not:
7.1 Liens. Create, incur, assume or suffer to exist any Lien upon
or with respect to any of its properties, now owned or hereafter acquired,
except:
(a) Liens created pursuant to the Indenture securing the First
Mortgage Bonds and any Lien in favor of the Agent on the Facility LC Collateral
Account or any funds therein;
(b) Liens securing pollution control bonds, or bonds issued to
refund or refinance pollution control bonds (including Liens securing
obligations (contingent or otherwise) of the Company under letter of credit
agreements or other reimbursement or similar credit enhancement agreements with
respect to pollution control bonds), provided that the aggregate face amount of
any such bonds so issued shall not exceed the aggregate face amount of such
pollution control bonds, as the case may be, so refunded or refinanced;
(c) Liens in (and only in) assets acquired to secure Debt incurred
to finance the acquisition of such assets;
(d) Statutory and common law banker's Liens on bank deposits;
(e) Liens in respect of accounts receivable sold, transferred or
assigned by the Company;
(f) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or being
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP shall have been set aside on its books;
(g) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue or
being contested in good faith by appropriate proceedings and for which adequate
reserves shall have been set aside on its books;
(h) Liens incurred in the ordinary course of business in
connection with workers' compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for
borrowed money) entered into in the ordinary course of business or to secure
obligations on surety or appeal bonds;
(i) Judgment Liens in existence less than 30 days after the entry
thereof or with respect to which execution has been stayed or the payment of
which is covered (subject to a customary deductible) by insurance;
(j) Zoning restrictions, easements, licenses, covenants,
reservations, utility company rights, restrictions on the use of real property
or minor irregularities of title incident thereto which do not in the aggregate
materially detract from the value of the property or assets of the Company or
materially impair the operation of its business;
(k) Liens arising in connection with the financing of the
Company's fuel resources, including, but not limited to, nuclear fuel;
(l) Liens arising pursuant to M.C.L. 324.20138; provided that the
aggregate amount of all obligations secured by such Liens (excluding any such
Liens of which the Company has no knowledge or which are permitted by subsection
(f) above) shall not exceed $20,000,000;
(m) Liens arising in connection with Securitized Bonds;
(n) Liens on natural gas, oil and mineral, or on stock in trade,
material 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 the Company; provided that such Liens secure obligations not
exceeding $500,000,000 in aggregate principal amount;
(o) Other Liens securing obligations in an aggregate amount not in
excess of $150,000,000.
7.2 Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of 15% or more of its assets calculated with reference to total assets
as reflected on the Company's consolidated balance sheet as at September 30,
2002, during the term of this Agreement.
7.3 Mergers, Etc. Merge with or into or consolidate with or into
any other Person, except that the Company may merge with any other Person,
provided that, in each case, immediately after giving effect thereto, (a) no
event shall occur and be continuing which constitutes a Default or Event of
Default, (b) the Company is the surviving corporation, (c) the Company shall not
be liable with respect to any Debt or allow its Property to be subject to any
Lien which it could not become liable with respect to or allow its Property to
become subject to under this Agreement on the date of such transaction and (d)
the Company's Net Worth shall be equal to or greater than its Net Worth
immediately prior to such merger.
7.4 Compliance with ERISA. Permit to exist any occurrence of any
Reportable Event, or any other event or condition which presents a material (in
the reasonable opinion of the Majority Banks) risk of a termination by the PBGC
of any Plan of the Company or any ERISA Affiliate, which termination will result
in any material (in the reasonable opinion of the Majority Banks) liability of
the Company or such ERISA Affiliate to the PBGC.
7.5 Change in Nature of Business. Make any material change in the
nature of its business as carried on as of the date hereof.
7.6 Restricted Payments. The Company: (a) will not declare or pay
any dividends or make any other distributions on its capital stock (other than
dividends payable solely in such capital stock) or redeem any such capital
stock; and (b) will not, and will not permit any Subsidiary to, purchase or
otherwise acquire or retire any of the Company's capital stock or make any loans
or advances to CMS or any Subsidiary thereof (other than the Company or any
Subsidiary thereof); provided that, so long as no Default or Event of Default
exists, the Company may pay dividends in an aggregate amount not to exceed
$300,000,000 during any calendar year.
7.7 Off-Balance Sheet Liabilities. Create, incur, assume or suffer
to exist, or permit any Subsidiary to create, incur, assume or suffer to exist,
Off-Balance Sheet Liabilities (exclusive of obligations arising in connection
with (a) the Amended and Restated Receivables Sale Agreement among the Company,
Asset Securitization Cooperative Corporation and Canadian Imperial Bank of
Commerce dated as of April 1, 2002, as amended, restated or otherwise modified
from time to time and any similar agreement entered into in replacement thereof,
and (b) the Master Lease and Lease Supplement, each dated as of April 23, 2001,
between Consumers Campus Holding, LLC (a wholly-owned Subsidiary of the
Company), as lessee, and Wilmington Trust Company, not in its individual
capacity but solely as Owner Trustee of CEC Trust 2001-A, as lessor, along with
various other related agreements), as amended, restated or otherwise modified
from time to time and any similar agreement entered into in replacement thereof)
in the aggregate in excess of $250,000,000 at any time.
ARTICLE VIII
FINANCIAL COVENANTS
So long as any of the Obligations shall remain unpaid or any Bank shall
have any Commitment under this Agreement, the Company shall:
8.1 Debt to Capital Ratio. At all times, maintain a ratio of Total
Consolidated Debt to Total Consolidated Capitalization of not greater than 0.65
to 1.0.
8.2 Interest Coverage Ratio. Not permit the ratio, determined as
of the end of each of its fiscal quarters for the then most-recently ended four
fiscal quarters, of (i) Consolidated EBIT to (ii) Consolidated Interest Expense
to be less than 2.0 to 1.0.
ARTICLE IX
EVENTS OF DEFAULT
9.1 Events of Default. The occurrence of any of the following
events shall constitute an "Event of Default":
(a) The Company shall fail to pay (i) any principal of any Advance
when due and payable, or (ii) any Reimbursement Obligation within one (1) day
after the same becomes due, or (iii) any interest on any Advance or any fee or
other Obligation payable hereunder within five (5) days after such interest or
fee or other Obligation becomes due and payable;
(b) Any representation or warranty made by the Company (or any of
its officers) in this Agreement or any other Credit Document or in any
certificate, document, report, financial or other written statement furnished at
any time pursuant to any Credit Document shall prove to have been incorrect in
any material respect on or as of the date made;
(c) The Company shall fail to perform or observe any term,
covenant or agreement contained in Section 6.10, Article VII or Article VIII; or
the Company shall fail to perform or observe any other term, covenant or
agreement on its part to be performed or observed in this Agreement or in any
other Credit Document and such failure shall continue for 30 consecutive days
after notice thereof by means of facsimile, regular mail or written notice
delivered in person (or telephonic notice thereof confirmed in writing) shall
have been given to the Company by the Agent or the Majority Banks;
(d) The Company shall: (i) fail to pay any Debt (other than the
payment obligations described in subsection (a) above) in excess of $25,000,000,
or any interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure shall
continue after the applicable grace period, if any, specified in the instrument
or agreement relating to such Debt; or (ii) fail to perform or observe any term,
covenant or condition on its part to be performed or observed under any
agreement or instrument relating to any such Debt, when required to be performed
or observed, if the effect of such failure to perform or observe is to
accelerate, or to permit the acceleration of, the maturity of such Debt, unless
the obligee under or holder of such Debt shall have waived in writing such
circumstance, or such circumstance has been cured, so that such circumstance is
no longer continuing; or (iii) any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), in each case in accordance with the terms of such agreement or
instrument, prior to the stated maturity thereof; or (iv) generally not, or
shall admit in writing its inability to, pay its debts as such debts become due;
(e) The Company: (i) shall make an assignment for the benefit of
creditors, or petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets; or
(ii) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (iii) shall have had
any such petition or application filed or any such proceeding shall have been
commenced, against it, in which an adjudication or appointment is made or order
for relief is entered, or which petition, application or proceeding remains
undismissed for a period of 30 consecutive days or more; or (iv) by any act or
omission shall indicate its consent to, approval of or acquiescence in any such
petition, application or proceeding or order for relief or the appointment of a
custodian, receiver or trustee for all or any substantial part of its property;
or (v) shall suffer any such custodianship, receivership or trusteeship to
continue undischarged for a period of 30 days or more; or (vi) shall take any
corporate action to authorize any of the actions set forth above in this
subsection (e);
(f) One or more judgments, decrees or orders for the payment of
money in excess of $25,000,000 in the aggregate shall be rendered against the
Company and either (i) enforcement proceedings shall have been commenced by any
creditor upon any such judgment or order or (ii) there shall be any period of
more than 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect;
(g) Any Termination Event with respect to a Plan shall have
occurred, and 30 days after notice thereof shall have been given to the Company
by the Agent, (i) such Termination Event (if correctable) shall not have been
corrected and (ii) the then present value of such Plan's vested benefits exceeds
the then current value of the assets accumulated in such Plan by more than the
amount of $25,000,000 (or in the case of a Termination Event involving the
withdrawal of a "substantial employer" (as defined in Section 4001(A)(2) of
ERISA), the withdrawing employer's proportionate share of such excess shall
exceed such amount).
(h) Any Bond shall cease to be in full force and effect (except
for Bonds surrendered by the Agent pursuant to Section 2.5(b)); or the Company
shall deny that it has any liability or obligation under any Bond or purport to
revoke, terminate, rescind or redeem any Bond (other than in accordance with the
terms of the Bonds and the Indenture).
9.2 Remedies.
(a) If any Event of Default shall occur and be continuing, the
Agent shall upon the request, or may with the consent, of the Majority Banks, by
notice to the Company, (i) declare the Commitments and the obligation and power
of the LC Issuer to issue Facility LCs to be terminated or suspended, whereupon
the same shall forthwith terminate, and/or (ii) declare the Obligations to be
forthwith due and payable, whereupon the Aggregate Outstanding Credit Exposure
and all other Obligations shall become and be forthwith due and payable, and/or
(iii) in addition to the continuing right to demand payment of all amounts
payable under this Agreement, make demand on the Company to pay, and the Company
will, forthwith upon such demand and without any further notice or act, pay to
the Agent the Collateral Shortfall Amount (as defined below), which funds shall
be deposited in the Facility LC Collateral Account, in each case without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Company, provided that in the case of an Event of
Default referred to in subsection 9.1(e) above, the Commitments shall
automatically terminate, the obligation and power of the LC Issuer to issue
Facility LCs shall automatically terminate and the Obligations shall
automatically become due and payable without notice, presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Company, and the Company will be and become thereby
unconditionally obligated, without any further notice, act or demand, to pay to
the Agent an amount in immediately available funds, which funds shall be held in
the Facility LC Collateral Account, equal to the difference of (x) the amount of
LC Obligations at such time, less (y) the amount on deposit in the Facility LC
Collateral Account at such time which is free and clear of all rights and claims
of third parties and has not been applied against the Obligations (such
difference, the "Collateral Shortfall Amount").
(b) If at any time while any Event of Default is continuing, the
Agent determines that the Collateral Shortfall Amount at such time is greater
than zero, the Agent may make demand on the Company to pay, and the Company
will, forthwith upon such demand and without any further notice or act, pay to
the Agent the Collateral Shortfall Amount, which funds shall be deposited in the
Facility LC Collateral Account.
(c) The Agent may, at any time or from time to time after funds
are deposited in the Facility LC Collateral Account, apply such funds to the
payment of the Obligations and any other amounts as shall from time to time have
become due and payable by the Company to the
Banks or the LC Issuer under the Credit Documents. The Company hereby pledges,
assigns and grants to the Agent, on behalf of and for the ratable benefit of the
Banks and the LC Issuer, a security interest in all of the Company's right,
title and interest in and to all funds which may from time to time be on deposit
in the Facility LC Collateral Account to secure the prompt and complete payment
and performance of the Obligations. The Agent will invest any funds on deposit
from time to time in the Facility LC Collateral Account in certificates of
deposit of Bank One having a maturity not exceeding 30 days.
(d) At any time while any Event of Default is continuing, neither
the Company nor any Person claiming on behalf of or through the Company shall
have any right to withdraw any of the funds held in the Facility LC Collateral
Account. After all of the Obligations have been indefeasibly paid in full and
the Aggregate Commitment has been terminated, any funds remaining in the
Facility LC Collateral Account shall be returned by the Agent to the Company or
paid to whomever may be legally entitled thereto at such time.
ARTICLE X
WAIVERS, AMENDMENTS AND REMEDIES
10.1 Amendments. Subject to the provisions of this Article X, the
Majority Banks (or the Agent with the consent in writing of the Majority Banks)
and the Company may enter into written agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Credit Documents or
changing in any manner the rights of the Banks or the Company hereunder or
waiving any Event of Default hereunder, provided that no such supplemental
agreement shall, without the consent of all of the Banks:
(a) Extend the maturity of any Loan or reduce the
principal amount thereof, or extend the expiry date of any Facility LC
to a date after the Termination Date, or reduce the rate or extend the
time of payment of interest thereon or fees thereon or Reimbursement
Obligations related thereto.
(b) Modify the percentage specified in the definition of
Majority Banks.
(c) Extend the Termination Date or increase the amount of
the Commitment of any Bank hereunder or the commitment to issue
Facility LCs, or permit the Company to assign its rights under this
Agreement.
(d) Amend Section 6.10 or this Section 10.1.
(e) Make any change in an express right in this Agreement
of a single Bank to give its consent, make a request or give a notice.
No amendment of any provision of this Agreement relating to the Agent shall be
effective without the written consent of the Agent, and no amendment of any
provision relating to the LC Issuer shall be effective without the written
consent of the LC Issuer.
10.2 Preservation of Rights. No delay or omission of the Banks, the
LC Issuer or the Agent to exercise any right under the Credit Documents shall
impair such right or be construed to be a waiver of any Default or Event of
Default or an acquiescence therein, and the making of a
Credit Extension notwithstanding the existence of a Default or Event of Default
or the inability of the Company to satisfy the conditions precedent to such
Credit Extension shall not constitute any waiver or acquiescence. Any single or
partial exercise of any such right shall not preclude other or further exercise
thereof or the exercise of any other right, and no waiver, amendment or other
variation of the terms, conditions or provisions of the Credit Documents
whatsoever shall be valid unless in writing signed by the Banks required
pursuant to Section 10.1, and then only to the extent in such writing
specifically set forth. All remedies contained in the Credit Documents or by law
afforded shall be cumulative and all shall be available to the Agent, the LC
Issuer and the Banks until the Obligations have been paid in full.
ARTICLE XI
CONDITIONS PRECEDENT
11.1 Initial Credit Extension. The Banks shall not be required to
make the initial Credit Extension hereunder unless the Company has furnished to
the Agent with sufficient copies for the Banks:
(a) Copies of the Restated Articles of Incorporation of the
Company, together with all amendments, certified by the Secretary or an
Assistant Secretary of the Company, and a certificate of good standing,
certified by the appropriate governmental officer in its jurisdiction of
incorporation.
(b) Copies, certified by the Secretary or an Assistant Secretary
of the Company, of its bylaws and of its Board of Directors' resolutions (and
resolutions of other bodies, if any are deemed necessary by counsel for any
Bank) authorizing the execution of the Credit Documents.
(c) An incumbency certificate, executed by the Secretary or an
Assistant Secretary of the Company, which shall identify by name and title and
bear the original or facsimile signature of the officers of the Company
authorized to sign the Credit Documents and the officers or other employees
authorized to make borrowings hereunder, upon which certificate the Banks shall
be entitled to rely until informed of any change in writing by the Company.
(d) A certificate, signed by a Designated Officer of the Company,
stating that on the date hereof no Default or Event of Default has occurred and
is continuing.
(e) Evidence satisfactory to the Agent of the issuance of the
Bonds in the form set forth in the Supplemental Indenture and in an aggregate
principal amount of $265,000,000 pursuant to the Bond Delivery Agreement.
(f) Favorable opinions of: (i) Michael D. VanHemert, Esq., Deputy
General Counsel of the Company, as to the matters set forth in Exhibit B-1 and
as to such other matters as the Agent may reasonably request; (ii) Skadden,
Arps, Slate, Meagher & Flom LLP, special counsel to the Company, as to the
matters set forth in Exhibit B-2 and as to such other matters as the Agent may
reasonably request; and (iii) Miller, Canfield, Paddock and Stone, P.L.C., as to
the matters set forth in Exhibit B-3 and as to such other matters as the Agent
may reasonably request. Such opinions shall be addressed to the Agent and the
Banks and shall be satisfactory in form and substance to the Agent.
(g) Evidence satisfactory to the Agent that the Prior Agreement
shall have been or shall simultaneously on the Initial Borrowing Date be
terminated (except for those provisions that expressly survive the termination
thereof) and all loans outstanding and other amounts owed to the lenders or
agents thereunder shall have been, or shall simultaneously with the initial
Credit Extension hereunder be, paid in full.
(h) Evidence, in form and substance satisfactory to the Agent,
that the Company has obtained all governmental approvals, if any, necessary for
it to enter into the Credit Documents.
(i) Such other documents as any Bank or its counsel may have
reasonably requested.
It shall be a further condition precedent to the making of the initial Credit
Extension hereunder that the Company shall have paid (i) to the Agent for the
account of the Banks the fees required to be paid on the Initial Borrowing Date
and (ii) to the Agent and the Arranger the fees required to be paid to them
pursuant to the fee letter described in Section 13.12.
11.2 Each Credit Extension. The Banks shall not be required to make
any Credit Extension unless on the applicable Borrowing Date, (i) no Default or
Event of Default exists, (ii) the representations and warranties contained in
Article V are true and correct as of such Borrowing Date, (iii) after giving
effect to such Credit Extension the Aggregate Outstanding Credit Exposure, plus
all accrued and unpaid Commitment Fees, LC Fees and interest hereunder, will not
exceed the sum of (x) the Face Amount of all Interest Bearing Bonds plus (y) the
Discounted Amount of all Zero Rate Bonds and (iv) all legal matters incident to
the making of such Credit Extension are satisfactory to the Banks and their
counsel. Each Borrowing Notice and each request for issuance of a Facility LC
shall constitute a representation and warranty by the Company that the
conditions contained in subsections (i), (ii) and (iii) above will be satisfied
on the relevant Borrowing Date. For the avoidance of doubt, the conversion or
continuation of an Advance shall not be considered the making of a Credit
Extension.
ARTICLE XII
GENERAL PROVISIONS
12.1 Successors and Assigns. (a)The terms and provisions of the
Credit Documents shall be binding upon and inure to the benefit of the Company
and the Banks and their respective successors and assigns, except that the
Company shall not have the right to assign its rights under the Credit
Documents. Any Bank may sell participations in all or a portion of its rights
and obligations under this Agreement pursuant to subsection (b) below and any
Bank may assign all or any part of its rights and obligations under this
Agreement pursuant to subsection (c) below.
(b) Any Bank may sell participations to one or more banks or other
entities (each a "Participant") in all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment and its Outstanding Credit Exposure), provided that
(i) such Bank's obligations under this Agreement (including, without limitation,
its Commitment to the Company hereunder) shall remain unchanged, (ii) such Bank
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) such Bank shall remain the holder of the Outstanding
Credit Exposure of such Bank for all purposes of this Agreement and (iv) the
Company shall continue to deal solely and directly with such
Bank in connection with such Bank's rights and obligations under this Agreement.
Each Bank shall retain the sole right to approve, without the consent of any
Participant, any amendment, modification or waiver of any provision of the
Credit Documents other than any amendment, modification or waiver with respect
to any Loan or Commitment in which such Participant has an interest which would
require consent of all of the Banks pursuant to the terms of Section 10.1 or of
any other Credit Document. The Company agrees that each Participant shall be
deemed to have the right of setoff provided in Section 12.10 in respect of its
participating interest in amounts owing under the Credit Documents to the same
extent as if the amount of its participating interest were owing directly to it
as a Bank under the Credit Documents, provided that each Bank shall retain the
right of setoff provided in Section 12.10 with respect to the amount of
participating interests sold to each Participant. The Banks agree to share with
each Participant, and each Participant, by exercising the right of setoff
provided in Section 12.10, agrees to share with each Bank, any amount received
pursuant to the exercise of its right of setoff, such amounts to be shared in
accordance with Section 12.10 as if each Participant were a Bank. The Company
further agrees that each Participant shall be entitled to the benefits of
Sections 4.1, 4.3, 4.4 and 4.5 to the same extent as if it were a Bank and had
acquired its interest by assignment pursuant to Section 12.1(c), provided that
(i) a Participant shall not be entitled to receive any greater payment under
Section 4.1, 4.3, 4.4 or 4.5 than the Bank who sold the participating interest
to such Participant would have received had it retained such interest for its
own account, unless the sale of such interest to such Participant is made with
the prior written consent of the Company, and (ii) any Participant not
incorporated under the laws of the United States of America or any State thereof
agrees to comply with the provisions of Section 4.5 to the same extent as if it
were a Bank.
(c) Any Bank may, in the ordinary course of its business and in
accordance with applicable law, at any time assign to one or more financial
institutions all or any part of its rights and obligations under this Agreement,
provided that (i) such Bank has received the Agent's and, so long as no Event of
Default exists, the Company's prior written consent to such assignment, which
consent shall not be unreasonably withheld, and (ii) the minimum principal
amount of any such assignment (other than assignments to a Federal Reserve Bank,
or to any other Bank or affiliate of such assigning Bank, or to any direct or
indirect contractual counterparties in swap agreements relating to the Loans to
the extent required in connection with the physical settlement of any Bank's
obligations pursuant thereto) shall be $5,000,000 (or such lesser amount
consented to by the Agent and, so long as no Event of Default shall be
continuing, the Company); provided, that after giving effect to such assignment
the assigning Bank shall have a Commitment of not less than $5,000,000 (unless
otherwise consented to by the Agent and, so long as no Event of Default shall be
continuing, the Company). Notwithstanding the foregoing sentence, any Bank may
at any time, without the consent of the Company or the Agent, assign all or any
portion of its rights under this Agreement to (i) a Federal Reserve Bank,
provided that no such assignment shall release the transferor Bank from its
obligations hereunder; and (ii) any Bank or any affiliate of such assigning
Bank, provided that the creditworthiness of such affiliate (as determined in
accordance with customary standards of the banking industry) is no less than
that of the assigning Bank; and (iii) any direct or indirect contractual
counterparties in swap agreements relating to the Loans to the extent required
in connection with the physical settlement of any Bank's obligations pursuant
thereto.
(d) Any Bank may, in connection with any sale or participation or
proposed sale or participation pursuant to this Section 12.1, disclose to the
purchaser or participant or proposed purchaser or participant any information
relating to the Company furnished to such Bank by or on behalf of the Company,
provided that prior to any such disclosure of non-public information, the
purchaser or participant or proposed purchaser or participant (which purchaser
or participant is not an affiliate of a Bank) shall agree to preserve the
confidentiality of any confidential information (except any such disclosure as
may be required by law or regulatory process) relating to the Company received
by it from such Bank.
(e) Assignments under this Section 12.1 shall be made pursuant to
an agreement ("Assignment Agreement") substantially in the form of Exhibit D
hereto or in such other form as may be agreed to by the parties thereto and
shall not be effective until a $3,500 fee has been paid to the Agent by the
assignee, which fee shall cover the cost of processing such assignment, provided
that such fee shall not be incurred in the event of an assignment by any Bank of
all or a portion of its rights under this Agreement to (i) a Federal Reserve
Bank or (ii) a Bank or an affiliate of the assigning Bank or (iii) to any direct
or indirect contractual counterparties in swap agreements relating to the Loans
to the extent required in connection with the physical settlement of any Bank's
obligations pursuant thereto.
12.2 Survival of Representations. All representations and
warranties of the Company contained in this Agreement shall survive the making
of the Credit Extensions herein contemplated.
12.3 Governmental Regulation. Anything contained in this Agreement
to the contrary notwithstanding, neither the LC Issuer nor any Bank shall be
obligated to extend credit to the Company in violation of any limitation or
prohibition provided by any applicable statute or regulation.
12.4 Taxes. Any taxes (excluding income taxes) payable or ruled
payable by any Federal or State authority in respect of the execution of the
Credit Documents shall be paid by the Company, together with interest and
penalties, if any.
12.5 Choice of Law. THE CREDIT DOCUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION SECTION 5-1401
OF THE GENERAL OBLIGATIONS LAW OF NEW YORK, BUT OTHERWISE WITHOUT REGARD TO THE
LAW OF CONFLICTS) OF THE STATE OF NEW YORK, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR NEW YORK STATE COURT
SITTING IN NEW YORK, NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO ANY CREDIT DOCUMENT AND THE COMPANY HEREBY IRREVOCABLY AGREES THAT
ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN ANY SUCH COURT. THE COMPANY HEREBY WAIVES ANY RIGHT TO A JURY
TRIAL IN ANY ACTION OR ARISING HEREUNDER OR UNDER ANY CREDIT DOCUMENT.
12.6 Headings. Section headings in the Credit Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Credit Documents.
12.7 Entire Agreement. The Credit Documents embody the entire
agreement and understanding between the Company, the LC Issuer, the Agent and
the Banks and supersede all prior agreements and understandings between the
Company, the LC Issuer, the Agent and the Banks relating to the subject matter
thereof (other than those contained in the fee letter described in Section 13.12
which shall survive and remain in full force and effect during the term of this
Agreement).
12.8 Expenses; Indemnification. The Company shall reimburse the
Agent and the Arranger for (a) any reasonable costs, internal charges and
out-of-pocket expenses (including reasonable attorneys' fees and time charges of
attorneys for the Agent) paid or incurred by the Agent or the Arranger in
connection with the preparation, review, execution, delivery, syndication,
distribution (including, without limitation, via the internet), amendment and
modification of the Credit Documents and (b) any reasonable costs, internal
charges and out-of-pocket expenses (including reasonable attorneys' fees and
time charges of attorneys for the Agent) paid or incurred by the Agent or the
Arranger on its own behalf or on behalf of the LC Issuer or any Bank in
connection with the collection and enforcement of the Credit Documents. The
Company further agrees to indemnify the Agent, the Arranger, the LC Issuer and
each Bank and their respective directors, officers and employees against all
losses, claims, damages, penalties, judgments, liabilities and reasonable
expenses (including, without limitation, all material expenses of litigation or
preparation therefor whether or not the Agent, the Arranger, the LC Issuer or
any Bank is a party thereto) which any of them may pay or incur arising out of
or relating to this Agreement, the other Credit Documents, the transactions
contemplated hereby or the direct or indirect application or proposed
application of the proceeds of any Credit Extension hereunder, provided that the
Company shall not be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the Agent, the Arranger, the
LC Issuer or any Bank. The obligations of the Company under this Section shall
survive the termination of this Agreement.
12.9 Severability of Provisions. Any provision in any Credit
Document that is held to be inoperative, unenforceable or invalid in any
jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable or
invalid without affecting the remaining provisions in that jurisdiction or the
operation, enforceability or validity of that provision in any other
jurisdiction, and to this end the provisions of all Credit Documents are
declared to be severable.
12.10 Setoff. In addition to, and without limitation of, any rights
of the Banks under applicable law, if the Company becomes insolvent, however
evidenced, or any Default or Event of Default occurs, any indebtedness from any
Bank to the Company (including all account balances, whether provisional or
final and whether or not collected or available) may be offset and applied
toward the payment of the Obligations owing to such Bank, whether or not the
Obligations, or any part hereof, shall then be due. The Company agrees that any
purchaser or participant under Section 12.1 may, to the fullest extent permitted
by law, exercise all its rights of payment with respect to such purchase or
participation as if it were the direct creditor of the Company in the amount of
such purchase or participation.
12.11 Ratable Payments. If any Bank, whether by setoff or otherwise,
has payment made to it upon its Outstanding Credit Exposure in a greater
proportion than that received by any other Bank, such Bank agrees, promptly upon
demand, to purchase a portion of the Aggregate Outstanding Credit Exposure held
by the other Banks so that after such purchase each Bank will hold its Pro Rata
Share of the Aggregate Outstanding Credit Exposure. If any Bank, whether in
connection with setoff or amounts which might be subject to setoff or otherwise,
receives collateral or other protection for its Obligations or such amounts
which may be subject to setoff, such Bank agrees, promptly upon demand, to take
such action necessary such that all Banks share in the benefits of such
collateral ratably in proportion to their respective Pro Rata Share of the
Aggregate Outstanding Credit Exposure. In case any such payment is disturbed by
legal process, or otherwise, appropriate further adjustments shall be made.
12.12 Nonliability of Bank. The relationship between the Company, on
the one hand, and the Banks, the LC Issuer and the Agent, on the other hand,
shall be solely that of borrower and lender. Neither the Agent, the Arranger,
the LC Issuer nor any Bank shall have any fiduciary responsibilities to the
Company. Neither the Agent, the Arranger, the LC Issuer nor any Bank undertakes
any responsibility to the Company to review or inform the Company of any matter
in connection with any phase of the Company's business or operations. The
Company shall rely entirely upon its own judgment with respect to its business,
and any review, inspection, supervision or information supplied to the Company
by the Banks is for the protection of the Banks and neither the Company nor any
third party is entitled to rely thereon. The Company agrees that neither the
Agent, the Arranger, the LC Issuer nor any Bank shall have liability to the
Company (whether sounding in tort, contract or otherwise) for losses suffered by
the Company in connection with, arising out of, or in any way related to, the
transactions contemplated and the relationship established by the Credit
Documents, or any act, omission or event occurring in connection therewith,
unless it is determined in a final non-appealable judgment by a court of
competent jurisdiction that such losses resulted from the gross negligence or
willful misconduct of the party from which recovery is sought. Neither the
Agent, the Arranger, the LC Issuer nor any Bank shall have any liability with
respect to, and the Company hereby waives, releases and agrees not to sue for,
any special, indirect, consequential or punitive damages suffered by the Company
in connection with, arising out of, or in any way related to the Credit
Documents or the transactions contemplated thereby.
ARTICLE XIII
THE AGENT
13.1 Appointment. Bank One, NA (Main Office - Chicago) is hereby
appointed Agent hereunder, and each of the Banks irrevocably authorizes the
Agent to act as the contractual representative on behalf of such Bank. The Agent
agrees to act as such upon the express conditions contained in this Article
XIII. The Agent shall not have a fiduciary relationship in respect of any Bank
by reason of this Agreement.
13.2 Powers. The Agent shall have and may exercise such powers
hereunder as are specifically delegated to the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto. The Agent shall
not have any implied duties to the Banks or any obligation to the Banks to take
any action hereunder except any action specifically provided by this Agreement
to be taken by the Agent.
13.3 General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Banks or any Bank for any
action taken or omitted to be taken by it or them hereunder or in connection
herewith except for its or their own gross negligence or willful misconduct.
13.4 No Responsibility for Loans, Recitals, Etc. The Agent shall
not be responsible to the Banks for any recitals, reports, statements,
warranties or representations herein or in any Credit Document or be bound to
ascertain or inquire as to the performance or observance of any of the terms of
this Agreement.
13.5 Action on Instructions of Banks. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder and under
any other Credit Document in accordance with written instructions signed by the
Majority Banks (or all of the Banks if required by Section 10.1), and such
instructions and any action taken or failure to act pursuant thereto shall be
binding on all of the Banks. The Banks hereby acknowledge that the Agent shall
be under no duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement or any other Credit Document unless
it shall be requested in writing to do so by the Majority Banks. The Agent shall
be fully justified in failing or refusing to take any action hereunder and under
any other Credit Document unless it shall first be indemnified to its
satisfaction by the Banks pro rata against any and all liability, cost and
expense that it may incur by reason of taking or continuing to take any such
action.
13.6 Employment of Agents and Counsel. The Agent may execute any of
its duties as Agent hereunder by or through employees, agents and
attorneys-in-fact and shall not be answerable to the Banks, except as to money
or securities received by it or its authorized agents, for the default or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care. The Agent shall be entitled to advice of counsel concerning all
matters pertaining to the agency hereby created and its duties hereunder.
13.7 Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
13.8 Agent's Reimbursement and Indemnification. The Banks agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (i) for any amounts not reimbursed by the Company for which the
Agent is entitled to reimbursement by the Company under the Credit Documents,
(ii) for any other expenses reasonably incurred by the Agent on behalf of the
Banks, in connection with the preparation, execution, delivery, administration
and enforcement of the Credit Documents, and for which the Agent is not entitled
to reimbursement by the Company under the Credit Documents, and (iii) for any
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in any way relating to or
arising out of this Agreement or any other document delivered in connection with
this Agreement or the transactions contemplated hereby or the enforcement of any
of the terms hereof or of any such other documents, and for which the
Agent is not entitled to reimbursement by the Company under the Credit
Documents, provided that no Bank shall be liable for any of the foregoing to the
extent they arise from the gross negligence or willful misconduct of the Agent.
13.9 Rights as a Lender. With respect to its Commitment and any
Credit Extension made by it, the Agent shall have the same rights and powers
hereunder as any Bank and may exercise the same as though it were not the Agent,
and the term "Bank" or "Banks" shall, unless the context otherwise indicates,
include Bank One in its individual capacity. The Agent may accept deposits from,
lend money to, and generally engage in any kind of banking or trust business
with the Company or any Subsidiary as if it were not the Agent.
13.10 Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the financial statements prepared by the Company and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also acknowledges that it will,
independently and without reliance upon the Agent or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement.
13.11 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Banks and the Company, and the Agent may be
removed at any time with or without cause by written notice received by the
Agent from the Majority Banks. Upon any such resignation or removal, the
Majority Banks shall have the right to appoint, on behalf of the Banks, a
successor Agent. If no successor Agent shall have been so appointed by the
Majority Banks and shall have accepted such appointment within thirty days after
the retiring Agent's giving notice of resignation, then the retiring Agent may
appoint, on behalf of the Banks, a successor Agent. Such successor Agent shall
be a commercial bank having capital and retained earnings of at least
$500,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article XIII shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent hereunder.
13.12 Agent and Arranger Fees. The Company agrees to pay to the
Agent and Banc One Capital Markets, Inc. (the "Arranger"), for their respective
accounts, the fees agreed to by the Company, the Agent and the Arranger pursuant
to that certain letter agreement dated March 27, 2003, or as otherwise agreed
from time to time.
ARTICLE XIV
NOTICES
14.1 Giving Notice. Except as otherwise permitted by Section 2.8
with respect to borrowing notices, all notices, requests and other
communications to any party hereunder shall be in writing (including electronic
transmission, facsimile transmission or similar writing) and shall be given to
such party: (x) in the case of the Company or the Agent or the LC Issuer, at its
address or facsimile number set forth on the signature pages hereof, (y) in the
case of any Bank, at its address or facsimile number set forth below its
signature hereto or (z) in the case of any party, at such other address or
facsimile number as such party may hereafter specify for the purpose by notice
to the Agent and the Company in accordance with the provisions of this Section
14.1. Each such notice, request or other communication shall be effective (i) if
given by facsimile transmission, when transmitted to the facsimile number
specified in this Section and confirmation of receipt is received, (ii) if given
by mail, 72 hours after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid, or (iii) if given by any other
means, when delivered (or, in the case of electronic transmission, received) at
the address specified in this Section; provided that notices to the Agent under
Article II shall not be effective until received.
14.2 Change of Address. The Company, the Agent and any Bank may
each change the address for service of notice upon it by a notice in writing to
the other parties hereto.
ARTICLE XV
TERMINATION OF PRIOR AGREEMENT
The Company and the Banks which are parties to the Prior Agreement
(which Banks constitute "Majority Banks" under Prior Agreement) agree that
notwithstanding any requirement for notice of termination of the Commitments
under Section 2.5(b) of the Prior Agreement), simultaneously with the initial
Credit Extension hereunder, the Prior Agreement shall terminate and be of no
further force or effect (except for any provision thereof which by its terms
survives termination thereof).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
ARTICLE XVI
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Company, the
Agent, the LC Issuer and the Banks and each party has notified the Agent by
facsimile or telephone that it has taken such action.
IN WITNESS WHEREOF, the Company, the Banks, the LC Issuer and the Agent
have executed this Agreement as of the date first above written.
CONSUMERS ENERGY COMPANY
By: /s/ Laura L. Mountcastle
--------------------------
Name: Laura L. Mountcastle
Title: Vice President
212 West Michigan Avenue
Jackson, MI 49201
Attention: ____________________
Facsimile No.: (___) ___-____
Confirmation (Phone) No: (___) ___-____
E-Mail Address: _________________
BANK ONE, NA (MAIN OFFICE -
CHICAGO), Individually and as Agent and as
LC Issuer
By: /s/ Jane A. Bek
--------------------------
Name: Jane A. Bek
Title: Director
ADDRESS:
Bank One Plaza
Chicago, Illinois 60670
Attention: Jane A. Bek
Facsimile No.: (312) 732-5435
Confirmation (Phone) No: (312) 732-3422
E-Mail Address: Jane_bek@bankone.com
BARCLAYS BANK PLC
By: /s/ Sydney G. Dennis
--------------------------
Name: Sydney G. Dennis
Title: Director
ADDRESS:
200 Park Avenue - 4th Floor
New York, New York 10166
Attention: Sydney G. Dennis
Facsimile No.: (212) 412-7511
Confirmation (Phone) No: (212) 412-2470
E-Mail Address: sydney.dennis@barcap.com
CITICORP NORTH AMERICA, INC.
Individually and as Co-Documentation Agent
By: /s/ Dale Goncher
--------------------------
Name: Dale Goncher
Title: Director
ADDRESS:
388 Greenwich St. 21st Floor
NY, NY 10013
Attention: Amit Vasani
Facsimile No.: (212) 816-8098
Confirmation (Phone) No: (212) 816-4166
E-Mail Address: amit.Vasani@citigroup.com
JP MORGAN CHASE BANK, Individually and
as Co-Documentation Agent
By: /s/ Thomas Casey
--------------------------
Name: Thomas Casey
Title: Vice President
ADDRESS: 270 Park Avenue, 4th floor
New York, New York 10016
Attention: Thomas Casey
Facsimile No.: (212) 270-3089
Phone No: (212) 270 - 5305
E-Mail Address: thomas.casey@jpmorgan.com
UNION BANK OF CALIFORNIA, N.A.,
Individually and as Co-Documentation Agent
By: /s/ Dennis G. Blank
--------------------------
Name: Dennis G. Blank
Title: Vice President
ADDRESS:
445 S. Flgueroa St.15th Floor
Los Angeles, CA 90071
Attention: Dennis Blank
Facsimile No.: (213) 236-4096
Confirmation (Phone) No: (213) 236-6564
E-Mail Address: dennis.blank@uboc.com
WACHOVIA BANK, NATIONAL
ASSOCIATION
By: /s/ D. Mitch Wilson
--------------------------
Name: D. Mitch Wilson
Title: Vice President
ADDRESS:
301 S. College St - 5th Floor
Charlotte, NC 28288-0251
Attention: D. Mitch Wilson
Facsimile No.: (704) 374-2570
Confirmation (Phone) No: (704) 383-5642
E-Mail Address: mitch.wilson@wachovia.com
STANDARD FEDERAL BANK N.A.
By: /s/ Richard C. Northrup, III
-------------------------------
Name: Richard C. Northrup, III
Title: First Vice President
ADDRESS: 201 South Main Street
Ann Arbor, Michigan 48104
Attention: Richard C. Northrup, III
Facsimile No.: 734-747-7637
Confirmation (Phone) No: 734-747-7626
E-Mail Address:
richard.northrup@abnamro.com
HUNTINGTON NATIONAL BANK
By: /s/ Gary Corsbie
--------------------------
Name: Gary Corsbie
Title: Vice President
ADDRESS: 10717 Adams Street MI051
Holland, MI 49423
Attention: Gary Corsbie
Facsimile No.: (616) - 355-8617
Confirmation (Phone) No: (616) -355-9081
E-Mail Address: gary.corsbie@huntington.com
COMERICA BANK
By: /s/ David C. Bird
--------------------------
Name: David C. Bird
Title: Vice President
ADDRESS: 500 Woodward Avenue MC 3268
Detroit, MI 48226
Attention: David C. Bird
Facsimile No.: (313) 222-9514
Confirmation (Phone) No: (313) 222-5060
E-Mail Address: David_c_Bird@comerica.com
THE FIFTH THIRD BANK
By: /s/ David A. Foote
--------------------------
Name: David A. Foote
Title: Vice President
ADDRESS:
111 Lyon St. Grand Rapids, MI 49503
Attention: David A. Foote
Facsimile No.: (616)653-5843
Confirmation (Phone) No: (616)653-5142
E-Mail Address: david.foote@53.com
EXHIBIT A
[FORM OF SUPPLEMENTAL INDENTURE]
EIGHTY-EIGHTH SUPPLEMENTAL INDENTURE
PROVIDING AMONG OTHER THINGS FOR
FIRST MORTGAGE BONDS,
2003 COLLATERAL SERIES (INTEREST BEARING)
and
2003 COLLATERAL SERIES (ZERO RATE)
--------------
DATED AS OF MARCH 27, 2003
--------------
CONSUMERS ENERGY COMPANY
TO
JPMORGAN CHASE BANK,
TRUSTEE
Counterpart ____ of 80
THIS EIGHTY-EIGHTH SUPPLEMENTAL INDENTURE, dated as of March 27, 2003
(herein sometimes referred to as "this Supplemental Indenture"), made and
entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized
and existing under the laws of the State of Michigan, with its principal
executive office and place of business at 212 West Michigan Avenue, in Jackson,
Jackson County, Michigan 49201, formerly known as Consumers Power Company
(hereinafter sometimes referred to as the "Company"), and JPMORGAN CHASE BANK, a
corporation organized and existing under the laws of the State of New York, with
its corporate trust offices at 4 New York Plaza, in the Borough of Manhattan,
The City of New York, New York 10004 (hereinafter sometimes referred to as the
"Trustee"), as Trustee under the Indenture dated as of September 1, 1945 between
Consumers Power Company, a Maine corporation (hereinafter sometimes referred to
as the "Maine corporation"), and City Bank Farmers Trust Company (Citibank,
N.A., successor, hereinafter sometimes referred to as the "Predecessor
Trustee"), securing bonds issued and to be issued as provided therein
(hereinafter sometimes referred to as the "Indenture"),
WHEREAS at the close of business on January 30, 1959, City Bank Farmers
Trust Company was converted into a national banking association under the title
"First National City Trust Company"; and
WHEREAS at the close of business on January 15, 1963, First National
City Trust Company was merged into First National City Bank; and
WHEREAS at the close of business on October 31, 1968, First National
City Bank was merged into The City Bank of New York, National Association, the
name of which was thereupon changed to First National City Bank; and
WHEREAS effective March 1, 1976, the name of First National City Bank
was changed to Citibank, N.A.; and
WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company
succeeded Citibank, N.A. as Trustee under the Indenture; and
WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to
Manufacturers Hanover Trust Company as Trustee under the Indenture; and
WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National
Association), merged with and into Chemical Bank which thereafter was renamed
The Chase Manhattan Bank; and
WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged
with Morgan Guaranty Trust Company of New York and the surviving corporation was
renamed JPMorgan Chase Bank; and
WHEREAS the Indenture was executed and delivered for the purpose of
securing such bonds as may from time to time be issued under and in accordance
with the terms of the Indenture, the aggregate principal amount of bonds to be
secured thereby being limited to $5,000,000,000 at any one time outstanding
(except as provided in Section 2.01 of the Indenture), and the Indenture
describes and sets forth the property conveyed thereby and is filed
in the Office of the Secretary of State of the State of Michigan and is of
record in the Office of the Register of Deeds of each county in the State of
Michigan in which this Supplemental Indenture is to be recorded; and
WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of the
Secretary of State of the State of Michigan and is of record in the Office of
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and
WHEREAS the Company and the Maine corporation entered into an Agreement
of Merger and Consolidation, dated as of February 14, 1968, which provided for
the Maine corporation to merge into the Company; and
WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was merged
into the Company and the name of the Company was changed from "Consumers Power
Company of Michigan" to "Consumers Power Company"; and
WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided,
among other things, for the assumption of the Indenture by the Company; and
WHEREAS said Sixteenth Supplemental Indenture became effective on the
effective date of such Agreement of Merger and Consolidation; and
WHEREAS the Company has succeeded to and has been substituted for the
Maine corporation under the Indenture with the same effect as if it had been
named therein as the mortgagor corporation; and
WHEREAS effective March 11, 1997, the name of Consumers Power Company
was changed to Consumers Energy Company; and
WHEREAS, the Company has entered into a Credit Agreement dated as of
March 27, 2003 (as amended or otherwise modified from time to time, the "Credit
Agreement") with various financial institutions and Bank One, NA, as
administrative agent (in such capacity, the "Agent") for the Banks (as such term
is defined in the Credit Agreement), providing for the making of certain
financial accommodations thereunder, and pursuant to such Credit Agreement the
Company has agreed to issue to the Agent, as evidence of and security for the
Obligations (as such term is defined in the Credit Agreement), two (2) new
series of bonds under the Indenture; and
WHEREAS, for such purposes the Company desires to issue: (i) a new
series of bonds, to be designated First Mortgage Bonds, 2003 Collateral Series
(Interest Bearing), each of which bonds shall also bear the descriptive title
"First Mortgage Bond" (hereinafter provided for and hereinafter sometimes
referred to as the "2003 Interest Bearing Collateral Bonds"), the bonds of which
series are to be issued as registered bonds without coupons and are to bear
interest at the rate per annum specified herein and are to mature on the
Termination Date (as such term is defined in the Credit Agreement); and (ii) a
new series of bonds, to be designated First Mortgage
-2-
Bonds, 2003 Collateral Series (Zero Rate), each of which bonds shall also bear
the descriptive title "First Mortgage Bond" (hereinafter provided for and
hereinafter sometimes referred to as the "2003 Zero Rate Collateral Bonds"), the
bonds of which series are to be issued as registered bonds without coupons and
are to mature on the Termination Date (as such term is defined in the Credit
Agreement); and
WHEREAS, each of the registered bonds without coupons of the 2003
Interest Bearing Collateral Bonds and the Trustee's Authentication Certificate
thereon and the 2003 Zero Rate Collateral Bonds and the Trustee's Authentication
Certificate thereon are to be substantially in the following forms, to wit:
-3-
[FORM OF REGISTERED BOND
OF THE 2003 INTEREST BEARING COLLATERAL BONDS]
[FACE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
2003 COLLATERAL SERIES (INTEREST BEARING)
No. 1 $37,500,000
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Bank One, NA, as
agent (in such capacity, the "Agent") for the Banks under and as defined in the
Credit Agreement dated as of March 27, 2003 among the Company, the Banks and the
Agent (as amended or otherwise modified from time to time, the "Credit
Agreement"), or registered assigns, the principal sum of Thirty-Seven Million
Five Hundred Thousand Dollars ($37,500,000) or such lesser principal amount as
shall be equal to the IB Percentage (as defined below) of the aggregate
principal amount of the Loans (as defined in the Credit Agreement) and
Reimbursement Obligations (as defined in the Credit Agreement) included in the
Obligations (as defined in the Credit Agreement) outstanding on the Termination
Date (as defined in the Credit Agreement) (the "Maturity Date"), but not in
excess, however, of the principal amount of this bond, and to pay interest
thereon at the Interest Rate (as defined below) until the principal hereof is
paid or duly made available for payment on the Maturity Date, or, in the event
of redemption of this bond, until the redemption date, or, in the event of
default in the payment of the principal hereof, until the Company's obligations
with respect to the payment of such principal shall be discharged as provided in
the Indenture (as defined on the reverse hereof). Interest on this bond shall be
payable on each Interest Payment Date (as defined below), commencing on the
first Interest Payment Date next succeeding March 27, 2003. If the Maturity Date
falls on a day which is not a Business Day, as defined below, principal and any
interest and/or fees payable with respect to the Maturity Date will be paid on
the immediately preceding Business Day. The interest payable, and punctually
paid or duly provided for, on any Interest Payment Date will, subject to certain
exceptions, be paid to the person in whose name this bond (or one or more
predecessor bonds) is registered at the close of business on the Record Date (as
defined below); provided, however, that interest payable on the Maturity Date
will be payable to the person to whom the principal hereof shall be payable.
Should the Company default in the payment of interest ("Defaulted Interest"),
the Defaulted Interest shall be paid to the person in whose name this bond (or
one or more predecessor bonds) is registered on a subsequent record date fixed
by the Company, which subsequent record date shall be fifteen (15) days prior to
the payment of such Defaulted Interest. As used herein, (A) "Business Day" shall
mean any day, other than a Saturday or Sunday, on which banks generally are open
in Chicago, Illinois and New York, New York for the conduct of substantially all
of their commercial lending activities and on which interbank wire transfers can
be made on the Fedwire system; (B) "IB Percentage" means the
-4-
difference between 100% and the ZR Percentage (as defined below); (C) "Interest
Payment Date" shall mean each date on which Obligations constituting interest
and/or fees are due and payable from time to time pursuant to the Credit
Agreement; (D) "Interest Rate" shall mean a rate of interest per annum, adjusted
as necessary, to result in an interest payment equal to the aggregate amount of
Obligations constituting interest and fees due under the Credit Agreement on the
applicable Interest Payment Date; (E) "Record Date" with respect to any Interest
Payment Date shall mean the day (whether or not a Business Day) immediately next
preceding such Interest Payment Date; and (F) "ZR Percentage" means the
percentage (rounded, if necessary, to the nearest or, if there is no nearest,
the next higher 1/10 of 1%) which (x) the Discounted Amount (as defined in the
Credit Agreement) of the outstanding Zero Rate Bonds (as defined in the Credit
Agreement) is of (y) the sum of the Discounted Amount of the outstanding Zero
Rate Bonds and the Face Amount (as defined in the Credit Agreement) of the
outstanding First Mortgage Bonds, 2003 Collateral Series (Interest Bearing).
Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City Jackson, Michigan, in such coin or currency of the
United States of America as at the time payment is legal tender for payment of
public and private debts.
The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.
This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.
-5-
IN WITNESS WHEREOF, Consumers Energy Company has caused this
bond to be executed in its name by its Chairman of the Board, its President or
one of its Vice Presidents by his or her signature or a facsimile thereof, and
its corporate seal or a facsimile thereof to be affixed hereto or imprinted
hereon and attested by its Secretary or one of its Assistant Secretaries by his
or her signature or a facsimile thereof.
CONSUMERS ENERGY COMPANY
Dated:
By________________________
Printed___________________
Title_____________________
Attest: _________________________
TRUSTEE'S AUTHENTICATION CERTIFICATE
This is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.
JPMORGAN CHASE BANK, Trustee
By_________________________________
Authorized Officer
-6-
[REVERSE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
2003 COLLATERAL SERIES (INTEREST BEARING)
This bond is one of the bonds of a series designated as First Mortgage
Bonds, 2003 Collateral Series (Interest Bearing) (sometimes herein referred to
as the "2003 Interest Bearing Collateral Bonds") issued under and in accordance
with and secured by an Indenture dated as of September 1, 1945, given by the
Company (or its predecessor, Consumers Power Company, a Maine corporation) to
City Bank Farmers Trust Company (JPMorgan Chase Bank, successor) (hereinafter
sometimes referred to as the "Trustee"), together with indentures supplemental
thereto, heretofore or hereafter executed, to which indenture and indentures
supplemental thereto (hereinafter referred to collectively as the "Indenture")
reference is hereby made for a description of the property mortgaged and
pledged, the nature and extent of the security and the rights, duties and
immunities thereunder of the Trustee and the rights of the holders of said bonds
and of the Trustee and of the Company in respect of such security, and the
limitations on such rights. By the terms of the Indenture, the bonds to be
secured thereby are issuable in series which may vary as to date, amount, date
of maturity, rate of interest and in other respects as provided in the
Indenture.
The 2003 Interest Bearing Collateral Bonds are to be issued and
delivered to the Agent in order to evidence and secure the obligation of the
Company under the Credit Agreement to make payments to the Banks under the
Credit Agreement and to provide the Banks the benefit of the lien of the
Indenture with respect to the 2003 Interest Bearing Collateral Bonds.
The obligation of the Company to make payments with respect to the
principal of 2003 Interest Bearing Collateral Bonds shall be fully or partially,
as the case may be, satisfied and discharged to the extent that, at the time
that any such payment shall be due, the then due principal of the IB Percentage
of the Loans and/or IB Percentage of the Reimbursement Obligations included in
the IB Percentage of the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the IB Percentage of the Loans and/or the IB Percentage of the Reimbursement
Obligations means that if any payment is made on the principal of the IB
Percentage of the Loans and/or the IB Percentage of the Reimbursement
Obligations, a corresponding payment obligation with respect to the principal of
the 2003 Interest Bearing Collateral Bonds shall be deemed discharged in the
same amount as the payment with respect to the IB Percentage of the Loans and/or
the IB Percentage of the Reimbursement Obligations discharges the outstanding
obligation with respect to such IB Percentage of the Loans and/or IB Percentage
of the Reimbursement Obligations. No such payment of principal shall reduce the
principal amount of the 2003 Interest Bearing Collateral Bonds.
The obligation of the Company to make payments with respect to the
interest on 2003 Interest Bearing Collateral Bonds shall be fully or partially,
as the case may be, satisfied and discharged to the extent that, at the time
that any such payment shall be due, the IB Percentage of the then due interest
and/or fees under the Credit Agreement shall have been fully or partially
-7-
paid. Satisfaction of any obligation to the extent that payment is made with
respect to the IB Percentage of the interest and/or fees under the Credit
Agreement means that if any payment is made on the interest and/or fees under
the Credit Agreement, a corresponding payment obligation with respect to the
interest on the 2003 Interest Bearing Collateral Bonds shall be deemed
discharged in the same amount as the payment with respect to the IB Percentage
of the Loans and/or the IB Percentage of the Reimbursement Obligations
discharges the outstanding obligation with respect to such IB Percentage of the
Loans and/or IB Percentage of the Reimbursement Obligations.
The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on this bond, so far as such payments at the time have become due, has
been fully satisfied and discharged unless and until the Trustee shall have
received a written notice from the Agent stating (i) that timely payment of
principal and interest on the 2003 Interest Bearing Collateral Bonds has not
been made, (ii) that the Company is in arrears as to the payments required to be
made by it to the Agent in connection with the Obligations pursuant to the
Credit Agreement, and (iii) the IB Percentage of the amount of the arrearage.
If an Event of Default (as defined in the Credit Agreement) with
respect to the payment of the principal of the Loans and/or the Reimbursement
Obligations shall have occurred, it shall be deemed to be a default for purposes
of Section 11.01 of the Indenture in the payment of the principal of the 2003
Interest Bearing Collateral Bonds equal to the IB Percentage of the amount of
such unpaid principal or Reimbursement Obligations (but in no event in excess of
the principal amount of the 2003 Interest Bearing Collateral Bonds). If an Event
of Default (as defined in the Credit Agreement) with respect to the payment of
interest on the Loans and/or the Reimbursement Obligations or any fees shall
have occurred, it shall be deemed to be a default for purposes of Section 11.01
of the Indenture in the payment of the interest on the 2003 Interest Bearing
Collateral Bonds equal to the IB Percentage of the amount of such unpaid
interest or fees.
This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Credit Agreement and
the acceleration of the Obligations, as provided in Section 9.2 of the Credit
Agreement. This bond is not redeemable by the operation of the improvement fund
or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.
In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less
-8-
than sixty per centum in principal amount of each series affected, to effect, by
an indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the Indenture, or (c) reduce
the percentage of the principal amount of the bonds the holders of which are
required to approve any such supplemental indenture.
The Company reserves the right, without any consent, vote or other
action by holders of the 2003 Interest Bearing Collateral Bonds or any other
series created after the Sixty-eighth Supplemental Indenture, to amend the
Indenture to reduce the percentage of the principal amount of bonds the holders
of which are required to approve any supplemental indenture (other than any
supplemental indenture which is subject to the proviso contained in the
immediately preceding sentence) (a) from not less than seventy-five per centum
(including sixty per centum of each series affected) to not less than a majority
in principal amount of the bonds at the time outstanding or (b) in case fewer
than all series are affected, not less than a majority in principal amount of
the bonds of all affected series, voting together.
No recourse shall be had for the payment of the principal of or
interest on this bond, or for any claim based hereon, or otherwise in respect
hereof or of the Indenture, to or against any incorporator, stockholder,
director or officer, past, present or future, as such, of the Company, or of any
predecessor or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and owner hereof by
the acceptance of this bond and being likewise waived and released by the terms
of the Indenture.
This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.
The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Loans and Reimbursement Obligations arising
under the Credit Agreement, and all of the fees payable pursuant to the Credit
Agreement with respect to the Obligations shall have been duly paid, and the
Credit Agreement shall have been terminated.
[END OF FORM OF REGISTERED BOND
OF THE 2003 INTEREST BEARING COLLATERAL BONDS]
-9-
[FORM OF REGISTERED BOND
OF THE 2003 ZERO RATE COLLATERAL BONDS]
[FACE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
2003 COLLATERAL SERIES (ZERO RATE)
No. 1 $227,500,000
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Bank One, NA, as
agent (in such capacity, the "Agent") for the Banks under and as defined in the
Credit Agreement dated as of March 27, 2003 among the Company, the Banks and the
Agent (as amended or otherwise modified from time to time, the "Credit
Agreement"), or registered assigns, the principal sum of Two Hundred
Twenty-Seven Million Five Hundred Thousand Dollars ($227,500,000) or such lesser
principal amount as shall be equal to the ZR Percentage (as defined below) of
the aggregate Obligations (as defined in the Credit Agreement) consisting of (x)
the principal amount of the Loans (as defined in the Credit Agreement), (y) the
Reimbursement Obligations (as defined in the Credit Agreement) and (z) unpaid
interest and fees under the Credit Agreement. Such amount shall be payable on or
before the Termination Date (as defined in the Credit Agreement) (the "Maturity
Date"). Any payment of interest and/or fees under the Credit Agreement shall be
considered a reduction of the principal amount hereof in an amount equal to the
ZR Percentage of such interest and/or fees and shall reduce the principal amount
hereof by such amount. If the Maturity Date falls on a day which is not a
Business Day, as defined below, all amounts payable on the Maturity Date will be
paid on the immediately preceding Business Day. As used herein, (A) "Business
Day" shall mean any day, other than a Saturday or Sunday, on which banks
generally are open in Chicago, Illinois and New York, New York for the conduct
of substantially all of their commercial lending activities and on which
interbank wire transfers can be made on the Fedwire system; (B) "ZR Percentage"
means the percentage (rounded, if necessary, to the nearest or, if there is no
nearest, the next higher 1/10 of 1%) which (x) the Discounted Amount (as defined
in the Credit Agreement) of the outstanding First Mortgage Bonds, 2003
Collateral Series (Zero Rate) is of (y) the sum of the Discounted Amount of the
outstanding First Mortgage Bonds, 2003 Collateral Series (Zero Rate) and the
Face Amount (as defined in the Credit Agreement) of the outstanding First
Mortgage Bonds, 2003 Collateral Series (Interest Bearing).
Payment of the principal of this bond will be made in immediately
available funds at the office or agency of the Company maintained for that
purpose in the City of Jackson, Michigan, in such coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts. In the event the Company shall fail to pay the
principal amount of this bond at maturity, whether by acceleration or otherwise,
such principal amount
-10-
shall bear interest until paid in full at a rate per annum equal to the Floating
Rate (as defined in the Credit Agreement) plus 1%.
The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.
This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.
IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to be
executed in its name by its Chairman of the Board, its President or one of its
Vice Presidents by his or her signature or a facsimile thereof, and its
corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon
and attested by its Secretary or one of its Assistant Secretaries by his or her
signature or a facsimile thereof.
CONSUMERS ENERGY COMPANY
Dated:
By_____________________________
Printed________________________
Title__________________________
Attest: _________________________
TRUSTEE'S AUTHENTICATION CERTIFICATE
This is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.
JPMORGAN CHASE BANK, Trustee
By_________________________________
Authorized Officer
-11-
[REVERSE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
2003 COLLATERAL SERIES (ZERO RATE)
This bond is one of the bonds of a series designated as First Mortgage
Bonds, 2003 Collateral Series (Zero Rate) (sometimes herein referred to as the
"2003 Zero Rate Collateral Bonds") issued under and in accordance with and
secured by an Indenture dated as of September 1, 1945, given by the Company (or
its predecessor, Consumers Power Company, a Maine corporation) to City Bank
Farmers Trust Company (JPMorgan Chase Bank, successor) (hereinafter sometimes
referred to as the "Trustee"), together with indentures supplemental thereto,
heretofore or hereafter executed, to which indenture and indentures supplemental
thereto (hereinafter referred to collectively as the "Indenture") reference is
hereby made for a description of the property mortgaged and pledged, the nature
and extent of the security and the rights, duties and immunities thereunder of
the Trustee and the rights of the holders of said bonds and of the Trustee and
of the Company in respect of such security, and the limitations on such rights.
By the terms of the Indenture, the bonds to be secured thereby are issuable in
series which may vary as to date, amount, date of maturity, rate of interest and
in other respects as provided in the Indenture.
The 2003 Zero Rate Collateral Bonds are to be issued and delivered to
the Agent in order to evidence and secure the obligation of the Company under
the Credit Agreement to make payments to the Banks and to provide the Banks the
benefit of the lien of the Indenture with respect to the 2003 Zero Rate
Collateral Bonds.
The obligation of the Company to make payments with respect to the
principal of 2003 Zero Rate Collateral Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the ZR Percentage of the
Loans and/or the ZR Percentage of the Reimbursement Obligations, and the
then-due ZR Percentage of payment obligations with respect to interest and/or
fees under the Credit Agreement, shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the ZR Percentage of the Loans, the ZR Percentage of the Reimbursement
Obligations, or the ZR Percentage of interest and/or fees under the Credit
Agreement means that if any payment is made on the principal of the ZR
Percentage of the Loans and/or the ZR Percentage of the Reimbursement
Obligations, or if any payment is made on the ZR Percentage of the interest
and/or fees under the Credit Agreement, a corresponding payment obligation with
respect to the principal of the 2003 Zero Rate Collateral Bonds shall be deemed
discharged in the same amount as the payment with respect to the ZR Percentage
of the Loans, the ZR Percentage of the Reimbursement Obligations, or the ZR
Percentage of the interest and/or fees discharges the outstanding obligation
with respect to such ZR Percentage of the Loans, ZR Percentage of the
Reimbursement Obligations, or the ZR Percentage of the interest and/or fees. No
payment of principal of the 2003 Zero Rate Collateral Bonds attributable to any
payment of the principal of Loans or Reimbursement Obligations shall reduce the
principal amount of the 2003 Zero Rate Collateral Bonds, but any payment of
-12-
principal of the 2003 Zero Rate Collateral Bonds attributable to any payment of
interest or fees under the Credit Agreement shall reduce the principal of the
2003 Zero Rate Collateral Bonds.
The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of this
bond, so far as such payments at the time have become due, has been fully
satisfied and discharged unless and until the Trustee shall have received a
written notice from the Agent stating (i) that timely payment of principal on
the 2003 Zero Rate Collateral Bonds has not been made, (ii) that the Company is
in arrears as to the payments required to be made by it to the Agent in
connection with the Obligations pursuant to the Credit Agreement, and (iii) the
ZR Percentage of the amount of the arrearage.
If an Event of Default (as defined in the Credit Agreement) with
respect to the payment of the principal of the Loans and/or the Reimbursement
Obligations and/or any interest or fees shall have occurred, it shall be deemed
to be a default for purposes of Section 11.01 of the Indenture in the payment of
the principal of the 2003 Zero Rate Collateral Bonds equal to the ZR Percentage
of the amount of such unpaid principal, Reimbursement Obligations, interest
and/or fees (but in no event in excess of the principal amount of the 2003 Zero
Rate Collateral Bonds).
This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Credit Agreement and
the acceleration of the Obligations, as provided in Section 9.2 of the Credit
Agreement. This bond is not redeemable by the operation of the improvement fund
or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.
In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the
amount of the principal hereof, or (b) permit the creation of any lien, not
otherwise permitted, prior to or on a parity with the lien of the Indenture, or
(c) reduce the percentage of the principal amount of the bonds the holders of
which are required to approve any such supplemental indenture.
The Company reserves the right, without any consent, vote or other
action by holders of the 2003 Zero Rate Collateral Bonds or any other series
created after the Sixty-eighth Supplemental Indenture, to amend the Indenture to
reduce the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than
-13-
any supplemental indenture which is subject to the proviso contained in the
immediately preceding sentence) (a) from not less than seventy-five per centum
(including sixty per centum of each series affected) to not less than a majority
in principal amount of the bonds at the time outstanding or (b) in case fewer
than all series are affected, not less than a majority in principal amount of
the bonds of all affected series, voting together.
No recourse shall be had for the payment of the principal on this bond,
or for any claim based hereon, or otherwise in respect hereof or of the
Indenture, to or against any incorporator, stockholder, director or officer,
past, present or future, as such, of the Company, or of any predecessor or
successor company, either directly or through the Company, or such predecessor
or successor company, or otherwise, under any constitution or statute or rule of
law, or by the enforcement of any assessment or penalty, or otherwise, all such
liability of incorporators, stockholders, directors and officers, as such, being
waived and released by the holder and owner hereof by the acceptance of this
bond and being likewise waived and released by the terms of the Indenture.
This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.
The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Loans and Reimbursement Obligations arising
under the Credit Agreement, and all of the fees payable pursuant to the Credit
Agreement with respect to the Obligations shall have been duly paid, and the
Credit Agreement shall have been terminated.
[END OF FORM OF REGISTERED BOND
OF THE 2003 ZERO RATE COLLATERAL BONDS]
-14-
AND WHEREAS all acts and things necessary to make the 2003 Interest
Bearing Collateral Bonds and the 2003 Zero Rate Collateral Bonds (collectively
referred to herein as, the "Collateral Bonds"), when duly executed by the
Company and authenticated by the Trustee or its agent and issued as prescribed
in the Indenture, as heretofore supplemented and amended, and this Supplemental
Indenture provided, the valid, binding and legal obligations of the Company, and
to constitute the Indenture, as supplemented and amended as aforesaid, as well
as by this Supplemental Indenture, a valid, binding and legal instrument for the
security thereof, have been done and performed, and the creation, execution and
delivery of this Supplemental Indenture and the creation, execution and issuance
of bonds subject to the terms hereof and of the Indenture, as so supplemented
and amended, have in all respects been duly authorized;
NOW, THEREFORE, in consideration of the premises, of the acceptance and
purchase by the holders thereof of the bonds issued and to be issued under the
Indenture, as supplemented and amended as above set forth, and of the sum of One
Dollar duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$37,500,000 principal amount of the 2003 Interest Bearing Collateral Bonds and
the $227,500,000 principal amount of the 2003 Zero Rate Collateral Bonds and all
other bonds which shall be issued under the Indenture, as supplemented and
amended from time to time, and for the purpose of securing the faithful
performance and observance of all covenants and conditions therein, and in any
indenture supplemental thereto, set forth, the Company has given, granted,
bargained, sold, released, transferred, assigned, hypothecated, pledged,
mortgaged, confirmed, set over, warranted, alienated and conveyed and by these
presents does give, grant, bargain, sell, release, transfer, assign,
hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto
JPMorgan Chase Bank, as Trustee, as provided in the Indenture, and its successor
or successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and to all
the property, described in Section 11 hereof, together (subject to the
provisions of Article X of the Indenture) with the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, excepting, however, the
property, interests and rights specifically excepted from the lien of the
Indenture as set forth in the Indenture.
TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises, property,
franchises and rights, or any thereof, referred to in the foregoing granting
clause, with the reversion and reversions, remainder and remainders and (subject
to the provisions of Article X of the Indenture) the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, and all the estate,
right, title and interest and claim whatsoever, at law as well as in equity,
which the Company now has or may hereafter acquire in and to the aforesaid
premises, property, franchises and rights and every part and parcel thereof.
SUBJECT, HOWEVER, with respect to such premises, property, franchises
and rights, to excepted encumbrances as said term is defined in Section 1.02 of
the Indenture, and subject also to all defects and limitations of title and to
all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all
said premises, property, franchises and rights hereby conveyed,
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assigned, pledged or mortgaged, or intended so to be, unto the Trustee, its
successor or successors in trust and their assigns forever;
BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or hereafter
authenticated and delivered under and secured by the Indenture and interest
coupons appurtenant thereto, pursuant to the provisions of the Indenture and of
any supplemental indenture, and for the enforcement of the payment of said bonds
and coupons when payable and the performance of and compliance with the
covenants and conditions of the Indenture and of any supplemental indenture,
without any preference, distinction or priority as to lien or otherwise of any
bond or bonds over others by reason of the difference in time of the actual
authentication, delivery, issue, sale or negotiation thereof or for any other
reason whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and premium,
if any, and interest on every such bond shall, subject to the terms thereof, be
equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the execution
and delivery thereof.
AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as supplemented
and amended as above set forth, are to be issued, authenticated and delivered,
and all said premises, property, franchises and rights hereby and by the
Indenture and indentures supplemental thereto conveyed, assigned, pledged or
mortgaged, or intended so to be, are to be dealt with and disposed of under,
upon and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes expressed in the Indenture, as supplemented and
amended as above set forth, and the parties hereto mutually agree as follows:
SECTION 1. There is hereby created two (2) series of bonds (the "2003
Interest Bearing Collateral Bonds" and the "2003 Zero Rate Collateral Bonds")
designated as hereinabove provided, both of which shall also bear the
descriptive title "First Mortgage Bond", and the forms thereof shall be
substantially as hereinbefore set forth (collectively, the "Sample Bonds"). The
2003 Interest Bearing Collateral Bonds shall be issued in the aggregate
principal amount of $37,500,000, shall mature on the Termination Date (as such
term is defined in the Credit Agreement) and shall be issued only as registered
bonds without coupons in denominations of $1,000 and any multiple thereof. The
2003 Zero Rate Collateral Bonds shall be issued in the aggregate principal
amount of $227,500,000, shall mature on the Termination Date (as such term is
defined in the Credit Agreement) and shall be issued only as registered bonds
without coupons in denominations of $1,000 and any multiple thereof. The serial
numbers of the Collateral Bonds shall be such as may be approved by any officer
of the Company, the execution thereof by any such officer either manually or by
facsimile signature to be conclusive evidence of such approval. The Collateral
Bonds are to be issued to and registered in the name of the Agent under the
Credit Agreement (as such terms are defined in the Sample Bonds) to evidence and
secure any and all Obligations (as such term is defined in the Credit Agreement)
of the Company under the Credit Agreement.
The 2003 Interest Bearing Collateral Bonds shall bear interest as set
forth in the Form of Registered Bond of the 2003 Interest Bearing Collateral
Bonds hereinbefore set forth (the
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"Interest Bearing Sample Bond"). The principal of and the interest on said bonds
shall be payable as set forth in the Interest Bearing Sample Bond. The principal
of the 2003 Zero Rate Collateral Bonds shall be payable as set forth in the Form
of Registered Bond of the 2003 Zero Rate Collateral Bonds hereinbefore set forth
(the "Zero Rate Sample Bond"). All payments of interest with respect to the
Obligations shall be applied to the Collateral Bonds according to the IB
Percentage (in the case of the 2003 Interest Bearing Collateral Bonds) or the ZR
Percentage (in the case of the 2003 Zero Rate Collateral Bonds), as applicable.
"IB Percentage" and "ZR Percentage" shall have the meanings assigned to such
terms in the Interest Bearing Sample Bond and the Zero Rate Sample Bond,
respectively.
The obligation of the Company to make payments with respect to the
principal of 2003 Interest Bearing Collateral Bonds shall be fully or partially,
as the case may be, satisfied and discharged to the extent that, at the time
that any such payment shall be due, the then due principal of the IB Percentage
of the Loans and/or IB Percentage of the Reimbursement Obligations included in
the IB Percentage of the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the IB Percentage of the Loans and/or the IB Percentage of the Reimbursement
Obligations means that if any payment is made on the principal of the IB
Percentage of the Loans and/or the IB Percentage of the Reimbursement
Obligations, a corresponding payment obligation with respect to the principal of
the 2003 Interest Bearing Collateral Bonds shall be deemed discharged in the
same amount as the payment with respect to the IB Percentage of the Loans and/or
the IB Percentage of the Reimbursement Obligations discharges the outstanding
obligation with respect to such IB Percentage of the Loans and/or IB Percentage
of the Reimbursement Obligations. No such payment of principal shall reduce the
principal amount of the 2003 Interest Bearing Collateral Bonds.
The obligation of the Company to make payments with respect to the
interest on 2003 Interest Bearing Collateral Bonds shall be fully or partially,
as the case may be, satisfied and discharged to the extent that, at the time
that any such payment shall be due, the IB Percentage of the then due interest
and/or fees under the Credit Agreement shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the IB Percentage of the interest and/or fees under the Credit Agreement
means that if any payment is made on the interest and/or fees under the Credit
Agreement, a corresponding payment obligation with respect to the interest on
the 2003 Interest Bearing Collateral Bonds shall be deemed discharged in the
same amount as the payment with respect to the IB Percentage of the Loans and/or
the IB Percentage of the Reimbursement Obligations discharges the outstanding
obligation with respect to such IB Percentage of the Loans and/or IB Percentage
of the Reimbursement Obligations.
The obligation of the Company to make payments with respect to the
principal of 2003 Zero Rate Collateral Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the ZR Percentage of the
Loans and/or the ZR Percentage of the Reimbursement Obligations, and the
then-due ZR Percentage of payment obligations with respect to interest and/or
fees under the Credit Agreement, shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the ZR Percentage of the Loans, the ZR Percentage of the Reimbursement
Obligations, or the ZR Percentage of interest and/or
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fees under the Credit Agreement means that if any payment is made on the
principal of the ZR Percentage of the Loans and/or the ZR Percentage of the
Reimbursement Obligations, or if any payment is made on the ZR Percentage of the
interest and/or fees under the Credit Agreement, a corresponding payment
obligation with respect to the principal of the 2003 Zero Rate Collateral Bonds
shall be deemed discharged in the same amount as the payment with respect to the
ZR Percentage of the Loans, the ZR Percentage of the Reimbursement Obligations,
or the ZR Percentage of the interest and/or fees discharges the outstanding
obligation with respect to such ZR Percentage of the Loans, ZR Percentage of the
Reimbursement Obligations, or the ZR Percentage of the interest and/or fees. No
payment of principal of the 2003 Zero Rate Collateral Bonds attributable to any
payment of the principal of Loans or Reimbursement Obligations shall reduce the
principal amount of the 2003 Zero Rate Collateral Bonds, but any payment of
principal of the 2003 Zero Rate Collateral Bonds attributable to any payment of
interest or fees under the Credit Agreement shall be applied to reduce the
principal of the 2003 Zero Rate Collateral Bonds.
The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on the Collateral Bonds, so far as such payments at the time have
become due, has been fully satisfied and discharged unless and until the Trustee
shall have received a written notice from the Agent stating (i) that timely
payment of principal and interest on the 2003 Interest Bearing Collateral Bonds
has not been made or that timely payment of principal on the 2003 Zero Rate
Collateral Bonds has not been made, (ii) that the Company is in arrears as to
the payments required to be made by it to the Agent pursuant to the Credit
Agreement, and (iii) the amount of the arrearage.
The Collateral Bonds shall be exchangeable for other registered bonds
of the same series, in the manner and upon the conditions prescribed in the
Indenture, upon the surrender of such bonds at the Investor Services Department
of the Company, as transfer agent. However, notwithstanding the provisions of
Section 2.05 of the Indenture, no charge shall be made upon any registration of
transfer or exchange of bonds of said series other than for any tax or taxes or
other governmental charge required to be paid by the Company.
SECTION 2. The Collateral Bonds are not redeemable by the operation of
the maintenance and replacement provisions of this Indenture or with the
proceeds of released property.
SECTION 3. Upon the occurrence of an Event of Default under the Credit
Agreement and the acceleration of the Obligations, the Collateral Bonds shall be
redeemable in whole upon receipt by the Trustee of a written demand from the
Agent stating that there has occurred under the Credit Agreement both an Event
of Default and a declaration of acceleration of the Obligations and demanding
redemption of the Collateral Bonds (including a description of the amount of
principal, interest and fees which comprise such Obligations). The Company
waives any right it may have to prior notice of such redemption under the
Indenture. Upon surrender of the Collateral Bonds by the Agent to the Trustee,
the Collateral Bonds shall be redeemed at a redemption price equal to the
aggregate amount of the Obligations.
SECTION 4. The Company reserves the right, without any consent, vote or
other action by the holder of the Collateral Bonds or of any subsequent series
of bonds issued under the
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Indenture, to make such amendments to the Indenture, as supplemented, as shall
be necessary in order to amend Section 17.02 to read as follows:
SECTION 17.02. With the consent of the holders of not less
than a majority in principal amount of the bonds at the time
outstanding or their attorneys-in-fact duly authorized, or, if fewer
than all series are affected, not less than a majority in principal
amount of the bonds at the time outstanding of each series the rights
of the holders of which are affected, voting together, the Company,
when authorized by a resolution, and the Trustee may from time to time
and at any time enter into an indenture or indentures supplemental
hereto for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Indenture or of any
supplemental indenture or modifying the rights and obligations of the
Company and the rights of the holders of any of the bonds and coupons;
provided, however, that no such supplemental indenture shall (1) extend
the maturity of any of the bonds or reduce the rate or extend the time
of payment of interest thereon, or reduce the amount of the principal
thereof, or reduce any premium payable on the redemption thereof,
without the consent of the holder of each bond so affected, or (2)
permit the creation of any lien, not otherwise permitted, prior to or
on a parity with the lien of this Indenture, without the consent of the
holders of all the bonds then outstanding, or (3) reduce the aforesaid
percentage of the principal amount of bonds the holders of which are
required to approve any such supplemental indenture, without the
consent of the holders of all the bonds then outstanding. For the
purposes of this Section, bonds shall be deemed to be affected by a
supplemental indenture if such supplemental indenture adversely affects
or diminishes the rights of holders thereof against the Company or
against its property. The Trustee may in its discretion determine
whether or not, in accordance with the foregoing, bonds of any
particular series would be affected by any supplemental indenture and
any such determination shall be conclusive upon the holders of bonds of
such series and all other series. Subject to the provisions of Sections
16.02 and 16.03 hereof, the Trustee shall not be liable for any
determination made in good faith in connection herewith.
Upon the written request of the Company, accompanied by a
resolution authorizing the execution of any such supplemental
indenture, and upon the filing with the Trustee of evidence of the
consent of bondholders as aforesaid (the instrument or instruments
evidencing such consent to be dated within one year of such request),
the Trustee shall join with the Company in the execution of such
supplemental indenture unless such supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion but shall
not be obligated to enter into such supplemental indenture.
It shall not be necessary for the consent of the bondholders
under this Section to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent
shall approve the substance thereof.
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The Company and the Trustee, if they so elect, and either
before or after such consent has been obtained, may require the holder
of any bond consenting to the execution of any such supplemental
indenture to submit his bond to the Trustee or to ask such bank, banker
or trust company as may be designated by the Trustee for the purpose,
for the notation thereon of the fact that the holder of such bond has
consented to the execution of such supplemental indenture, and in such
case such notation, in form satisfactory to the Trustee, shall be made
upon all bonds so submitted, and such bonds bearing such notation shall
forthwith be returned to the persons entitled thereto.
Prior to the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the
Company shall publish a notice, setting forth in general terms the
substance of such supplemental indenture, at least once in one daily
newspaper of general circulation in each city in which the principal of
any of the bonds shall be payable, or, if all bonds outstanding shall
be registered bonds without coupons or coupon bonds registered as to
principal, such notice shall be sufficiently given if mailed, first
class, postage prepaid, and registered if the Company so elects, to
each registered holder of bonds at the last address of such holder
appearing on the registry books, such publication or mailing, as the
case may be, to be made not less than thirty days prior to such
execution. Any failure of the Company to give such notice, or any
defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.
SECTION 5. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.
SECTION 6. Nothing contained in this Supplemental Indenture shall, or
shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, as supplemented and amended as above set forth, the
Company, the Trustee and the Agent, for the benefit of the Banks (as such term
is defined in the Credit Agreement), any right or interest to avail himself of
any benefit under any provision of the Indenture, as so supplemented and
amended.
SECTION 7. The Trustee assumes no responsibility for or in respect of
the validity or sufficiency of this Supplemental Indenture or of the Indenture
as hereby supplemented or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein (other than those
contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.
SECTION 8. This Supplemental Indenture may be simultaneously executed
in several counterparts and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.
SECTION 9. In the event the date of any notice required or permitted
hereunder shall not be a Business Day, then (notwithstanding any other provision
of the Indenture or of any supplemental indenture thereto) such notice need not
be made on such date, but may be made on
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the next succeeding Business Day with the same force and effect as if made on
the date fixed for such notice. "Business Day" means, with respect to this
Section 9, any day, other than a Saturday or Sunday, on which banks generally
are open in Chicago, Illinois and New York, New York for the conduct of
substantially all of their commercial lending activities and on which interbank
wire transfers can be made on the Fedwire system.
SECTION 10. This Supplemental Indenture and the Collateral Bonds shall
be governed by and deemed to be a contract under, and construed in accordance
with, the laws of the State of Michigan, and for all purposes shall be construed
in accordance with the laws of such state, except as may otherwise be required
by mandatory provisions of law.
SECTION 11. Detailed Description of Property Mortgaged:
I.
ELECTRIC GENERATING PLANTS AND DAMS
All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.
II.
ELECTRIC TRANSMISSION LINES
All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including towers, poles, pole lines, wires, switches, switch racks,
switchboards, insulators and other appliances and equipment, and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.
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III.
ELECTRIC DISTRIBUTION SYSTEMS
All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including substations, transformers, switchboards, towers, poles, wires,
insulators, subways, trenches, conduits, manholes, cables, meters and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
distribution systems or any of them or adjacent thereto; together with all real
property, rights of way, easements, permits, privileges, franchises, grants and
rights, for or relating to the construction, maintenance or operation thereof,
through, over, under or upon any private property or any public streets or
highways within as well as without the corporate limits of any municipal
corporation.
IV.
ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES
All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, for transforming, regulating, converting or distributing or
otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.
V.
GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS, DESULPHURIZATION
STATIONS, METERING STATIONS, ODORIZING STATIONS, REGULATORS AND
SITES
All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, for compressing, processing, desulphurizing, metering,
odorizing and regulating manufactured or natural gas at any of its plants and
elsewhere, together with all buildings, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of such
purposes, with sites to be used for such purposes.
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VI.
GAS STORAGE FIELDS
The natural gas rights and interests of the Company, including wells
and well lines (but not including natural gas, oil and minerals), the gas
gathering system, the underground gas storage rights, the underground gas
storage wells and injection and withdrawal system used in connection therewith,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture: In the Overisel Gas Storage Field, located in the Township of
Overisel, Allegan County, and in the Township of Zeeland, Ottawa County,
Michigan; in the Northville Gas Storage Field located in the Township of Salem,
Washtenaw County, Township of Lyon, Oakland County, and the Townships of
Northville and Plymouth and City of Plymouth, Wayne County, Michigan; in the
Salem Gas Storage Field, located in the Township of Salem, Allegan County, and
in the Township of Jamestown, Ottawa County, Michigan; in the Ray Gas Storage
Field, located in the Townships of Ray and Armada, Macomb County, Michigan; in
the Lenox Gas Storage Field, located in the Townships of Lenox and Chesterfield,
Macomb County, Michigan; in the Ira Gas Storage Field, located in the Township
of Ira, St. Clair County, Michigan; in the Puttygut Gas Storage Field, located
in the Township of Casco, St. Clair County, Michigan; in the Four Corners Gas
Storage Field, located in the Townships of Casco, China, Cottrellville and Ira,
St. Clair County, Michigan; in the Swan Creek Gas Storage Field, located in the
Township of Casco and Ira, St. Clair County, Michigan; and in the Hessen Gas
Storage Field, located in the Townships of Casco and Columbus, St. Clair,
Michigan.
VII.
GAS TRANSMISSION LINES
All the gas transmission lines of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
gas mains, pipes, pipelines, gates, valves, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements, permits, privileges, franchises and rights
for or relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways,
within as well as without the corporate limits of any municipal corporation.
VIII.
GAS DISTRIBUTION SYSTEMS
All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including tunnels, conduits, gas mains and pipes, service pipes, fittings,
gates, valves, connections, meters and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such distribution systems or any of them
or adjacent thereto; together with all
-23-
real property, rights of way, easements, permits, privileges, franchises, grants
and rights, for or relating to the construction, maintenance or operation
thereof, through, over, under or upon any private property or any public streets
or highways within as well as without the corporate limits of any municipal
corporation.
IX.
OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.
All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise acquired by
it and not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the lien of the Indenture, together with the land
on which the same are situated and all easements, rights of way and
appurtenances to said lands, together with all furniture and fixtures located in
said buildings.
X.
TELEPHONE PROPERTIES AND
RADIO COMMUNICATION EQUIPMENT
All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, used or available for use in the operation of its
properties, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such telephone
properties or any of them or adjacent thereto; together with all real estate,
rights of way, easements, permits, privileges, franchises, property, devices or
rights related to the dispatch, transmission, reception or reproduction of
messages, communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment installed in
buildings used as general and regional offices, substations and generating
stations and all telephone lines erected on towers and poles; and all radio
communication equipment of the Company, together with all property, real or
personal (except any in the Indenture expressly excepted), fixed stations,
towers, auxiliary radio buildings and equipment, and all appurtenances used in
connection therewith, wherever located, in the State of Michigan.
XI.
OTHER REAL PROPERTY
All other real property of the Company and all interests therein, of
every nature and description (except any in the Indenture expressly excepted)
wherever located, in the State of Michigan, acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the lien of the Indenture. Such real property includes but is not limited
to the following described property, such property is subject to any interests
that were excepted or reserved in the conveyance to the Company:
-24-
ALCONA COUNTY
Certain land in Caledonia Township, Alcona County, Michigan described
as:
The East 330 feet of the South 660 feet of the SW 1/4 of the
SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South
330 feet thereof; said land being more particularly described as
follows: To find the place of beginning of this description, commence
at the Southwest corner of said section, run thence East along the
South line of said section 1243 feet to the place of beginning of this
description, thence continuing East along said South line of said
section 66 feet to the West 1/8 line of said section, thence N 02
degrees 09' 30" E along the said West 1/8 line of said section 660
feet, thence West 330 feet, thence S 02 degrees 09' 30" W, 330 feet,
thence East 264 feet, thence S 02 degrees 09' 30" W, 330 feet to the
place of beginning.
ALLEGAN COUNTY
Certain land in Lee Township, Allegan County, Michigan described as:
The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.
ALPENA COUNTY
Certain land in Wilson and Green Townships, Alpena County, Michigan
described as:
All that part of the S'ly 1/2 of the former Boyne City-Gaylord
and Alpena Railroad right of way, being the Southerly 50 feet of a 100
foot strip of land formerly occupied by said Railroad, running from the
East line of Section 31, T31N, R7E, Southwesterly across said Section
31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2
of Section 9, except the West 1646 feet thereof, all in T30N, R6E.
ANTRIM COUNTY
Certain land in Mancelona Township, Antrim County, Michigan described
as:
The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
therefrom all mineral, coal, oil and gas and such other rights as were
reserved unto the State of Michigan in that certain deed running from
the State of Michigan to August W. Schack and Emma H. Schack, his wife,
dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on
page 682 of Antrim County Records.
ARENAC COUNTY
Certain land in Standish Township, Arenac County, Michigan described
as:
A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
T18N, R4E, described as follows: To find the place of beginning of said
parcel of land,
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commence at the Northwest corner of Section 12, T18N, R4E; run thence
South along the West line of said section, said West line of said
section being also the center line of East City Limits Road 2642.15
feet to the W 1/4 post of said section and the place of beginning of
said parcel of land; running thence N 88 degrees 26' 00" E along the
East and West 1/4 line of said section, 660.0 feet; thence North
parallel with the West line of said section, 310.0 feet; thence S 88
degrees 26' 00" W, 330.0 feet; thence South parallel with the West line
of said section, 260.0 feet; thence S 88 degrees 26' 00" W, 330.0 feet
to the West line of said section and the center line of East City
Limits Road; thence South along the said West line of said section,
50.0 feet to the place of beginning.
BARRY COUNTY
Certain land in Johnstown Township, Barry County, Michigan described
as:
A strip of land 311 feet in width across the SW 1/4 of the NE
1/4 of Section 31, T1N, R8W, described as follows: To find the place of
beginning of this description, commence at the E 1/4 post of said
section; run thence N 00 degrees 55' 00" E along the East line of said
section, 555.84 feet; thence N 59 degrees 36' 20" W, 1375.64 feet;
thence N 88 degrees 30' 00" W, 130 feet to a point on the East 1/8 line
of said section and the place of beginning of this description; thence
continuing N 88 degrees 30' 00" W, 1327.46 feet to the North and South
1/4 line of said section; thence S 00 degrees 39'35" W along said North
and South 1/4 line of said section, 311.03 feet to a point, which said
point is 952.72 feet distant N'ly from the East and West 1/4 line of
said section as measured along said North and South 1/4 line of said
section; thence S 88 degrees 30' 00" E, 1326.76 feet to the East 1/8
line of said section; thence N 00 degrees 47' 20" E along said East 1/8
line of said section, 311.02 feet to the place of beginning.
BAY COUNTY
Certain land in Frankenlust Township, Bay County, Michigan described
as:
The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
the SE 1/4 of Section 9, T13N, R4E.
BENZIE COUNTY
Certain land in Benzonia Township, Benzie County, Michigan described
as:
A parcel of land in the Northeast 1/4 of Section 7, Township
26 North, Range 14 West, described as beginning at a point on the East
line of said Section 7, said point being 320 feet North measured along
the East line of said section from the East 1/4 post; running thence
West 165 feet; thence North parallel with the East line of said section
165 feet; thence East 165 feet to the East line of said section; thence
South 165 feet to the place of beginning.
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BRANCH COUNTY
Certain land in Girard Township, Branch County, Michigan described as:
A parcel of land in the NE 1/4 of Section 23 T5S, R6W,
described as beginning at a point on the North and South quarter line
of said section at a point 1278.27 feet distant South of the North
quarter post of said section, said distance being measured along the
North and South quarter line of said section, running thence S89
degrees21'E 250 feet, thence North along a line parallel with the said
North and South quarter line of said section 200 feet, thence N89
degrees21'W 250 feet to the North and South quarter line of said
section, thence South along said North and South quarter line of said
section 200 feet to the place of beginning.
CALHOUN COUNTY
Certain land in Convis Township, Calhoun County, Michigan described as:
A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
T1S, R6W, described as follows: To find the place of beginning of this
description, commence at the Southeast corner of said section; run
thence North along the East line of said section 1034.32 feet to the
place of beginning of this description; running thence N 89 degrees 39'
52" W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of
said section; thence S 89 degrees 39' 52" E along said South 1/8 line
of said section 333.0 feet to the East line of said section; thence
South along said East line of said section 290.0 feet to the place of
beginning. (Bearings are based on the East line of Section 32, T1S,
R6W, from the Southeast corner of said section to the Northeast corner
of said section assumed as North.)
CASS COUNTY
Certain easement rights located across land in Marcellus Township, Cass
Michigan County, described as:
The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
R13W.
CHARLEVOIX COUNTY
Certain land in South Arm Township, Charlevoix County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
described as follows: Beginning at the Southwest corner of said section
and running thence North along the West line of said section 788.25
feet to a point which is 528 feet distant South of the South 1/8 line
of said section as measured along the said West line of said section;
thence N 89 degrees 30' 19" E, parallel with said South 1/8 line of
said section 442.1 feet; thence South 788.15 feet to the South line of
said section; thence S 89 degrees 29' 30" W, along said South line of
said section 442.1 feet to the place of beginning.
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CHEBOYGAN COUNTY
Certain land in Inverness Township, Cheboygan County, Michigan
described as:
A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
described as beginning at the Northwest corner of the SW frl 1/4,
running thence East on the East and West quarter line of said Section,
40 rods, thence South parallel to the West line of said Section 40
rods, thence West 40 rods to the West line of said Section, thence
North 40 rods to the place of beginning.
CLARE COUNTY
Certain land in Frost Township, Clare County, Michigan described as:
The East 150 feet of the North 225 feet of the NW 1/4 of the
NW 1/4 of Section 15, T20N, R4W.
CLINTON COUNTY
Certain land in Watertown Township, Clinton County, Michigan described
as:
The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
T5N, R3W.
CRAWFORD COUNTY
Certain land in Lovells Township, Crawford County, Michigan described
as:
A parcel of land in Section 1, T28N, R1W, described as:
Commencing at NW corner said section; thence South 89 degrees53'30"
East along North section line 105.78 feet to point of beginning; thence
South 89 degrees53'30" East along North section line 649.64 feet;
thence South 55 degrees 42'30" East 340.24 feet; thence South 55
degrees 44' 37"" East 5,061.81 feet to the East section line; thence
South 00 degrees 00' 08"" West along East section line 441.59 feet;
thence North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
degrees 42'30" West 877.76 feet to point of beginning.
EATON COUNTY
Certain land in Eaton Township, Eaton County, Michigan described as:
A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section; run
thence N 89 degrees 51' 30" E along the South line of said section 400
feet to the place of beginning of this description; thence continuing N
89 degrees 51' 30" E, 500 feet; thence N 00 degrees 50' 00" W, 600
feet; thence S 89 degrees 51' 30" W parallel with the South line of
said section 500 feet; thence S 00 degrees 50' 00" E, 600 feet to the
place of beginning.
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EMMET COUNTY
Certain land in Wawatam Township, Emmet County, Michigan described as:
The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
Section 23, T39N, R4W.
GENESEE COUNTY
Certain land in Argentine Township, Genesee County, Michigan described
as:
A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
being more particularly described as follows:
Beginning at a point of the West line of Duffield Road, 100
feet wide, (as now established) distant 829.46 feet measured N01
degrees42'56"W and 50 feet measured S88 degrees14'04"W from the South
quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a
distance of 550 feet; thence N01 degrees42'56"W a distance of 500 feet
to a point on the North line of the South half of the Southwest quarter
of said Section 8; thence N88 degrees14'04"E along the North line of
South half of the Southwest quarter of said Section 8 a distance 550
feet to a point on the West line of Duffield Road, 100 feet wide (as
now established); thence S01 degrees42'56"E along the West line of said
Duffield Road a distance of 500 feet to the point of beginning.
GLADWIN COUNTY
Certain land in Secord Township, Gladwin County, Michigan described as:
The East 400 feet of the South 450 feet of Section 2, T19N,
R1E.
GRAND TRAVERSE COUNTY
Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:
A parcel of land in the Northwest 1/4 of Section 3, T25N,
R11W, described as follows: Commencing at the Northwest corner of said
section, running thence S 89 degrees19'15" E along the North line of
said section and the center line of Clouss Road 225 feet, thence South
400 feet, thence N 89 degrees19'15" W 225 feet to the West line of said
section and the center line of Hannah Road, thence North along the West
line of said section and the center line of Hannah Road 400 feet to the
place of beginning for this description.
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GRATIOT COUNTY
Certain land in Fulton Township, Gratiot County, Michigan described as:
A parcel of land in the NE 1/4 of Section 7, Township 9 North,
Range 3 West, described as beginning at a point on the North line of
George Street in the Village of Middleton, which is 542 feet East of
the North and South one-quarter (1/4) line of said Section 7; thence
North 100 feet; thence East 100 feet; thence South 100 feet to the
North line of George Street; thence West along the North line of George
Street 100 feet to place of beginning.
HILLSDALE COUNTY
Certain land in Litchfield Village, Hillsdale County, Michigan
described as:
Lot 238 of Assessors Plat of the Village of Litchfield.
HURON COUNTY
Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:
The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.
INGHAM COUNTY
Certain land in Vevay Township, Ingham County, Michigan described as:
A parcel of land 660 feet wide in the Southwest 1/4 of Section
7 lying South of the centerline of Sitts Road as extended to the
North-South 1/4 line of said Section 7, T2N, R1W, more particularly
described as follows: Commence at the Southwest corner of said Section
7, thence North along the West line of said Section 2502.71 feet to the
centerline of Sitts Road; thence South 89 degrees54'45" East along said
centerline 2282.38 feet to the place of beginning of this description;
thence continuing South 89 degrees54'45" East along said centerline and
said centerline extended 660.00 feet to the North-South 1/4 line of
said section; thence South 00 degrees07'20" West 1461.71 feet; thence
North 89 degrees34'58" West 660.00 feet; thence North 00 degrees07'20"
East 1457.91 feet to the centerline of Sitts Road and the place of
beginning.
IONIA COUNTY
Certain land in Sebewa Township, Ionia County, Michigan described as:
A strip of land 280 feet wide across that part of the SW 1/4
of the NE 1/4 of Section 15, T5N, R6W, described as follows:
To find the place of beginning of this description commence at
the E 1/4 corner of said section; run thence N 00 degrees 05' 38" W
along the East line of
-30-
said section, 1218.43 feet; thence S 67 degrees 18' 24" W, 1424.45 feet
to the East 1/8 line of said section and the place of beginning of this
description; thence continuing S 67 degrees 18' 24" W, 1426.28 feet to
the North and South 1/4 line of said section at a point which said
point is 105.82 feet distant N'ly of the center of said section as
measured along said North and South 1/4 line of said section; thence N
00 degrees 04' 47" E along said North and South 1/4 line of said
section, 303.67 feet; thence N 67 degrees 18' 24" E, 1425.78 feet to
the East 1/8 line of said section; thence S 00 degrees 00' 26" E along
said East 1/8 line of said section, 303.48 feet to the place of
beginning. (Bearings are based on the East line of Section 15, T5N,
R6W, from the E 1/4 corner of said section to the Northeast corner of
said section assumed as N 00 degrees 05' 38" W.)
IOSCO COUNTY
Certain land in Alabaster Township, Iosco County, Michigan described
as:
A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run thence
South along the North and South 1/4 line of said section, 1354.40 feet
to the place of beginning of this description; thence continuing South
along the said North and South 1/4 line of said section, 165.00 feet to
a point on the said North and South 1/4 line of said section which said
point is 1089.00 feet distant North of the center of said section;
thence West 440.00 feet; thence North 165.00 feet; thence East 440.00
feet to the said North and South 1/4 line of said section and the place
of beginning.
ISABELLA COUNTY
Certain land in Chippewa Township, Isabella County, Michigan described
as:
The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
T14N, R3W.
JACKSON COUNTY
Certain land in Waterloo Township, Jackson County, Michigan described
as:
A parcel of land in the North fractional part of the N
fractional 1/2 of Section 2, T1S, R2E, described as follows: To find
the place of beginning of this description commence at the E 1/4 post
of said section; run thence N 01 degrees 03' 40" E along the East line
of said section 1335.45 feet to the North 1/8 line of said section and
the place of beginning of this description; thence N 89 degrees 32' 00"
W, 2677.7 feet to the North and South 1/4 line of said section; thence
S 00 degrees 59' 25" W along the North and South 1/4 line of said
section 22.38 feet to the North 1/8 line of said section; thence S 89
degrees 59' 10" W along the North 1/8 line of said section 2339.4 feet
to the center line of State Trunkline Highway M-52; thence N 53 degrees
46' 00" W along the center line of said State Trunkline Highway 414.22
feet to the West line of said section; thence N 00 degrees 55' 10" E
along the West line of said section 74.35 feet; thence S 89
-31-
degrees 32' 00" E, 5356.02 feet to the East line of said section;
thence S 01 degrees 03' 40" W along the East line of said section 250
feet to the place of beginning.
KALAMAZOO COUNTY
Certain land in Alamo Township, Kalamazoo County, Michigan described
as:
The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
T1S, R12W, being more particularly described as follows: To find the
place of beginning of this description, commence at the Northwest
corner of said section; run thence S 00 degrees 36' 55" W along the
West line of said section 971.02 feet to the place of beginning of this
description; thence continuing S 00 degrees 36' 55" W along said West
line of said section 350.18 feet to the North 1/8 line of said section;
thence S 87 degrees 33' 40" E along the said North 1/8 line of said
section 1325.1 feet to the West 1/8 line of said section; thence N 00
degrees 38' 25" E along the said West 1/8 line of said section 350.17
feet; thence N 87 degrees 33' 40" W, 1325.25 feet to the place of
beginning.
KALKASKA COUNTY
Certain land in Kalkaska Township, Kalkaska County, Michigan described
as:
The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
therefrom all mineral, coal, oil and gas and such other rights as were
reserved unto the State of Michigan in that certain deed running from
the Department of Conservation for the State of Michigan to George
Welker and Mary Welker, his wife, dated October 9, 1934 and recorded
December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records,
and subject to easement for pipeline purposes as granted to Michigan
Consolidated Gas Company by first party herein on April 4, 1963 and
recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County
Records.
KENT COUNTY
Certain land in Caledonia Township, Kent County, Michigan described as:
A parcel of land in the Northwest fractional 1/4 of Section
15, T5N, R10W, described as follows: To find the place of beginning of
this description commence at the North 1/4 corner of said section, run
thence S 0 degrees 59' 26" E along the North and South 1/4 line of said
section 2046.25 feet to the place of beginning of this description,
thence continuing S 0 degrees 59' 26" E along said North and South 1/4
line of said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90
feet to a point herein designated "Point A" on the East bank of the
Thornapple River, thence continuing S 88 degrees 53' 30" W to the
center thread of the Thornapple River, thence NW'ly along the center
thread of said Thornapple River to a point which said point is S 88
degrees 58' 30" W of a point on the East bank of the Thornapple River
herein designated "Point B", said "Point B" being N
-32-
23 degrees 41' 35" W 360.75 feet from said above-described "Point A",
thence N 88 degrees 58' 30" E to said "Point B", thence continuing N 88
degrees 58' 30" E 2650.13 feet to the place of beginning. (Bearings are
based on the East line of Section 15, T5N, R10W between the East 1/4
corner of said section and the Northeast corner of said section assumed
as N 0 degrees 59' 55" W.)
LAKE COUNTY
Certain land in Pinora and Cherry Valley Townships, Lake County,
Michigan described as:
A strip of land 50 feet wide East and West along and adjoining
the West line of highway on the East side of the North 1/2 of Section
13 T18N, R12W. Also a strip of land 100 feet wide East and West along
and adjoining the East line of the highway on the West side of
following described land: The South 1/2 of NW 1/4, and the South 1/2 of
the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.
LAPEER COUNTY
Certain land in Hadley Township, Lapeer County, Michigan described as:
The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
T6N, R9E, except the West 1064 feet thereof.
LEELANAU COUNTY
Certain land in Cleveland Township, Leelanau County, Michigan described
as:
The North 200 feet of the West 180 feet of the SW 1/4 of the
SE 1/4 of Section 35, T29N, R13W.
LENAWEE COUNTY
Certain land in Madison Township, Lenawee County, Michigan described
as:
A strip of land 165 feet wide off the West side of the
following described premises: The E 1/2 of the SE 1/4 of Section 12.
The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13,
being all in T7S, R3E, excepting therefrom a parcel of land in the E
1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest
corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4
rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to
the place of beginning.
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LIVINGSTON COUNTY
Certain land in Cohoctah Township, Livingston County, Michigan
described as:
Parcel 1
The East 390 feet of the East 50 rods of the SW 1/4 of Section
30, T4N, R4E.
Parcel 2
A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run thence N 89
degrees 13' 06" W along the North line of said section, 330 feet to the
place of beginning of this description; running thence S 00 degrees 52'
49" W, 2167.87 feet; thence N 88 degrees 59' 49" W, 60 feet; thence N
00 degrees 52' 49" E, 2167.66 feet to the North line of said section;
thence S 89 degrees 13' 06" E along said North line of said section, 60
feet to the place of beginning.
MACOMB COUNTY
Certain land in Macomb Township, Macomb County, Michigan described as:
A parcel of land commencing on the West line of the E 1/2 of
the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of
said E 1/2 of the NW 1/4 of Section 6; thence South on said West line
and the East line of A. Henry Kotner's Hayes Road Subdivision #15,
according to the recorded plat thereof, as recorded in Liber 24 of
Plats, on page 7, 24.36 chains to the East and West 1/4 line of said
Section 6; thence East on said East and West 1/4 line 8.93 chains;
thence North parallel with the said West line of the E 1/2 of the NW
1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of
beginning, all in T3N, R13E.
MANISTEE COUNTY
Certain land in Manistee Township, Manistee County, Michigan described
as:
A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
described as follows: To find the place of beginning of this
description, commence at the Southwest corner of said section; run
thence East along the South line of said section 832.2 feet to the
place of beginning of this description; thence continuing East along
said South line of said section 132 feet; thence North 198 feet; thence
West 132 feet; thence South 198 feet to the place of beginning,
excepting therefrom the South 2 rods thereof which was conveyed to
Manistee Township for highway purposes by a Quitclaim Deed dated June
13, 1919 and recorded July 11, 1919 in Liber 88 of Deeds on page 638 of
Manistee County Records.
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MASON COUNTY
Certain land in Riverton Township, Mason County, Michigan described as:
Parcel 1
The South 10 acres of the West 20 acres of the S 1/2 of the NE
1/4 of Section 22, T17N, R17W.
Parcel 2
A parcel of land containing 4 acres of the West side of
highway, said parcel of land being described as commencing 16 rods
South of the Northwest corner of the NW 1/4 of the SW 1/4 of Section
22, T17N, R17W, running thence South 64 rods, thence NE'ly and N'ly and
NW'ly along the W'ly line of said highway to the place of beginning,
together with any and all right, title, and interest of Howard C.
Wicklund and Katherine E. Wicklund in and to that portion of the
hereinbefore mentioned highway lying adjacent to the E'ly line of said
above described land.
MECOSTA COUNTY
Certain land in Wheatland Township, Mecosta County, Michigan described
as:
A parcel of land in the SW 1/4 of the SW 1/4 of Section 16,
T14N, R7W, described as beginning at the Southwest corner of said
section; thence East along the South line of Section 133 feet; thence
North parallel to the West section line 133 feet; thence West 133 feet
to the West line of said Section; thence South 133 feet to the place of
beginning.
MIDLAND COUNTY
Certain land in Ingersoll Township, Midland County, Michigan described
as:
The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
T13N, R2E.
MISSAUKEE COUNTY
Certain land in Norwich Township, Missaukee County, Michigan described
as:
A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
T24N, R6W, described as follows: Commencing at the Northwest corner of
said section, running thence N 89 degrees 01' 45" E along the North
line of said section 233.00 feet; thence South 233.00 feet; thence S 89
degrees 01' 45" W, 233.00 feet to the West line of said section; thence
North along said West line of said section 233.00 feet to the place of
beginning. (Bearings are based on the West line of Section 16, T24N,
R6W, between the Southwest and Northwest corners of said section
assumed as North.)
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MONROE COUNTY
Certain land in Whiteford Township, Monroe County, Michigan described
as:
A parcel of land in the SW1/4 of Section 20, T8S, R6E,
described as follows: To find the place of beginning of this
description commence at the S 1/4 post of said section; run thence West
along the South line of said section 1269.89 feet to the place of
beginning of this description; thence continuing West along said South
line of said section 100 feet; thence N 00 degrees 50' 35" E, 250 feet;
thence East 100 feet; thence S 00 degrees 50' 35" W parallel with and
16.5 feet distant W'ly of as measured perpendicular to the West 1/8
line of said section, as occupied, a distance of 250 feet to the place
of beginning.
MONTCALM COUNTY
Certain land in Crystal Township, Montcalm County, Michigan described
as:
The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.
MONTMORENCY COUNTY
Certain land in the Village of Hillman, Montmorency County, Michigan
described as:
Lot 14 of Hillman Industrial Park, being a subdivision in the
South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to
the plat thereof recorded in Liber 4 of Plats on Pages 32-34,
Montmorency County Records.
MUSKEGON COUNTY
Certain land in Casnovia Township, Muskegon County, Michigan described
as:
The West 433 feet of the North 180 feet of the South 425 feet
of the SW 1/4 of Section 3, T10N, R13W.
NEWAYGO COUNTY
Certain land in Ashland Township, Newaygo County, Michigan described
as:
The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.
OAKLAND COUNTY
Certain land in Wixcom City, Oakland County, Michigan described as:
The E 75 feet of the N 160 feet of the N 330 feet of the W
526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more
particularly described as follows: Commence at the NW corner of said
Section 8, thence N 87 degrees 14' 29" E along the North line of said
Section 8 a distance of 451.84 feet to the place of beginning for this
description; thence continuing N 87 degrees 14' 29" E along
-36-
said North section line a distance of 75.0 feet to the East line of the
West 526.84 feet of the NW 1/4 of the NW 1/4 of said Section 8; thence
S 02 degrees 37' 09" E along said East line a distance of 160.0 feet;
thence S 87 degrees 14' 29" W a distance of 75.0 feet; thence N 02
degrees 37' 09" W a distance of 160.0 feet to the place of beginning.
OCEANA COUNTY
Certain land in Crystal Township, Oceana County, Michigan described as:
The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.
OGEMAW COUNTY
Certain land in West Branch Township, Ogemaw County, Michigan described
as:
The South 660 feet of the East 660 feet of the NE 1/4 of the
NE 1/4 of Section 33, T22N, R2E.
OSCEOLA COUNTY
Certain land in Hersey Township, Osceola County, Michigan described as:
A parcel of land in the North 1/2 of the Northeast 1/4 of
Section 13, T17N, R9W, described as commencing at the Northeast corner
of said Section; thence West along the North Section line 999 feet to
the point of beginning of this description; thence S 01 degrees 54' 20"
E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17' 05" W
along the North 1/8 line 330.89 feet; thence N 01 degrees 54' 20" W
1331.26 feet to the North Section line; thence East along the North
Section line 331 feet to the point of beginning.
OSCODA COUNTY
Certain land in Comins Township, Oscoda County, Michigan described as:
The East 400 feet of the South 580 feet of the W 1/2 of the SW
1/4 of Section 15, T27N, R3E.
OTSEGO COUNTY
Certain land in Corwith Township, Otsego County, Michigan described as:
Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
described as: Beginning at the N 1/4 corner of said section; running
thence S 89 degrees 04' 06" E along the North line of said section,
330.00 feet; thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89
degrees 04' 06" W, 330.00 feet to the North and South 1/4 line of said
section; thence N 00 degrees 28' 43" W along the said
-37-
North and South 1/4 line of said section, 400.00 feet to the point of
beginning; subject to the use of the N'ly 33.00 feet thereof for
highway purposes.
OTTAWA COUNTY
Certain land in Robinson Township, Ottawa County, Michigan described
as:
The North 660 feet of the West 660 feet of the NE 1/4 of the
NW 1/4 of Section 26, T7N, R15W.
PRESQUE ISLE COUNTY
Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:
Part of the South half of the Northeast quarter, Section 24,
T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E,
more fully described as: Commencing at the East 1/4 corner of said
Section 24; thence N 00 degrees15'47" E, 507.42 feet, along the East
line of said Section 24 to the point of beginning; thence S 88
degrees15'36" W, 400.00 feet, parallel with the North 1/8 line of said
Section 24; thence N 00 degrees15'47" E, 800.00 feet, parallel with
said East line of Section 24; thence N 88 degrees15'36"E, 800.00 feet,
along said North 1/8 line of Section 24 and said line extended; thence
S 00 degrees15'47" W, 800.00 feet, parallel with said East line of
Section 24; thence S 88 degrees15'36" W, 400.00 feet, parallel with
said North 1/8 line of Section 24 to the point of beginning.
Together with a 33 foot easement along the West 33 feet of the
Northwest quarter lying North of the North 1/8 line of Section 24,
Belknap Township, extended, in Section 19, T34N, R6E.
ROSCOMMON COUNTY
Certain land in Gerrish Township, Roscommon County, Michigan described
as:
A parcel of land in the NW 1/4 of Section 19, T24N, R3W,
described as follows: To find the place of beginning of this
description commence at the Northwest corner of said section, run
thence East along the North line of said section 1,163.2 feet to the
place of beginning of this description (said point also being the place
of intersection of the West 1/8 line of said section with the North
line of said section), thence S 01 degrees 01' E along said West 1/8
line 132 feet, thence West parallel with the North line of said section
132 feet, thence N 01 degrees 01' W parallel with said West 1/8 line of
said section 132 feet to the North line of said section, thence East
along the North line of said section 132 feet to the place of
beginning.
-38-
SAGINAW COUNTY
Certain land in Chapin Township, Saginaw County, Michigan described as:
A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section; run
thence North along the West line of said section 1581.4 feet to the
place of beginning of this description; thence continuing North along
said West line of said section 230 feet to the center line of a creek;
thence S 70 degrees 07' 00" E along said center line of said creek
196.78 feet; thence South 163.13 feet; thence West 185 feet to the West
line of said section and the place of beginning.
SANILAC COUNTY
Certain easement rights located across land in Minden Township, Sanilac
County, Michigan described as:
The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
R14E, excepting therefrom the South 83 feet of the East 83 feet
thereof.
SHIAWASSEE COUNTY
Certain land in Burns Township, Shiawassee County, Michigan described
as:
The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
T5N, R4E.
ST. CLAIR COUNTY
Certain land in Ira Township, St. Clair County, Michigan described as:
The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.
ST. JOSEPH COUNTY
Certain land in Mendon Township, St. Joseph County, Michigan described
as:
The North 660 feet of the West 660 feet of the NW 1/4 of SW
1/4, Section 35, T5S, R10W.
TUSCOLA COUNTY
Certain land in Millington Township, Tuscola County, Michigan described
as:
A strip of land 280 feet wide across the East 96 rods of the
South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
particularly described as commencing at the Northeast corner of Section
3, T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
distance of 1398.67 feet to the South 1/8
-39-
line of said Section 34 and the place of beginning for this
description; thence continuing N 18 degrees 11' 50" W a distance of
349.91 feet; thence N 89 degrees 57' 01" W a distance of 294.80 feet;
thence S 18 degrees 11' 50" E a distance of 350.04 feet to the South
1/8 line of said Section 34; thence S 89 degrees 58' 29" E along the
South 1/8 line of said section a distance of 294.76 feet to the place
of beginning.
VAN BUREN COUNTY
Certain land in Covert Township, Van Buren County, Michigan described
as:
All that part of the West 20 acres of the N 1/2 of the NE
fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the
North 80 rods, being more particularly described as follows: To find
the place of beginning of this description commence at the N 1/4 post
of said section; run thence N 89 degrees 29' 20" E along the North line
of said section 280.5 feet to the place of beginning of this
description; thence continuing N 89 degrees 29' 20" E along said North
line of said section 288.29 feet; thence S 00 degrees 44' 00" E,
1531.92 feet; thence S 89 degrees 33' 30" W, 568.79 feet to the North
and South 1/4 line of said section; thence N 00 degrees 44' 00" W along
said North and South 1/4 line of said section 211.4 feet; thence N 89
degrees 29' 20" E, 280.5 feet; thence N 00 degrees 44' 00" W, 1320 feet
to the North line of said section and the place of beginning.
WASHTENAW COUNTY
Certain land in Manchester Township, Washtenaw County, Michigan
described as:
A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
T4S, R3E, described as follows: To find the place of beginning of this
description commence at the Northwest corner of said section; run
thence East along the North line of said section 1355.07 feet to the
West 1/8 line of said section; thence S 00 degrees 22' 20" E along said
West 1/8 line of said section 927.66 feet to the place of beginning of
this description; thence continuing S 00 degrees 22' 20" E along said
West 1/8 line of said section 660 feet to the North 1/8 line of said
section; thence N 86 degrees 36' 57" E along said North 1/8 line of
said section 660.91 feet; thence N 00 degrees22' 20" W, 660 feet;
thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.
WAYNE COUNTY
Certain land in Livonia City, Wayne County, Michigan described as:
Commencing at the Southeast corner of Section 6, T1S, R9E;
thence North along the East line of Section 6 a distance of 253 feet to
the point of beginning; thence continuing North along the East line of
Section 6 a distance of 50 feet; thence Westerly parallel to the South
line of Section 6, a distance of 215 feet; thence Southerly parallel to
the East line of Section 6 a distance of 50 feet;
-40-
thence easterly parallel with the South line of Section 6 a distance of
215 feet to the point of beginning.
WEXFORD COUNTY
Certain land in Selma Township, Wexford County, Michigan described as:
A parcel of land in the NW 1/4 of Section 7, T22N, R10W,
described as beginning on the North line of said section at a point 200
feet East of the West line of said section, running thence East along
said North section line 450 feet, thence South parallel with said West
section line 350 feet, thence West parallel with said North section
line 450 feet, thence North parallel with said West section line 350
feet to the place of beginning.
SECTION 12. The Company is a transmitting utility under Section 9501(2)
of the Michigan Uniform Commercial Code (M.C.L. 440.9501(2)) as defined in
M.C.L. 440.9102(1)(aaaa).
IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board, President, a Vice President or its Treasurer and its corporate seal
to be hereunto affixed and to be attested by its Secretary or an Assistant
Secretary, and said JPMorgan Chase Bank, as Trustee as aforesaid, to evidence
its acceptance hereof, has caused this Supplemental Indenture to be executed in
its corporate name by a Vice President and its corporate seal to be hereunto
affixed and to be attested by a Trust Officer, in several counterparts, all as
of the day and year first above written.
-41-
CONSUMERS ENERGY COMPANY
(SEAL) By
------------------------------
Paul A. Stadnikia
Attest: Treasurer
- ----------------------------
Joyce H. Norkey
Assistant Secretary
Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of
- ----------------------------
Kimberly C. Wilson
- ----------------------------
Sammie B. Dalton
STATE OF MICHIGAN )
ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this 27th
day of March, 2003, by Paul A. Stadnikia, Treasurer of CONSUMERS ENERGY
COMPANY, a Michigan corporation, on behalf of the corporation.
-----------------------------------
Margaret Hillman, Notary Public
[Seal] Jackson County, Michigan
My Commission Expires: June 14, 2004
S-1
JPMORGAN CHASE BANK, AS TRUSTEE
(SEAL) By
----------------------------
L. O'Brien
Attest: Vice President
- ----------------------------
Rosa Ciaccia
Trust Officer
Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of
- ----------------------------
James D. Heaney
Vice President
- ----------------------------
WILLIAM G. KEENAN
VICE PRESIDENT
STATE OF NEW YORK)
ss.
COUNTY OF NEW YORK)
The foregoing instrument was acknowledged before me this 27th
of March, 2003, by L. O'Brien, a Vice President of JPMORGAN CHASE BANK, a New
York corporation, on behalf of the corporation.
----------------------------------
Notary Public
[Seal] New York County, New York
My Commission Expires:
Prepared by: When recorded, return to:
Kimberly C. Wilson Consumers Energy Company
212 West Michigan Avenue Business Services Real Estate Dept.
Jackson, MI 49201 Attn: Nancy Fisher EP7-439
One Energy Plaza
Jackson, MI 49201
S-2
EXHIBIT B-1
REQUIRED OPINIONS FROM
MICHAEL D. VANHEMERT, ESQ.
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Michigan.
2. The execution and delivery of the Credit Documents by the
Company and the performance by the Company of the Obligations have been duly
authorized by all necessary corporate action and proceedings on the part of the
Company and will not:
(a) contravene the Company's Restated Articles of
Incorporation, as amended, or bylaws;
(b) contravene any law or any contractual restriction imposed
by any indenture or any other agreement or instrument evidencing or
governing indebtedness for borrowed money of the Company; or
(c) result in or require the creation of any Lien upon or with
respect to any of the Company's properties except the lien of the
Indenture securing the Bonds and any Lien in favor of the Agent on the
Facility LC Collateral Account or any funds therein.
3. The Credit Documents have been duly executed and delivered by
the Company.
4. To the best of my knowledge, there is no pending or threatened
action or proceeding against the Company or any of its Consolidated Subsidiaries
before any court, governmental agency or arbitrator (except (i) to the extent
described in the Company's annual report on Form 10-K/A for the year ended
December 31, 2001, and Quarterly Report on Form 10-Q/A for the quarter ended
September 30, 2002, in each case as filed with the SEC, and (ii) such other
similar actions, suits and proceedings predicated on the occurrence of the same
events giving rise to any actions, suits and proceedings described in the
reports referred to in clause (i) of this paragraph 4) which might reasonably be
expected to materially adversely affect the financial condition or results of
operations of the Company and its Consolidated Subsidiaries, taken as a whole,
or that would materially adversely affect the Company's ability to perform its
obligations under any Credit Document. To the best of my knowledge, there is no
litigation challenging the validity or the enforceability of any of the Credit
Documents.
5. No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Company of any Credit
Document, except for the authorization to issue, sell or guarantee secured
and/or unsecured short-term debt granted by the Federal Energy Regulatory
Commission in Docket No. ES02-37-000 (hereinafter the "FERC Order"). The FERC
Order is in full force and effect as of the date hereof.
-1-
6. The Bonds, assuming due authentication in accordance with the
terms of the Indenture, are in due and proper form and, when delivered to the
Agent pursuant to the Bond Delivery Agreement, will evidence and secure the
Obligations owing under the Agreement and will be valid and enforceable
obligations of the Company in accordance with their terms, secured by the lien
of the Indenture on an equal and ratable basis with all other bonds issued
thereunder and otherwise entitled to the benefits provided by the Indenture.
7. The Indenture has been qualified under the Trust Indenture Act
of 1939, as amended, and the execution and delivery of the Supplemental
Indenture will not cause the Indenture to not be so qualified.
8. The Company is not an "investment company" or a company
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
9. The Company (i) is a "public utility" and a "subsidiary
company" of a "holding company", as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended (the "Holding Company Act"), and (ii) is
currently exempt from all provisions of the Holding Company Act, except Section
9(a)(2) thereof.
10. In a properly presented case, a Michigan court or a federal
court applying Michigan choice of law rules should give effect to the choice of
law provisions of the Agreement and should hold that the Agreement is to be
governed by the laws of the State of New York rather than the laws of the State
of Michigan, except in the case of those provisions set forth in the Agreement
the enforcement of which would contravene a fundamental policy of the State of
Michigan. In the course of our review of the Agreement, nothing has come to my
attention to indicate that any of such provisions would do so. Notwithstanding
the foregoing, even if a Michigan court or a federal court holds that the
Agreement is to be governed by the laws of the State of Michigan, the Agreement
constitutes a legal, valid and binding obligation of the Company, enforceable
under Michigan law (including usury provisions) against the Company in
accordance with its terms, subject to (a) the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (b) the application of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).
-2-
EXHIBIT B-2
REQUIRED OPINIONS FROM
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
11. The execution and delivery of the Credit Documents by the
Company and the performance by the Company of the Obligations will not:
(a) contravene any contractual restriction imposed by the
Company Indentures; or
(b) result in or require the creation of any Lien upon or
with respect to any of the Company's properties pursuant to either of
the Company Indentures.
12. The Agreement constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, subject to (a) the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (b) the application of general principles of
equity (regardless of whether considered in a preceding in equity or at law).
"Company Indentures" means (i) the Indenture dated as of January 1,
1996, as supplemented and amended from time to time, between the Company
(formerly known as Consumers Power Company) and The Bank of New York, as
Trustee, and (ii) the Indenture dated as of February 1, 1998, as supplemented
and amended from time to time, between the Company and JP Morgan Chase Bank
(formerly known as The Chase Manhattan Bank), as Trustee.
-3-
EXHIBIT B-3
REQUIRED OPINIONS FROM
MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.
1. The Bonds, assuming due authentication in accordance with the
terms of the Indenture, are in due and proper form and, when delivered to the
Agent pursuant to the Bond Delivery Agreement, will evidence and secure the
Obligations owing under the Agreement and will be valid and enforceable
obligations of the Company in accordance with their terms, secured by the lien
of the Indenture on an equal and ratable basis with all other bonds issued
thereunder and otherwise entitled to the benefits provided by the Indenture.
-4-
EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
I, _________________, ______________ of Consumers Energy Company, a
Michigan corporation (the "Company"), DO HEREBY CERTIFY in connection with the
Credit Agreement dated as of March 27, 2003 (the "Credit Agreement"; the terms
defined therein being used herein as so defined) among the Company, various
financial institutions and Bank One, NA (Main Office - Chicago), as Agent, that:
I. Section 8.1 of the Credit Agreement provides that the Company shall:
"At all times, maintain a ratio of Total Consolidated Debt to Total
Consolidated Capitalization of not greater than 0.65 to 1.0."
The following calculations are made in accordance with the definitions
of Total Consolidated Debt and Total Consolidated Capitalization in the
Credit Agreement and are correct and accurate as of _____________, ___:
A. Total Consolidated Debt
(a) Indebtedness for borrowed money $
plus (b) Indebtedness for deferred purchase price of
property/services
plus (c) Unfunded Vested Liabilities
plus (d) Obligations under acceptance facilities
plus (e) Obligations under Capital Leases
plus (f) Obligations under interest rate swap, "cap",
"collar" or other hedging agreement
plus (g) Guaranties, endorsements and other contingent
obligations
minus (h) Principal amount of any Securitized Bonds
minus (i) Junior Subordinated Debt owned by any Hybrid
Preferred Securities Subsidiary
minus (j) Subordinated guaranties by the Company of
payments with respect to Hybrid Preferred
Securities
minus (k) Agreed upon percentage of Net Proceeds from
issuance of hybrid debt/equity
-1-
from issuance of hybrid debt/equity
securities (other than Junior Subordinated
Debt and Hybrid Preferred Securities)
TOTAL $
B. Total Consolidated Capitalization:
(a) Total Consolidated Debt $
(b) Equity of common stockholders
(c) Equity of preference stockholders ______________
(d) Equity of preferred stockholders ______________
TOTAL $
C. Debt to Capital Ratio _____ to 1.00
(total of A divided by total of B)
II. Section 8.2 of the Credit Agreement provides that the Company shall:
"Not permit the ratio, determined as of the end of each of its fiscal
quarters for the then most-recently ended four fiscal quarters, of (i)
Consolidated EBIT to (ii) cash Consolidated Interest Expense to be less
than 2.0 to 1.0"
The following calculations are made in accordance with the definitions
of Consolidated EBIT and Consolidated Interest Expense in the Credit Agreement
and are correct and accurate as of _____________, ___:
A. Consolidated EBIT
(a) Consolidated Net Income $
plus (b) Consolidated Interest Expense $
plus (c) Expense for taxes paid or accrued $
plus (d) Non-cash write-offs and write-downs contained $
in the Company's Consolidated Net Income,
including, without limitation, write-offs or
write-downs related to the sale of assets,
impairment of assets and loss on contracts
minus (e) Extraordinary gains realized other than in $
the ordinary course of business
-2-
the ordinary course of business
TOTAL $
B. Consolidated Interest Expense $
C. Interest Coverage Ratio _______ to 1.00
(total of A divided by total of B)
IN WITNESS WHEREOF, I have signed this Certificate this ___ day of
_________, ___.
-3-
EXHIBIT D
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption (the "Assignment and Assumption") is
dated as of the Effective Date set forth below and is entered into by and
between [Insert name of Assignor] (the "Assignor") and [Insert name of Assignee]
(the "Assignee"). Capitalized terms used but not defined herein shall have the
meanings given to them in the Credit Agreement identified below (as amended, the
"Credit Agreement"), receipt of a copy of which is hereby acknowledged by the
Assignee. The Terms and Conditions set forth in Annex 1 attached hereto are
hereby agreed to and incorporated herein by reference and made a part of this
Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and
assigns to the Assignee, and the Assignee hereby irrevocably purchases and
assumes from the Assignor, subject to and in accordance with the Standard Terms
and Conditions and the Credit Agreement, as of the Effective Date inserted by
the Agent as contemplated below, the interest in and to all of the Assignor's
rights and obligations in its capacity as a Bank under the Credit Agreement and
any other documents or instruments delivered pursuant thereto that represents
the amount and percentage interest identified below of all of the Assignor's
outstanding rights and obligations under the respective facilities identified
below (including without limitation any letters of credit, guaranties and
swingline loans included in such facilities and, to the extent permitted to be
assigned under applicable law, all claims (including without limitation contract
claims, tort claims, malpractice claims, statutory claims and all other claims
at law or in equity), suits, causes of action and any other right of the
Assignor against any Person whether known or unknown arising under or in
connection with the Credit Agreement, any other documents or instruments
delivered pursuant thereto or the loan transactions governed thereby) (the
"Assigned Interest"). Such sale and assignment is without recourse to the
Assignor and, except as expressly provided in this Assignment and Assumption,
without representation or warranty by the Assignor.
1. Assignor: ___________________________________________
2. Assignee: ___________________________________________[and is an
affiliate of Assignor]
3. Borrower: CONSUMERS ENERGY COMPANY
4. Agent: Bank One, NA, as the Agent under the Credit
Agreement.
5. Credit Agreement: The Credit Agreement dated as of March 27, 2003 among
Consumers Energy Company, the Banks party thereto, and Bank One, NA, as Agent.
-1-
6. Assigned Interest:
- ----------------------------------------------------------------------------------------------------------
Aggregate Amount of
Commitment/ Outstanding Amount of Commitment/ Percentage Assigned of
Credit Exposure for all Outstanding Credit Exposure Commitment/ Outstanding Credit
Facility Assigned Banks* Assigned* Exposure(2)
- ----------------------------------------------------------------------------------------------------------
____________ $ $ _______%
- ----------------------------------------------------------------------------------------------------------
____________ $ $ _______%
- ----------------------------------------------------------------------------------------------------------
____________ $ $ _______%
- ----------------------------------------------------------------------------------------------------------
7. Trade Date: ___________________________________________(4)
Effective Date: ____________________, 20__ TO BE INSERTED BY AGENT AND WHICH
SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER BY THE AGENT.]
The terms set forth in this Assignment and Assumption are hereby agreed
to:
ASSIGNOR
[NAME OF ASSIGNOR]
By:_________________________________
Title:
ASSIGNEE
[NAME OF ASSIGNEE]
By:_________________________________
Title:
[Consented to and](5) Accepted:
BANK ONE, NA, as Agent
By:___________________________________
Title:
[Consented to:](6)
*Amount to be adjusted by the counterparties to take into account any payments
or prepayments made between the Trade Date and the Effective Date.
(2) Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans
of all Banks thereunder.
(4) Insert if satisfaction of minimum amounts is to be determined as of the
Trade Date.
(5) To be added only if the consent of the Agent is required by the terms of the
Credit Agreement.
-2-
(6) To be added only if the consent of the Company and/or other parties (e.g. LC
Issuer) is required by the terms of the Credit Agreement.
[NAME OF RELEVANT PARTY]
By:___________________________________
Title:
-3-
ANNEX 1
TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties.
1.1 Assignor. The Assignor represents and warrants that (i) it
is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned
Interest is free and clear of any lien, encumbrance or other adverse claim and
(iii) it has full power and authority, and has taken all action necessary, to
execute and deliver this Assignment and Assumption and to consummate the
transactions contemplated hereby. Neither the Assignor nor any of its officers,
directors, employees, agents or attorneys shall be responsible for (i) any
statements, warranties or representations made in or in connection with the
Credit Agreement or any other Credit Document, (ii) the execution, legality,
validity, enforceability, genuineness, sufficiency, perfection, priority,
collectibility, or value of the Credit Documents or any collateral thereunder,
(iii) the financial condition of the Company, any of its Subsidiaries or
Affiliates or any other Person obligated in respect of any Credit Document, (iv)
the performance or observance by the Company, any of its Subsidiaries or
Affiliates or any other Person of any of their respective obligations under any
Credit Document, (v) inspecting any of the property, books or records of the
Company, or any guarantor, or (vi) any mistake, error of judgment, or action
taken or omitted to be taken in connection with the Credit Extensions or the
Credit Documents.
1.2. Assignee. The Assignee (a) represents and warrants that
(i) it has full power and authority, and has taken all action necessary, to
execute and deliver this Assignment and Assumption and to consummate the
transactions contemplated hereby and to become a Bank under the Credit
Agreement, (ii) from and after the Effective Date, it shall be bound by the
provisions of the Credit Agreement as a Bank thereunder and, to the extent of
the Assigned Interest, shall have the obligations of a Bank thereunder, (iii)
agrees that its payment instructions and notice instructions are as set forth in
Schedule 1 to this Assignment and Assumption, (iv) confirms that none of the
funds, monies, assets or other consideration being used to make the purchase and
assumption hereunder are "plan assets" as defined under ERISA and that its
rights, benefits and interests in and under the Credit Documents will not be
"plan assets" under ERISA, (v) agrees to indemnify and hold the Assignor
harmless against all losses, costs and expenses (including, without limitation,
reasonable attorneys' fees) and liabilities incurred by the Assignor in
connection with or arising in any manner from the Assignee's non-performance of
the obligations assumed under this Assignment and Assumption, (vi) it has
received a copy of the Credit Agreement, together with copies of financial
statements and such other documents and information as it has deemed appropriate
to make its own credit analysis and decision to enter into this Assignment and
Assumption and to purchase the Assigned Interest on the basis of which it has
made such analysis and decision independently and without reliance on the Agent
or any other Bank, and (vii) attached as Schedule 1 to this Assignment and
Assumption is any documentation required to be delivered by the Assignee with
respect to its tax status pursuant to the terms of the Credit Agreement, duly
completed and executed by the Assignee and (b) agrees that (i) it will,
independently and without reliance on the Agent, the Assignor or any other Bank,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Credit Documents, and
-4-
(ii) it will perform in accordance with their terms all of the obligations which
by the terms of the Credit Documents are required to be performed by it as a
Bank.
2. Payments. The Assignee shall pay the Assignor, on the
Effective Date, the amount agreed to by the Assignor and the Assignee. From and
after the Effective Date, the Agent shall make all payments in respect of the
Assigned Interest (including payments of principal, interest, Reimbursement
Obligations, fees and other amounts) to the Assignor for amounts which have
accrued to but excluding the Effective Date and to the Assignee for amounts
which have accrued from and after the Effective Date.
3. General Provisions. This Assignment and Assumption shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns. This Assignment and Assumption may be
executed in any number of counterparts, which together shall constitute one
instrument. Delivery of an executed counterpart of a signature page of this
Assignment and Assumption by telecopy shall be effective as delivery of a
manually executed counterpart of this Assignment and Assumption. This Assignment
and Assumption shall be governed by, and construed in accordance with, the law
of the State of Illinois.
-5-
ADMINISTRATIVE QUESTIONNAIRE
(Schedule to be supplied by Closing Unit or Trading Documentation Unit)
(For Forms for Primary Syndication call Peterine Svoboda at 312-732-8844)
(For Forms after Primary Syndication call Jim Bartz at 312-732-1242)
-6-
US AND NON-US TAX INFORMATION REPORTING REQUIREMENTS
(Schedule to be supplied by Closing Unit or Trading Documentation Unit)
(For Forms for Primary Syndication call Peterine Svoboda at 312-732-8844)
(For Forms after Primary Syndication call Jim Bartz at 312-732-1242)
-7-
EXHIBIT E
TERMS OF SUBORDINATION
[JUNIOR SUBORDINATED DEBT]
ARTICLE ____
SUBORDINATION
Section ___.1 Applicability of Article; Securities
Subordinated to Senior Indebtedness.
(a) This Article ____ shall apply only to the Securities of
any series which, pursuant to Section ___, are expressly made subject to this
Article. Such Securities are referred to in this Article ____ as "Subordinated
Securities."
(b) The Issuer covenants and agrees, and each Holder of
Subordinated Securities by his acceptance thereof likewise covenants and agrees,
that the indebtedness represented by the Subordinated Securities and the payment
of the principal and interest, if any, on the Subordinated Securities is
subordinated and subject in right, to the extent and in the manner provided in
this Article, to the prior payment in full of all Senior Indebtedness.
"Senior Indebtedness" means the principal of and premium, if
any, and interest on the following, whether outstanding on the date hereof or
thereafter incurred, created or assumed: (i) indebtedness of the Issuer for
money borrowed by the Issuer (including purchase money obligations) or evidenced
by debentures (other than the Subordinated Securities), notes, bankers'
acceptances or other corporate debt securities, or similar instruments issued by
the Issuer; (ii) all capital lease obligations of the Issuer; (iii) all
obligations of the Issuer issued or assumed as the deferred purchase price of
property, all conditional sale obligations of the Issuer and all obligations of
the Issuer under any title retention agreement (but excluding trade accounts
payable arising in the ordinary course of business); (iv) obligations with
respect to letters of credit; (v) all indebtedness of others of the type
referred to in the preceding clauses (i) through (iv) assumed by or guaranteed
in any manner by the Issuer or in effect guaranteed by the Issuer; (vi) all
obligations of the type referred to in clauses (i) through (v) above of other
persons secured by any lien on any property or asset of the Issuer (whether or
not such obligation is assumed by the Issuer), except for (1) any such
indebtedness that is by its terms subordinated to or pari passu with the
Subordinated Notes, as the case may be, including all other debt securities and
guaranties in respect of those debt securities, issued to any other trusts,
partnerships or other entities affiliated with the Issuer which act as a
financing vehicle of the Issuer in connection with the issuance of preferred
securities by such entity or other securities which rank pari passu with, or
junior to, the Preferred Securities, and (2) any indebtedness between or among
the Issuer and its affiliates; and/or (vii) renewals, extensions or refundings
of any of the indebtedness referred to in the preceding clauses unless, in the
case of any particular indebtedness, renewal, extension or refunding, under the
express provisions of the instrument creating or evidencing the same or the
assumption or guarantee of the same, or pursuant to which the same is
outstanding, such indebtedness or such renewal, extension or refunding thereof
is not superior in right of payment to the Subordinated Securities.
-1-
This Article shall constitute a continuing obligation to all
Persons who, in reliance upon such provisions become holders of, or continue to
hold, Senior Indebtedness, and such provisions are made for the benefit of the
holders of Senior Indebtedness, and such holders are made obligees hereunder and
they and/or each of them may enforce such provisions.
Section ___.2 Issuer Not to Make Payments with Respect to
Subordinated Securities in Certain Circumstances.
(a) Upon the maturity of any Senior Indebtedness by lapse of
time, acceleration or otherwise, all principal thereof and premium and interest
thereon shall first be paid in full, or such payment duly provided for in cash
in a manner satisfactory to the holders of such Senior Indebtedness, before any
payment is made on account of the principal of, or interest on, Subordinated
Securities or to acquire any Subordinated Securities or on account of any
sinking fund provisions of any Subordinated Securities (except payments made in
capital stock of the Issuer or in warrants, rights or options to purchase or
acquire capital stock of the Issuer, sinking fund payments made in Subordinated
Securities acquired by the Issuer before the maturity of such Senior
Indebtedness, and payments made through the exchange of other debt obligations
of the Issuer for such Subordinated Securities in accordance with the terms of
such Subordinated Securities, provided that such debt obligations are
subordinated to Senior Indebtedness at least to the extent that the Subordinated
Securities for which they are exchanged are so subordinated pursuant to this
Article ____).
(b) Upon the happening and during the continuation of any
default in payment of the principal of, or interest on, any Senior Indebtedness
when the same becomes due and payable or in the event any judicial proceeding
shall be pending with respect to any such default, then, unless and until such
default shall have been cured or waived or shall have ceased to exist, no
payment shall be made by the Issuer with respect to the principal of, or
interest on, Subordinated Securities or to acquire any Subordinated Securities
or on account of any sinking fund provisions of Subordinated Securities (except
payments made in capital stock of the Issuer or in warrants, rights, or options
to purchase or acquire capital stock of the Issuer, sinking fund payments made
in Subordinated Securities acquired by the Issuer before such default and notice
thereof, and payments made through the exchange of other debt obligations of the
Issuer for such Subordinated Securities in accordance with the terms of such
Subordinated Securities, provided that such debt obligations are subordinated to
Senior Indebtedness at least to the extent that the Subordinated Securities for
which they are exchanged are so subordinated pursuant to this Article ____).
(c) In the event that, notwithstanding the provisions of this
Section ___.2, the Issuer shall make any payment to the Trustee on account of
the principal of or interest on Subordinated Securities, or on account of any
sinking fund provisions of such Securities, after the maturity of any Senior
Indebtedness as described in Section ___.2(a) above or after the happening of a
default in payment of the principal of or interest on any Senior Indebtedness as
described in Section ___.2(b) above, then, unless and until all Senior
Indebtedness which shall have matured, and all premium and interest thereon,
shall have been paid in full (or the declaration of acceleration thereof shall
have been rescinded or annulled), or such default shall have been cured or
waived or shall have ceased to exist, such payment (subject to the provisions of
Sections ___.6 and ___.7) shall be held by the Trustee, in trust for the benefit
of, and shall be
-2-
paid forthwith over and delivered to, the holders of such Senior Indebtedness
(pro rata as to each of such holders on the basis of the respective amounts of
Senior Indebtedness held by them) or their representative or the trustee under
the indenture or other agreement (if any) pursuant to which such Senior
Indebtedness may have been issued, as their respective interests may appear, for
application to the payment of all such Senior Indebtedness remaining unpaid to
the extent necessary to pay the same in full in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Indebtedness. The Issuer shall give prompt written notice to the Trustee
of any default in the payment of principal of or interest on any Senior
Indebtedness.
Section ___.3 Subordinated Securities Subordinated to Prior
Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization
of Issuer. Upon any distribution of assets of the Issuer in any dissolution,
winding up, liquidation or reorganization of the Issuer (whether voluntary or
involuntary, in bankruptcy, insolvency or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise):
(a) the holders of all Senior Indebtedness shall first be
entitled to receive payments in full of the principal thereof and premium and
interest due thereon, or provision shall be made for such payment, before the
Holders of Subordinated Securities are entitled to receive any payment on
account of the principal of or interest on such Securities;
(b) any payment or distribution of assets of the Issuer of any
kind or character, whether in cash, property or securities (other than
securities of the Issuer as reorganized or readjusted or securities of the
Issuer or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this Article ____ with respect to Subordinated Securities, to the
payment in full without diminution or modification by such plan of all Senior
Indebtedness), to which the Holders of Subordinated Securities or the Trustee on
behalf of the Holders of Subordinated Securities would be entitled except for
the provisions of this Article ____ shall be paid or delivered by the
liquidating trustee or agent or other person making such payment or distribution
directly to the holders of Senior Indebtedness or their representative, or to
the trustee under any indenture under which Senior Indebtedness may have been
issued (pro rata as to each such holder, representative or trustee on the basis
of the respective amounts of unpaid Senior Indebtedness held or represented by
each), to the extent necessary to make payment in full of all Senior
Indebtedness remaining unpaid, after giving effect to any concurrent payment or
distribution or provision thereof to the holders of such Senior Indebtedness;
and
(c) in the event that notwithstanding the foregoing provisions
of this Section ___.3, any payment or distribution of assets of the Issuer of
any kind or character, whether in cash, property or securities (other than
securities of the Issuer as reorganized or readjusted or securities of the
Issuer or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this Article ____ with respect to Subordinated Securities, to the
payment in full without diminution or modification by such plan of all Senior
Indebtedness), shall be received by the Trustee or the Holders of the
Subordinated Securities on account of principal of or interest on the
Subordinated Securities before all Senior Indebtedness is paid in full, or
effective provision made for its payment, such payment or distribution (subject
to the provisions of Section ___.6 and ___.7)
-3-
shall be received and held in trust for and shall be paid over to the holders of
the Senior Indebtedness remaining unpaid or unprovided for or their
representative, or to the trustee under any indenture under which such Senior
Indebtedness may have been issued (pro rata as provided in subsection (b)
above), for application to the payment of such Senior Indebtedness until all
such Senior Indebtedness shall have been paid in full, after giving effect to
any concurrent payment or distribution or provision therefor to the holders of
such Senior Indebtedness.
The Issuer shall give prompt written notice to the Trustee of
any dissolution, winding up, liquidation or reorganization of the Issuer.
The consolidation of the Issuer with, or the merger of the
Issuer into, another corporation or the liquidation or dissolution of the Issuer
following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided for in Article ____ hereof shall not be deemed a
dissolution, winding up, liquidation or reorganization for the purposes of this
Section ___.3 if such other corporation shall, as a part of such consolidation,
merger, conveyance or transfer, comply with the conditions stated such in
Article ____.
Section ___.4 Holders of Subordinated Securities to be
Subrogated to Right of Holders of Senior Indebtedness. Subject to the payment in
full of all Senior Indebtedness, the Holders of Subordinated Securities shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of assets of the Issuer applicable to the Senior
Indebtedness until all amounts owing on Subordinated Securities shall be paid in
full, and for the purposes of such subrogation no payments or distributions to
the holders of the Senior Indebtedness by or on behalf of the Issuer or by or on
behalf of the Holders of Subordinated Securities by virtue of this Article ____
which otherwise would have been made to the Holders of Subordinated Securities
shall, as between the Issuer, its creditors other than holders of Senior
Indebtedness and the Holders of Subordinated Securities, be deemed to be payment
by the Issuer to or on account of the Senior Indebtedness, it being understood
that the provisions of this Article ____ are and are intended solely for the
purpose of defining the relative rights of the Holders of the Subordinated
Securities, on the one hand, and the holders of the Senior Indebtedness, on the
other hand.
Section ___.5 Obligation of the Issuer Unconditional. Nothing
contained in this Article ____ or elsewhere in this Indenture or in any
Subordinated Security is intended to or shall impair, as among the Issuer, its
creditors other than holders of Senior Indebtedness and the Holders of
Subordinated Securities, the obligation of the Issuer, which is absolute and
unconditional, to pay to the Holders of Subordinated Securities the principal
of, and interest on, Subordinated Securities as and when the same shall become
due and payable in accordance with their terms, or is intended to or shall
affect the relative rights of the Holders of Subordinated Securities and
creditors of the Issuer other than the holders of the Senior Indebtedness, nor
shall anything herein or therein prevent the Trustee or the Holder of any
Subordinated Security from exercising all remedies otherwise permitted by
applicable law upon default under this Indenture, subject to the rights, if any,
under this Article ____ of the holders of Senior Indebtedness in respect of
cash, property or securities of the Issuer received upon the exercise of any
such remedy. Upon any payment or distribution of assets of the Issuer referred
to in this Article ____, the Trustee and Holders of Subordinated Securities
shall be entitled to rely upon any order or
-4-
decree made by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or reorganization proceedings are pending, or, subject
to the provisions of Section ___ and ___, a certificate of the receiver, trustee
in bankruptcy, liquidating trustee or agent or other Person making such payment
or distribution to the Trustee or the Holders of Subordinated Securities, for
the purposes of ascertaining the Persons entitled to participate in such
distribution, the holders of the Senior Indebtedness and other indebtedness of
the Issuer, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article
____.
Nothing contained in this Article ____ or elsewhere in this
Indenture or in any Subordinated Security is intended to or shall affect the
obligation of the Issuer to make, or prevent the Issuer from making, at any time
except during the pendency of any dissolution, winding up, liquidation or
reorganization proceeding, and, except as provided in subsections (a) and (b) of
Section ___.2, payments at any time of the principal of, or interest on,
Subordinated Securities.
Section ___.6 Trustee Entitled to Assume Payments Not
Prohibited in Absence of Notice. The Issuer shall give prompt written notice to
the Trustee of any fact known to the Issuer which would prohibit the making of
any payment or distribution to or by the Trustee in respect of the Subordinated
Securities. Notwithstanding the provisions of this Article ____ or any provision
of this Indenture, the Trustee shall not at any time be charged with knowledge
of the existence of any facts which would prohibit the making of any payment or
distribution to or by the Trustee, unless at least two Business Days prior to
the making of any such payment, the Trustee shall have received written notice
thereof from the Issuer or from one or more holders of Senior Indebtedness or
from any representative thereof or from any trustee therefor, together with
proof satisfactory to the Trustee of such holding of Senior Indebtedness or of
the authority of such representative or trustee; and, prior to the receipt of
any such written notice, the Trustee, subject to the provisions of Sections ___
and ___, shall be entitled to assume conclusively that no such facts exist. The
Trustee shall be entitled to rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness (or a
representative or trustee on behalf of the holder) to establish that such notice
has been given by a holder of Senior Indebtedness (or a representative of or
trustee on behalf of any such holder). In the event that the Trustee determines,
in good faith, that further evidence is required with respect to the right of
any Person as a holder of Senior Indebtedness to participate in any payments or
distribution pursuant of this Article ____, the Trustee may request such Person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness held by such Person, as to the extent to which
such Person is entitled to participate in such payment or distribution, and as
to other facts pertinent to the rights of such Person under this Article ____,
and if such evidence is not furnished, the Trustee may defer any payment to such
Person pending judicial determination as to the right of such Person to receive
such payment. The Trustee, however, shall not be deemed to owe any fiduciary
duty to the holders of Senior Indebtedness and nothing in this Article ____
shall apply to claims of, or payments to, the Trustee under or pursuant to
Section ___.
Section ___.7 Application by Trustee of Monies or Government
Obligations Deposited with It. Money or Government Obligations deposited in
trust with the Trustee pursuant to and in accordance with Section ____ shall be
for the sole benefit of Securityholders
-5-
and, to the extent allocated for the payment of Subordinated Securities, shall
not be subject to the subordination provisions of this Article ____, if the same
are deposited in trust prior to the happening of any event specified in Section
___.2. Otherwise, any deposit of monies or Government Obligations by the Issuer
with the Trustee or any paying agent (whether or not in trust) for the payment
of the principal of, or interest on, any Subordinated Securities shall be
subject to the provisions of Section ___.1, ___.2 and ___.3 except that, if
prior to the date on which by the terms of this Indenture any such monies may
become payable for any purposes (including, without limitation, the payment of
the principal of, or the interest, if any, on any Subordinated Security) the
Trustee shall not have received with respect to such monies the notice provided
for in Section ___.6, then the Trustee or the paying agent shall have full power
and authority to receive such monies and Government Obligations and to apply the
same to the purpose for which they were received, and shall not be affected by
any notice to the contrary which may be received by it on or after such date.
This Section ___.7 shall be construed solely for the benefit of the Trustee and
paying agent and, as to the first sentence hereof, the Securityholders, and
shall not otherwise effect the rights of holders of Senior Indebtedness.
Section ___.8 Subordination Rights Not Impaired by Acts or
Omissions of Issuer or Holders of Senior Indebtedness. No rights of any present
or future holders of any Senior Indebtedness to enforce subordination as
provided herein shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Issuer or by any act or failure to act,
in good faith, by any such holders or by any noncompliance by the Issuer with
the terms of this Indenture, regardless of any knowledge thereof which any such
holder may have or be otherwise charged with.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness of the Issuer may, at any time and
from time to time, without the consent of or notice to the Trustee or the
Holders of the Subordinated Securities, without incurring responsibility to the
Holders of the Subordinated Securities and without impairing or releasing the
subordination provided in this Article ____ or the obligations hereunder of the
Holders of the Subordinated Securities to the holders of such Senior
Indebtedness, do any one or more of the following: (i) change the manner, place
or terms of payment or extend the time of payment of, or renew or alter, such
Senior Indebtedness, or otherwise amend or supplement in any manner such Senior
Indebtedness or any instrument evidencing the same or any agreement under which
such Senior Indebtedness is outstanding; (ii) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing such
Senior Indebtedness; (iii) release any Person liable in any manner for the
collection for such Senior Indebtedness; and (iv) exercise or refrain from
exercising any rights against the Issuer, as the case may be, and any other
Person.
Section ___.9 Securityholders Authorize Trustee to Effectuate
Subordination of Securities. Each Holder of Subordinated Securities by his
acceptance thereof authorizes and expressly directs the Trustee on his behalf to
take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article ____ and appoints the Trustee his
attorney-in-fact for such purpose, including in the event of any dissolution,
winding up, liquidation or reorganization of the Issuer (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors or otherwise) the immediate filing of a claim for the unpaid balance
of his Subordinated Securities in the form required in said proceedings and
causing said claim to be approved. If the Trustee does not file a proper claim
or
-6-
proof of debt in the form required in such proceeding prior to 30 days before
the expiration of the time to file such claim or claims, then the holders of
Senior Indebtedness have the right to file and are hereby authorized to file an
appropriate claim for and on behalf of the Holders of said Securities.
Section ___.10 Right of Trustee to Hold Senior Indebtedness.
The Trustee in its individual capacity shall be entitled to all of the rights
set forth in this Article ____ in respect of any Senior Indebtedness at any time
held by it to the same extent as any other holder of Senior Indebtedness, and
nothing in this Indenture shall be construed to deprive the Trustee of any of
its rights as such holder.
With respect to the holders of Senior Indebtedness of the
Issuer, the Trustee undertakes to perform or to observe only such of its
covenants and obligations as are specifically set forth in this Article ____,
and no implied covenants or obligations with respect to the holders of such
Senior Indebtedness shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of such
Senior Indebtedness and, subject to the provisions of Sections ___.2 and ___.3,
the Trustee shall not be liable to any holder of such Senior Indebtedness if it
shall pay over or deliver to Holders of Subordinated Securities, the Issuer or
any other Person money or assets to which any holder of such Senior Indebtedness
shall be entitled by virtue of this Article ____ or otherwise.
Section ___.11 Article ____ Not to Prevent Events of Defaults.
The failure to make a payment on account of principal or interest by reason of
any provision in this Article ____ shall not be construed as preventing the
occurrence of an Event of Default under Section ____.
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EXHIBIT F
TERMS OF SUBORDINATION
[GUARANTY OF HYBRID PREFERRED SECURITIES]
SECTION ___. This Guarantee will constitute an unsecured
obligation of the Guarantor and will rank subordinate and junior in right of
payment to all other liabilities of the Guarantor and pari passu with any
guarantee now or hereafter entered into by the Guarantor in respect of the
securities representing common beneficial interests in the assets of the Issuer
or of any preferred or preference stock of any affiliate of the Guarantor.
-1-
EXHIBIT G
FORM OF BOND DELIVERY AGREEMENT
BOND DELIVERY AGREEMENT
CONSUMERS ENERGY COMPANY
TO
BANK ONE, NA, AS AGENT
Dated as of March 27, 2003
---------------
Relating to
First Mortgage Bonds,
2003 Collateral Series (Zero Rate)
and
2003 Collateral Series (Interest Bearing)
---------------
-1-
THIS BOND DELIVERY AGREEMENT (this "Agreement"), dated as of March 27,
2003, is between Consumers Energy Company (the "Company"), and Bank One, NA, as
agent (the "Agent") under the Credit Agreement (as amended, supplemented or
otherwise modified from time to time, the "Credit Agreement") dated as of March
27, 2003, among the Company, the financial institutions parties thereto (the
"Banks"), and the Agent. Capitalized terms used but not otherwise defined herein
have the respective meanings assigned to such terms in the Credit Agreement.
Whereas, the Company has entered into the Credit Agreement and may from
time to time make borrowings thereunder in accordance with the provisions
thereof;
Whereas, the Company has established its First Mortgage Bonds, 2003
Collateral Series (Interest Bearing) and its First Mortgage Bonds, 2003
Collateral Series (Zero Rate), in the aggregate principal amount of $265,000,000
(collectively, the "Bonds"), to be issued under and in accordance with the
Eighty-eighth Supplemental Indenture dated as of March 27, 2003 (the
"Supplemental Indenture"), to the Indenture of the Company to JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank) dated as of September 1, 1945
(as amended and supplemented, the "Indenture"); and
Whereas, the Company proposes to issue and deliver to the Agent, for
the benefit of the Banks, the Bonds in order to provide the Bonds as evidence of
(and the benefit of the lien of the Indenture with respect to the Bonds for) the
Obligations of the Company arising under the Credit Agreement.
Now, therefore, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the Company and the Agent hereby agree as follows:
ARTICLE I
THE BONDS
Section 1.1 Delivery of Bonds.
In order to provide the Bonds as evidence of (and through the Bonds the
benefit of the Lien of the Indenture for) the Obligations of the Company under
the Credit Agreement as aforesaid, the Company hereby delivers to the Agent the
Bonds in the aggregate principal amount of $265,000,000, maturing on March 26,
2004 or such later date as may be fixed as the "Termination Date" under and as
defined in the Credit Agreement and bearing interest as provided in the
Supplemental Indenture. The obligation of the Company to pay the principal of
and interest on the Bonds shall be deemed to have been satisfied and discharged
in full or in part, as the case may be, to the extent of payment by the Company
of the Obligations, all as set forth in the Bonds and in Section 1 of the
Supplemental Indenture.
The Bonds are registered in the name of the Agent and shall be owned
and held by the Agent, subject to the provisions of this Agreement, for the
benefit of the Banks, and the Company shall have no interest therein. The Agent
shall be entitled to exercise all rights of bondholders under the Indenture with
respect to the Bonds.
-2-
The Agent hereby acknowledges receipt of the Bonds.
Section 1.2 Payments on the Bonds.
Any payments received by the Agent on account of the principal of or
interest on the Bonds shall be deemed to be and treated in all respects as
payments of the Obligations, and such payments shall be distributed by the Agent
to the Banks in accordance with the provisions of the Credit Agreement
applicable to payments received by the Agent in respect of the Obligations (and
the Company hereby consents to such distributions).
ARTICLE II
NO TRANSFER OF BONDS; SURRENDER OF BONDS
Section 2.1 No Transfer of the Bonds.
The Agent shall not sell, assign or otherwise transfer any Bonds
delivered to it under this Agreement except to a successor administrative agent
under the Credit Agreement. The Company may take such actions as it shall deem
necessary, desirable or appropriate to effect compliance with such restrictions
on transfer, including the issuance of stop-transfer instructions to the trustee
under the Indenture or any other transfer agent thereunder.
Section 2.2 Surrender of Bonds.
(a) The Agent shall forthwith surrender to or upon the order of
the Company all Bonds held by it at the first time at which the Commitments
shall have been terminated and all Obligations shall have been paid in full.
(b) Upon any permanent reduction in the Aggregate Commitment
pursuant to the terms of the Credit Agreement, the Agent shall forthwith
surrender to or upon the order of the Company Bonds in an aggregate principal
amount equal to the excess of the aggregate principal amount of Bonds held by
the Agent over the Aggregate Commitment; provided that the Agent shall not
surrender Interest Bearing Bonds at any time that Zero Rate Bonds are
outstanding.
ARTICLE III
GOVERNING LAW
This Agreement shall construed in accordance with and governed by the
internal laws (without regard to the conflict of laws provisions) of the State
of New York, but giving effect to Federal laws applicable to national banks.
[SIGNATURE PAGE FOLLOWS]
-3-
IN WITNESS WHEREOF, the Company and the Agent have caused this
Agreement to be executed and delivered as of the date first above written.
CONSUMERS ENERGY COMPANY
______________________________________
Name:
Title:
BANK ONE, NA, as Agent
______________________________________
Name:
Title:
-4-
PRICING SCHEDULE
The Applicable Margin shall be determined pursuant to the table below
based on the lower of the S&P Rating and the Moody's Rating.
- ---------------------------------------------------------------------------------------------------------------------
S&P Rating
S&P Rating of S&P Rating of S&P Rating of S&P Rating of S&P Rating of lower than BB
BBB+ or BBB or BBB- or BB+ or BB or or Moody's
Moody's Moody's Moody's Moody's Moody's Rating lower
Ratings Rating of Baa1 Rating of Baa2 Rating of Baa3 Rating of Ba1 Rating of Ba2 than Ba2
- ---------------------------------------------------------------------------------------------------------------------
Eurodollar Rate + 3.00% 3.25% 3.50% 3.75% 4.00% 4.50%
- ---------------------------------------------------------------------------------------------------------------------
Alternate Base
Rate + 2.00% 2.25% 2.50% 2.75% 3.00% 3.50%
- ---------------------------------------------------------------------------------------------------------------------
For purposes of the forgoing table:
"Moody's Rating" means, at any time, the rating issued by Moody's and
then in effect with respect to the Senior Debt.
"S&P Rating" means, at any time, the rating issued by S&P and then in
effect with respect to the Senior Debt.
The Commitment Fee Rate shall be determined as follows:
(a) If the Aggregate Outstanding Credit Exposure is greater than
66-2/3% of the Aggregate Commitment, then the Commitment Fee Rate shall be
0.50%.
(b) If the Aggregate Outstanding Credit Exposure is equal to or
less than 66-2/3%, but greater than 33-1/3%, of the Aggregate Commitment, then
the Commitment Fee Rate shall be 0.75%.
(c) If the Aggregate Outstanding Credit Exposure is equal to or
less than 33-1/3% of the Aggregate Commitment, then the Commitment Fee Rate
shall be 1.00%.
COMMITMENT SCHEDULE
BANK COMMITMENT
---- ----------
Bank One, NA $ 30,000,000
Barclays Bank PLC $ 30,000,000
Citicorp North America, Inc. $ 30,000,000
JP Morgan Chase Bank $ 30,000,000
Union Bank of California, N.A. $ 30,000,000
Wachovia Bank, National Association $ 30,000,000
Standard Federal Bank N.A. $ 25,000,000
Huntington National Bank $ 20,000,000
Comerica Bank $ 15,000,000
The Fifth Third Bank $ 10,000,000
AGGREGATE COMMITMENT $250,000,000
EXHIBIT 4(g)
Execution Version
================================================================================
TERM LOAN AGREEMENT
Dated as of March 28, 2003
among
CONSUMERS ENERGY COMPANY,
as the Borrower,
THE FINANCIAL INSTITUTIONS NAMED HEREIN,
as the Banks,
and
CITICORP NORTH AMERICA, INC.,
as Agent
================================================================================
SALOMON SMITH BARNEY INC.
as Lead Arranger and Sole Book Runner
================================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS........................................................ 1
1.1 Definitions........................................................ 1
1.2 Singular and Plural................................................ 11
1.3 Accounting Terms................................................... 11
ARTICLE II THE TERM LOANS..................................................... 12
2.1 The Term Loans..................................................... 12
2.2 Making of Term Loans............................................... 12
2.3 Repayment of Term Loans............................................ 12
2.4 Optional Principal Payments........................................ 12
2.5 Mandatory Prepayments.............................................. 13
2.6 Conversion or Continuation......................................... 13
2.7 Interest Rates, Interest Payment Dates............................. 14
2.8 Rate after Maturity................................................ 14
2.9 Method of Payment.................................................. 14
2.10 Evidence of Obligation; Telephonic Notices......................... 15
2.11 Lending Installations.............................................. 15
2.12 Non-Receipt of Funds by the Agent.................................. 16
ARTICLE III RESERVED........................................................... 16
ARTICLE IV CHANGE IN CIRCUMSTANCES............................................ 16
4.1 Yield Protection................................................... 16
4.2 Replacement Bank................................................... 17
4.3 Availability of Eurodollar Rate Loans.............................. 17
4.4 Funding Indemnification............................................ 18
4.5 Taxes.............................................................. 18
4.6 Bank Certificates; Survival of Indemnity........................... 20
ARTICLE V REPRESENTATIONS AND WARRANTIES..................................... 20
5.1 Incorporation and Good Standing.................................... 20
5.2 Corporate Power and Authority; No Conflicts........................ 20
5.3 Governmental Approvals............................................. 20
5.4 Legally Enforceable Agreements..................................... 20
5.5 Financial Statements............................................... 21
5.6 Litigation......................................................... 21
5.7 Margin Stock....................................................... 21
5.8 ERISA.............................................................. 21
5.9 Insurance.......................................................... 21
5.10 Taxes.............................................................. 21
5.11 Investment Company Act............................................. 22
5.12 Public Utility Holding Company Act................................. 22
5.13 Bonds.............................................................. 22
i
ARTICLE VI AFFIRMATIVE COVENANTS............................................. 22
6.1 Payment of Taxes, Etc............................................. 22
6.2 Maintenance of Insurance.......................................... 22
6.3 Preservation of Corporate Existence, Etc.......................... 22
6.4 Compliance with Laws, Etc......................................... 22
6.5 Visitation Rights................................................. 23
6.6 Keeping of Books.................................................. 23
6.7 Reporting Requirements............................................ 23
6.8 Use of Proceeds................................................... 25
6.9 Maintenance of Properties, Etc.................................... 25
6.10 Bonds............................................................. 25
6.11 Recordation of Supplemental Indenture............................. 25
ARTICLE VII NEGATIVE COVENANTS................................................ 25
7.1 Liens............................................................. 25
7.2 Sale of Assets.................................................... 27
7.3 Mergers, Etc...................................................... 27
7.4 Compliance with ERISA............................................. 27
7.5 Change in Nature of Business...................................... 27
7.6 Restricted Payments............................................... 27
7.7 Off-Balance Sheet Liabilities..................................... 27
ARTICLE VIII FINANCIAL COVENANTS............................................... 27
8.1 Debt to Capital Ratio............................................. 27
8.2 Interest Coverage Ratio........................................... 28
ARTICLE IX EVENTS OF DEFAULT................................................. 28
9.1 Events of Default................................................. 28
9.2 Remedies.......................................................... 29
ARTICLE X WAIVERS, AMENDMENTS AND REMEDIES.................................. 29
10.1 Amendments........................................................ 29
10.2 Preservation of Rights............................................ 30
ARTICLE XI CONDITIONS PRECEDENT.............................................. 30
11.1 Delivery of Documents............................................. 31
11.2 Payment of Fees................................................... 31
11.3 No Default, Etc................................................... 31
ARTICLE XII GENERAL PROVISIONS................................................ 32
12.1 Successors and Assigns............................................ 32
12.2 Survival of Representations....................................... 34
12.3 Governmental Regulation........................................... 34
12.4 Taxes............................................................. 34
12.5 Choice of Law; Waiver of Jury Trial............................... 34
12.6 Headings.......................................................... 35
12.7 Entire Agreement.................................................. 35
ii
12.8 Expenses; Indemnification......................................... 35
12.9 Severability of Provisions........................................ 35
12.10 Setoff............................................................ 36
12.11 Ratable Payments.................................................. 36
12.12 Nonliability of Banks............................................. 36
12.13 Certain Disclosures............................................... 36
12.14 Limitation of Liability: Communications........................... 37
ARTICLE XIII THE AGENT......................................................... 37
13.1 Appointment....................................................... 37
13.2 Powers............................................................ 37
13.3 General Immunity.................................................. 38
13.4 No Responsibility for Loans, Recitals, Etc........................ 38
13.5 Action on Instructions of Banks................................... 38
13.6 Employment of Agents and Counsel.................................. 38
13.7 Reliance on Documents; Counsel.................................... 38
13.8 Agent's Reimbursement and Indemnification......................... 38
13.9 Rights as a Lender................................................ 39
13.10 Bank Credit Decision.............................................. 39
13.11 Successor Agent................................................... 39
13.12 Agent and Arranger Fees........................................... 39
ARTICLE XIV NOTICES........................................................... 39
14.1 Giving Notice..................................................... 39
14.2 Change of Address................................................. 40
14.3 Platform and Primary Web Portal................................... 40
ARTICLE XV COUNTERPARTS...................................................... 42
iii
SCHEDULES
Commitment Schedule
EXHIBITS
Exhibit A Form of Supplemental Indenture
Exhibit B-1 Required Opinions from Michael D. VanHemert, Esq.
Exhibit B-2 Required Opinions from Skadden, Arps, Slate, Meagher & Flom LLP
Exhibit B-3 Required Opinions from Miller, Canfield, Paddock and Stone, P.L.C.
Exhibit C Form of Compliance Certificate
Exhibit D Form of Assignment and Assumption Agreement
Exhibit E Terms of Subordination (Junior Subordinated Debt)
Exhibit F Terms of Subordination (Guaranty of Hybrid Preferred Securities)
Exhibit G Form of Bond Delivery Agreement
iv
TERM LOAN AGREEMENT
This Term Loan Agreement, dated as of March 28, 2003, is among
Consumers Energy Company, a Michigan corporation (the "Company"), the financial
institutions listed on the signature pages hereof (together with their
respective successors and assigns, the "Banks") and Citicorp North America,
Inc., a Delaware corporation, as Agent.
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement:
"Affiliate" means, as applied to any specified Person, any other Person
that, directly or indirectly, controls, is controlled by or is under common
control with, such specified Person and includes each officer or director or
general partner of such Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with") as applied to any specified Person means the
possession, directly or indirectly, of the power to vote five percent (5.0%) or
more of the Voting Stock or otherwise to direct or cause the direction of, the
management and policies of such Person, whether through the ownership of Voting
Stock, by contract or otherwise. "Affiliated" has a correlative meaning to
Affiliate.
"Agent" means Citicorp in its capacity as administrative agent for the
Banks pursuant to Article XIII, and not in its individual capacity as a Bank,
and any successor Agent appointed pursuant to Article XIII.
"Agreement" means this Term Loan Agreement, as amended from time to
time.
"Applicable Margin" means, with respect to Eurodollar Rate Loans at any
time, 4.50% per annum, and with respect to Floating Rate Loans at any time,
3.50% per annum.
"Approved Fund" means, with respect to any Bank that is a fund that
invests in commercial loans, any other fund that invests in commercial loans and
is managed or advised by the same investment advisor as such Bank or by an
affiliate of such investment advisor.
"Arranger" means Salomon Smith Barney Inc., a New York corporation, and
its successors, in its capacity as Lead Arranger and Sole Book Runner.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Assignment Agreement" - see Section 12.1(e).
"Banks" - see the preamble.
"Base Eurodollar Rate" means, with respect to any Interest Period
applicable to a Borrowing of Eurodollar Rate Loans, the per annum interest rate
determined by the offered rate
1
per annum at which deposits in Dollars appears on Telerate page 3750 (or any
successor page) as of 11:00 a.m. (London time), or in the event such offered
rate is not available from the Telerate page, the rate offered on deposits in
Dollars by Citibank's London Office to prime banks in the London interbank
market at 11:00 a.m. (London time), on the Eurodollar Interest Rate
Determination Date for such Interest Period and in an amount substantially equal
to the amount of the Eurodollar Rate Loan to be outstanding from Citicorp North
America, Inc. for such Interest Period.
"Base Rate" means, for any period, a fluctuating interest rate per
annum as shall be in effect from time to time, which rate per annum shall at all
times be equal to the highest of:
(i) the rate of interest announced publicly by Citibank
in New York, New York from time to time, as Citibank's base rate; and
(ii) the sum (adjusted to the nearest one-quarter of one
percent (0.25%) or, if there is no nearest one-quarter of one percent
(0.25%), to the next higher one-quarter of one percent (0.25%)) of (A)
one- half of one percent (0.50%) per annum plus (B) the rate per annum
obtained by dividing (I) the latest three-week moving average of
secondary market morning offering rates in the United States for three-
month certificates of deposit of major United States money market
banks, such three-week moving average (adjusted to the basis of a year
of 360 days) being determined weekly on each Monday (or, if any such
day is not a Business Day, on the next succeeding Business Day) for the
three-week period ending on the previous Friday (or, if such day is not
a Business Day, on the next preceding Business Day) by Citibank on the
basis of such rates reported by certificate of deposit dealers to, and
published by, the Federal Reserve Bank of New York, or, if such
publication shall be suspended or terminated, on the basis of
quotations for such rates received by Citibank from three (3) New York
certificate of deposit dealers of recognized standing selected by
Citibank, by (II) a percentage equal to 100% minus the average of the
daily percentages specified during such three-week period by the FRB
for determining the maximum reserve requirement (including, but not
limited to, any emergency, supplemental or other marginal reserve
requirement) for Citibank in respect of liabilities consisting of or
including (among other liabilities) three- month U.S. dollar
nonpersonal time deposits in the United States plus (C) the average
during such three-week period of the annual assessment rates estimated
by Citibank for determining the then current annual assessment payable
by Citibank to the Federal Deposit Insurance Corporation (or any
successor) for insuring U.S. dollar deposits of Citibank in the United
States; and
(iii) the sum of (A) one- half of one percent (0.50%) per
annum plus (B) the Federal Funds Rate in effect from time to time
during such period.
"Bond Delivery Agreement" means a bond delivery agreement substantially
in the form of Exhibit G whereby the Agent (x) acknowledges delivery of the
Bonds and (y) agrees to hold the Bonds for the benefit of the Banks and to
distribute all payments made by the Company on account thereof to the Banks.
2
"Bonds" means a series of First Mortgage Bonds created under the
Supplemental Indenture issued in favor of, and in form and substance
satisfactory to, the Agent.
"Borrowing" means a borrowing consisting of Term Loans of the same Type
made, continued or converted on the same day and, in the case of Eurodollar Rate
Loans, having the same Interest Period.
"Building Lease" means the Master Lease and Lease Supplement, each
dated as of April 23, 2001, between Consumers Campus Holdings, LLC, a wholly
owned Subsidiary of the Company, as lessee, and Wilmington Trust Company, not in
its individual capacity but solely as owner Trustee of CEC Trust 2001-A, as
lessor, together with certain other related agreements, as the same may be
amended, restated or otherwise modified and any similar agreement entered into
in replacement thereof.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in New York, New York for the conduct of
substantially all of their commercial lending activities, interbank wire
transfers can be made on the Fedwire system and dealings in United States
dollars are carried on in the London interbank market and (ii) for all other
purposes, a day (other than a Saturday or Sunday) on which banks generally are
open in New York, New York for the conduct of substantially all of their
commercial lending activities and interbank wire transfers can be made on the
Fedwire system.
"Capital Lease" means any lease which has been or would be capitalized
on the books of the lessee in accordance with GAAP.
"Citibank" means Citibank, N.A., a national banking association.
"Citicorp" means Citicorp North America, Inc., a Delaware corporation,
in its individual capacity, and its successors and assigns.
"Citigroup Parties" means Citibank, Citicorp, the Arranger and each of
their respective Affiliates, and each of their respective officers, directors,
employees, agents, advisors, and representatives.
"CMS" means CMS Energy Corporation, a Michigan corporation.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitment Schedule" means the Schedule identifying each Bank's Term
Loan Commitment as of the date hereof attached hereto and identified as such.
"Company" - see the preamble.
"Communications" is defined in Section 14.3.
"Consolidated EBIT" means for any period, Consolidated Net Income for
such period plus, (i) to the extent deducted from revenues in determining
Consolidated Net Income (without
3
duplication), (a) Consolidated Interest Expense, (b) expense for taxes paid or
accrued, and (c) any non-cash write-offs and write-downs contained in the
Company's Consolidated Net Income, including, without limitation, write-offs or
write-downs related to the sale of assets, impairment of assets and loss on
contracts, minus, (ii) to the extent included in Consolidated Net Income,
extraordinary gains realized other than in the ordinary course of business, all
calculated for the Company and its Subsidiaries on a consolidated basis in
accordance with GAAP.
"Consolidated Interest Expense" means with respect to any period for
which the amount thereof is to be determined, an amount equal to interest
expense on Debt (excluding any Hybrid Preferred Securities), including payments
in the nature of interest under Capital Leases, all calculated for the Company
and its Subsidiaries on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Company and its Subsidiaries calculated on a
consolidated basis for such period.
"Consolidated Subsidiary" means any Subsidiary whose accounts are or
are required to be consolidated with the accounts of the Company in accordance
with GAAP.
"Conversion/Continuation Notice" - see Section 2.6(b).
"Credit Agreement" means that certain Credit Agreement, dated as of
March 27, 2003, by and among the Company, the banks from time to time parties
thereto, and Bank One, NA, as agent thereunder, as amended, restated,
supplemented or otherwise modified from time to time.
"Debt" means, with respect to any Person, and without duplication, (a)
all indebtedness of such Person for borrowed money, (b) all indebtedness of such
Person for the deferred purchase price of property or services (other than trade
accounts payable arising in the ordinary course of business which are not
overdue), (c) all Unfunded Vested Liabilities of such Person (if such Person is
not the Company, determined in a manner analogous to that of determining
Unfunded Vested Liabilities of the Company), (d) all obligations of such Person
arising under acceptance facilities, (e) all obligations of such Person as
lessee under Capital Leases, (f) all obligations of such Person arising under
any interest rate swap, "cap", "collar" or other hedging agreements; provided,
however, for purposes of the calculation of Debt for this clause (f) only, the
actual amount of Debt of such Person shall be determined on a net basis to the
extent such agreements permit such amounts to be calculated on a net basis, and
(g) all guaranties, endorsements (other than for collection in the ordinary
course of business) and other contingent obligations of such Person to assure a
creditor against loss (whether by the purchase of goods or services, the
provision of funds for payment, the supply of funds to invest in any Person or
otherwise) in respect of indebtedness or obligations of any other Person of the
kinds referred to in clauses (a) through (f) above.
"Default" means an event which but for the giving of notice or lapse of
time, or both, would constitute an Event of Default.
"Designated Officer" means the Chief Financial Officer, the Treasurer,
an Assistant Treasurer, any Vice President in charge of financial or accounting
matters or the principal accounting officer of the Company.
4
"Effective Date" means March 28, 2003.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Company or is under common control (within
the meaning of Section 414(c) of the Code) with the Company.
"Eurodollar Interest Rate Determination Date" means the second Business
Day prior to the first day of each Interest Period.
"Eurodollar Rate" means, with respect to any Interest Period applicable
to a Eurodollar Rate Loan, an interest rate per annum equal to the sum of (i)
the quotient obtained by dividing (a) the Base Eurodollar Rate applicable to
that Interest Period by (b) one minus the Reserve Requirement (expressed as a
decimal) applicable to that Interest Period plus (ii) the Applicable Margin.
"Eurodollar Rate Loan" means a Term Loan which bears interest by
reference to the Eurodollar Rate.
"Event of Default" means an event described in Article IX.
"Excluded Taxes" means, in the case of each Bank or applicable Lending
Installation and the Agent, taxes imposed on its overall net income, and
franchise taxes imposed on it, by (i) the jurisdiction under the laws of which
such Bank or the Agent is incorporated or organized or (ii) the jurisdiction in
which the Agent's or such Bank's principal executive office or such Bank's
applicable Lending Installation is located.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal for each day during such period to the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day in New York, New York, for the next preceding
Business Day) in New York, New York by the Federal Reserve Bank of New York, or
if such rate is not so published for any day which is a Business Day in New
York, New York, the average of the quotations for such day on such transactions
received by the Agent from three federal funds brokers of recognized standing
selected by the Agent.
"Fee Letter" means the fee letter dated March [7], 2003 among the
Company, the Arranger and Citicorp.
"First Mortgage Bonds" means bonds issued by the Company pursuant to
the Indenture.
"Fitch" means Fitch, Inc. or any successor thereto.
"Floating Rate" means a rate per annum equal to (i) the Base Rate plus
(ii) the Applicable Margin, changing when and as the Base Rate changes.
5
"Floating Rate Loan" means a Term Loan which bears interest at the
Floating Rate.
"FRB" means the Board of Governors of the Federal Reserve System or any
successor thereto.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect on the date hereof, applied on a basis consistent
with those used in the preparation of the financial statements referred to in
Section 5.5 (except, for purposes of the financial statements required to be
delivered pursuant to Sections 6.7(b) and (c), for changes concurred in by the
Company's independent public accountants).
"Hybrid Preferred Securities" means any preferred securities issued by
a Hybrid Preferred Securities Subsidiary, where such preferred securities have
the following characteristics;
(i) such Hybrid Preferred Securities Subsidiary lends
substantially all of the proceeds from the issuance of such preferred
securities to the Company or a wholly-owned direct or indirect
Subsidiary of the Company in exchange for Junior Subordinated Debt
issued by the Company or such wholly-owned direct or indirect
Subsidiary, respectively;
(ii) such preferred securities contain terms providing for
the deferral of interest payments corresponding to provisions providing
for the deferral of interest payments on the Junior Subordinated Debt;
and
(iii) the Company or a wholly-owned direct or indirect
Subsidiary of the Company (as the case may be) makes periodic interest
payments on the Junior Subordinated Debt, which interest payments are
in turn used by the Hybrid Preferred Securities Subsidiary to make
corresponding payments to the holders of the preferred securities.
"Hybrid Preferred Securities Subsidiary" means any Delaware business
trust (or similar entity) (i) all of the common equity interest of which is
owned (either directly or indirectly through one or more wholly-owned
Subsidiaries of the Company) at all times by the Company or a wholly-owned
direct or indirect Subsidiary of the Company, (ii) that has been formed for the
purpose of issuing Hybrid Preferred Securities and (iii) substantially all of
the assets of which consist at all times solely of Junior Subordinated Debt
issued by the Company or a wholly-owned direct or indirect Subsidiary of the
Company (as the case may be) and payments made from time to time on such Junior
Subordinated Debt.
"Indenture" means the Indenture, dated as of September 1, 1945, as
supplemented and amended from time to time, from the Company to JPMorgan Chase
Bank (formerly known as The Chase Manhattan Bank), as successor Trustee.
"Interest Period" means, with respect to a Eurodollar Advance, a period
of one, two, three or six months, or such shorter or longer period agreed to by
the Company and the Banks, commencing on a Business Day selected by the Company
pursuant to this Agreement. Such Interest Period shall end on the day which
corresponds numerically to such date one, two, three
6
or six months thereafter (or such shorter or longer period agreed to by the
Company and the Banks), provided, however, that if there is no such numerically
corresponding day in such next, second, third or sixth succeeding month (or such
shorter or longer period, as applicable), such Interest Period shall end on the
last Business Day of such next, second, third or sixth succeeding month (or such
shorter or longer period, as applicable). If an Interest Period would otherwise
end on a day which is not a Business Day, such Interest Period shall end on the
next succeeding Business Day, provided, however, that if said next succeeding
Business Day falls in a new calendar month, such Interest Period shall end on
the immediately preceding Business Day. The Company may not select any Interest
Period that ends after the Maturity Date.
"Junior Subordinated Debt" means any unsecured Debt of the Company or a
Subsidiary of the Company (i) issued in exchange for the proceeds of Hybrid
Preferred Securities and (ii) subordinated to the rights of the Banks hereunder
and under the other Loan Documents pursuant to terms of subordination
substantially similar to those set forth in Exhibit E. or pursuant to other
terms and conditions satisfactory to the Majority Banks.
"Lending Installation" means any office, branch, subsidiary or
affiliate of a Bank.
"Lien" means any lien (statutory or otherwise), security interest,
mortgage, deed of trust, priority, pledge, charge, conditional sale, title
retention agreement, financing lease or other encumbrance or similar right of
others, or any agreement to give any of the foregoing.
"Loan" means a Floating Rate Loan or a Eurodollar Rate Loan.
"Loan Documents" means this Agreement, the Supplemental Indenture and
the Bonds.
"Majority Banks" means, as of any date of determination, Banks whose
Pro Rata Shares, in the aggregate, are 51% or greater as of such date.
"Material Adverse Change" means any event, development or circumstance
that has had or could reasonably be expected to have a material adverse effect
on (a) the business, assets, property, financial condition, results of
operations or prospects of the Company and its Subsidiaries, considered as a
whole, (b) the Company's ability to perform its obligations under this Agreement
and the other Loan Documents or (c) the validity or enforceability of any Loan
Document or the rights or remedies of the Agent or the Banks thereunder.
"Maturity Date" means March 28, 2006.
"Moody's" means Moody's Investors Service, Inc. or any successor
thereto.
"Multiemployer Plan" means a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA.
"Net Cash Proceeds of Sale" means proceeds received by the Company in
cash (including cash, equivalents readily convertible into cash, and such
proceeds of any notes received as consideration of any other non-cash
consideration) from the sale, assignment or other disposition of (but not the
lease or license of) any Property, other than sales of inventory in the ordinary
course of business and sales of accounts receivable pursuant to the Receivables
Sale
7
Agreement, net of (A) the costs of sale, assignment or other disposition, (B)
any income, franchise, transfer or other tax liability arising from such
transaction and (C) amounts applied to the repayment of Debt (other than the
Obligations) secured by a Lien permitted by Section 7.1 on the asset disposed
of, if such net proceeds arise from any individual sale, assignment or other
disposition or from any group of related sales, assignments or other
dispositions.
"Net Proceeds" means, with respect to any sale or issuance of
securities or incurrence of Debt by any Person, the excess of (i) the gross cash
proceeds received by or on behalf of such Person in respect of such sale,
issuance or incurrence (as the case may be) over (ii) customary underwriting
commissions, auditing and legal fees, printing costs, rating agency fees and
other customary and reasonable fees and expenses incurred by such Person in
connection therewith.
"Net Worth" means, with respect to any Person, the excess of such
Person's total assets over its total liabilities, total assets and total
liabilities each to be determined in accordance with GAAP consistently applied,
excluding, however, from the determination of total assets (i) goodwill,
organizational expenses, research and development expenses, trademarks, trade
names, copyrights, patents, patent applications, licenses and rights in any
thereof, and other similar intangibles, (ii) cash held in a sinking or other
analogous fund established for the purpose of redemption, retirement or
prepayment of capital stock or Debt, and (iii) any items not included in clauses
(i) or (ii) above, that are treated as intangibles in conformity with GAAP.
"Non-U.S. Bank" - see Section 4.5(d).
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Term Loans and all other obligations of the Company to the Banks
or to any Bank or the Agent or Arranger arising under the Loan Documents.
"Off-Balance Sheet Liability" of a Person means (i) any repurchase
obligation or liability of such Person with respect to accounts or notes
receivable sold by such Person, (ii) any liability under any sale and leaseback
transaction which is not a Capital Lease, (iii) any liability under any
so-called "synthetic lease" transaction entered into by such Person, or (iv) any
obligation arising with respect to any other transaction which is the functional
equivalent of or takes the place of borrowing but which does not constitute a
liability on the balance sheets of such Person, but excluding from this clause
(iv) Operating Leases.
"Operating Lease" of a Person means any lease of Property (other than a
Capital Lease) by such Person as lessee.
"Other Taxes" - see Section 4.5(b).
"Outstanding Term Loan" - see the Recitals.
"Payment Date" means the second Business Day of each calendar quarter
occurring after the Effective Date.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
8
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority or other entity of whatever
nature.
"Plan" means any employee benefit plan (other than a Multiemployer
Plan) maintained for employees of the Company or any ERISA Affiliate and covered
by Title IV of ERISA.
"Platform" is defined in Section 14.3.
"Primary Web Portal" is defined in Section 14.3.
"Property" of a Person means any and all property, whether real,
personal, tangible, intangible, or mixed, of such Person, or other assets owned,
leased or operated by such Person.
"Pro Rata Share" means, with respect to any Bank, at any time, the
percentage obtained by dividing (i) the outstanding principal balance of such
Bank's Term Loan at such time by (ii) the outstanding principal balance of all
Term Loans.
"Receivables Sale Agreement" means the Amended and Restated Receivables
Sale Agreement among the Company, Asset Securitization Cooperative Corporation
and Canadian Imperial Bank of Commerce, dated as of April 1, 2002, as the same
may be amended, restated or otherwise modified and any similar agreement entered
into in replacement thereof.
"Regulation D" means Regulation D of the FRB from time to time in
effect and shall include any successor or other regulation or official
interpretation of said FRB relating to reserve requirements applicable to member
banks of the Federal Reserve System.
"Regulation U" means Regulation U of the FRB from time to time in
effect and shall include any successor or other regulation or official
interpretation of said FRB relating to the extension of credit by banks,
non-banks and non-broker-dealers for the purpose of purchasing or carrying
margin stocks.
"Reportable Event" has the meaning assigned to that term in Title IV of
ERISA.
"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on Eurocurrency
liabilities.
"S&P" means Standard and Poor's Rating Services, a division of The
McGraw Hill Companies, Inc. or any successor thereto.
"SEC" means the Securities and Exchange Commission or any governmental
authority which may be substituted therefor.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
9
"Securitized Bonds" shall mean any nonrecourse bonds or similar
asset-backed securities issued by a special-purpose Subsidiary of the Company
which are payable solely from specialized charges authorized by the utility
commission of the relevant state in connection with the recovery of regulatory
assets, other stranded costs or other "Qualified Costs" (as defined in M.C.L.
460.10h(g)) authorized to be securitized by the Michigan Public Service
Commission.
"Senior Debt" means the First Mortgage Bonds.
"September 2002 Loan Agreement Obligations" means the "Obligations" as
defined in that certain Amended and Restated Term Loan Agreement dated as of
September 26, 2002 among Consumers Energy Company as borrower, Citicorp North
America, Inc. as agent and the financial institutions party thereto as banks (as
amended or modified from time to time).
"Single Employer Plan" means a Plan maintained by the Company or any
ERISA Affiliate for employees of the Company or any ERISA Affiliate.
"Subsidiary" means, as to any Person, any corporation or other entity
of which at least a majority of the securities or other ownership interests
having ordinary voting power (absolutely or contingently) for the election of
directors or other Persons performing similar functions are at the time owned
directly or indirectly by such Person.
"Supplemental Indenture" means a supplemental indenture substantially
in the form of Exhibit A.
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings, and any and all liabilities with
respect to the foregoing, but excluding Excluded Taxes and Other Taxes.
"Termination Event" means (a) a Reportable Event described in Section
4043 of ERISA and the regulations issued thereunder (other than a Reportable
Event not subject to the provision for 30-day notice to the PBGC under such
regulations), or (b) the withdrawal of the Company or any of its ERISA
Affiliates from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001 (a) (2) of ERISA, or (c) the filing of a
notice of intent to terminate a Plan or the treatment of a Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of proceedings
to terminate a Plan by the PBGC or to appoint a trustee to administer any Plan.
"Term Loan Commitment" means, for each Bank, the obligation of such
Bank to make a term loan to the Company on the Effective Date in an amount not
exceeding the amount set forth on the Commitment Schedule as its Term Loan
Commitment.
"Term Loans" - see Section 2.1.
"Total Consolidated Capitalization" means, at any date of
determination, the sum of (a) Total Consolidated Debt, (b) equity of the common
stockholders of the Company, (c) equity of the preference stockholders of the
Company and (d) equity of the preferred stockholders of the Company, in each
case determined at such date.
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"Total Consolidated Debt" means, at any date of determination, the
aggregate Debt of the Company and its Consolidated Subsidiaries; provided, that
Total Consolidated Debt shall exclude (i) the principal amount of any
Securitized Bonds, (ii) any Junior Subordinated Debt owned by any Hybrid
Preferred Securities Subsidiary, (iii) any guaranty by the Company of payments
with respect to any Hybrid Preferred Securities, provided that such guaranty is
subordinated to the rights of the Banks hereunder and under the other Loan
Documents pursuant to terms of subordination substantially similar to those set
forth in Exhibit F, or pursuant to other terms and conditions satisfactory to
the Majority Banks, (iv) such percentage of the Net Proceeds from any issuance
of hybrid debt/equity securities (other than Junior Subordinated Debt and Hybrid
Preferred Securities) by the Company or any Consolidated Subsidiary as shall be
agreed to be deemed equity by the Agent and the Company prior to the issuance
thereof (which determination shall be based on, among other things, the
treatment (if any) given to such securities by the applicable rating agencies).
"Type" means, with respect to any Loan, the character of such Loan as a
Eurodollar Rate Loan or a Floating Rate Loan.
"Unfunded Vested Liabilities" means, (i) in the case of Single Employer
Plans, the amount (if any) by which the present value of all vested
nonforfeitable benefits under such Plan exceeds the fair market value of all
Plan assets allocable to such benefits, all determined as of the then most
recent valuation date for such Plan, and (ii) in the case of Multiemployer
Plans, the withdrawal liability of the Company and its ERISA Affiliates.
"Voting Stock" means, with respect to any Person, shares, securities,
limited liability company interests, general or limited partnership interests or
other equivalents with respect to any class or classes of capital stock of such
Person entitling any holder thereof (whether at all times or only so long as no
senior class of capital stock has voting power by reason of any contingency) (a)
in the case of a corporation (or equivalent organization), to vote in the
election of members of the board of directors (or the equivalent thereof) of
such Person, (b) in the case of a limited liability company, to vote in the
election of managers of such Person or to bind or otherwise act as agent for
such Person, (c) in the case of a limited partnership, to vote on the admission
of the general partner of such Person or to bind or otherwise act as agent for
such Person or (iv) in the case of a general partnership, to bind or otherwise
act as agent for such Person.
1.2 Singular and Plural. The foregoing definitions shall be
equally applicable to both the singular and plural forms of the defined terms.
1.3 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. If any changes in
generally accepted accounting principles are hereafter required or permitted and
are adopted by the Company or any of its Subsidiaries, or the Company or any of
its Subsidiaries shall change its application of generally accepted accounting
principles with respect to any Off-Balance Sheet Liabilities, in each case, with
the agreement of its independent certified public accountants and such changes
result in a change in the method of calculation of any of the financial
covenants, tests, restrictions or standards herein or in the related definitions
or terms used therein ("Accounting Changes"), the parties hereto agree, at the
Company's request, to enter into negotiations, in good faith, in order to amend
such
11
provisions in a credit neutral manner so as to reflect equitably such changes
with the desired result that the criteria for evaluating the Company's and its
Subsidiaries' financial condition shall be the same after such changes as if
such changes had not been made; provided, however, until such provisions are
amended in a manner reasonably satisfactory to the Agent, the Arranger and the
Majority Banks, no Accounting Change shall be given effect in such calculations.
In the event such amendment is entered into, all references in this Agreement to
GAAP shall mean generally accepted accounting principles as of the date of such
amendment.
ARTICLE II
THE TERM LOANS
2.1 The Term Loans. Each Bank severally agrees, on the terms and
conditions set forth in this Agreement, to make a term loan to the Company on
the Effective Date in an amount equal to such Bank's Term Loan Commitment (each
individually, a "Term Loan" and, collectively, the "Term Loans "). The Term
Loans shall initially be Floating Rate Loans and thereafter may be continued as
Floating Rate Loans or converted into Eurodollar Rate Loans in the manner
provided in Section 2.6.
2.2 Making of Term Loans. Not later than 1:00 p.m. (New York time)
on the Effective Date, each Bank shall make available its applicable Term Loan
in funds immediately available in New York to the Agent at its address specified
pursuant to Section 14. To the extent funds are received from the Banks, the
Agent will make such funds available to the Company at the Agent's aforesaid
address. No Bank's obligation to make any Term Loan shall be affected by any
other Bank's failure to make any Term Loan.
2.3 Repayment of Term Loans. The Term Loans shall be paid in full
on the Maturity Date.
2.4 Optional Principal Payments. The Company may, upon at least
three (3) Business Days' prior written notice to the Agent (which the Agent
shall promptly transmit to each Bank), at any time and from time to time,
without penalty or premium, prepay the Term Loans which are Floating Rate Loans,
in whole or in part. Term Loans which are Eurodollar Rate Loans may be prepaid
in whole or in part upon at least five (5) Business Days' prior written notice
to the Agent (which the Agent shall promptly transmit to each Bank), (A) on the
expiration date of the then applicable Interest Period therefor, and (B) on any
other date upon payment of the amounts required by Section 4.4, but otherwise
without penalty or premium. Any notice of prepayment given to the Agent under
this Section 2.4 shall specify the date (which shall be a Business Day) of
prepayment, the aggregate principal amount of the prepayment and any allocation
of such amount among Floating Rate Loans and Eurodollar Rate Loans. When notice
of prepayment is delivered as provided herein, the principal amount of the Term
Loans specified in the notice shall become due and payable on the prepayment
date specified in such notice. Unless the aggregate outstanding principal
balance of the Term Loans is to be prepaid in full, voluntary prepayments of the
Term Loans shall be in an aggregate minimum amount of $10,000,000 and integral
multiples of $1,000,000 in excess of that amount. Each voluntary prepayment of
the Term Loans shall be allocated first to Term Loans which are Floating Rate
Loans until paid in full and then to Term Loans which are Eurodollar Rate Loans.
Amounts prepaid hereunder may not be
12
reborrowed. Upon any prepayment of the Term Loans pursuant to the terms of this
Section 2.4, the Agent shall, upon request of the Company, promptly surrender to
or upon the order of the Company one or more Bonds specified by the Company;
provided that the Company remains in compliance with Section 6.10.
2.5 Mandatory Prepayments. After repayment of the September 2002
Loan Agreement Obligations, the Company shall make mandatory prepayments of the
Term Loans as provided in this Section 2.5. Within three Business Days after the
Company's receipt of any Net Cash Proceeds of Sale, the Company shall make a
written offer to the Banks to prepay the Term Loans by an amount equal to 50% of
such Net Cash Proceeds of Sale; provided, however, that (i) the Company may
retain up to an aggregate of $100,000,000 of such Net Cash Proceeds of Sale
during the period beginning on September 26, 2002 and ending upon irrevocable
payment of the Obligations before it shall be required to make any such
mandatory offer, and (ii) the Company shall not be required to make any such
mandatory offer unless and until the aggregate amount of such mandatory offer
(on a cumulative basis) would be at least $1,000,000. Such offer shall be
transmitted by facsimile and by overnight courier to each Bank and shall be
deemed received on the Business Day following transmittal. Each Bank shall have
three Business Days following its receipt of such offer to submit a written
response to the Company's prepayment offer, and if any Bank shall not have
responded by the close of business on the third Business Day, it shall be deemed
to have accepted such offer. Payment shall be made to the Agent for the account
of all Banks that have accepted the prepayment offer on the fourth Business Day
following their receipt of the offer from the Company. If any Bank elects not to
accept its Pro Rata Share thereof, such prepayment shall be applied ratably to
the Term Loans of the Banks that have accepted such offer. Amounts prepaid
hereunder may not be reborrowed. Upon any prepayment of the Term Loans pursuant
to the terms of this Section 2.5, the Agent shall, upon request of the Company,
promptly surrender to or upon the order of the Company one or more Bonds
specified by the Company; provided that the Company remains in compliance with
Section 6.10.
2.6 Conversion or Continuation. (a) The Company shall have the
option (A) to convert at any time all or any part of outstanding Floating Rate
Loans to Eurodollar Rate Loans; (B) to convert all or any part of outstanding
Eurodollar Rate Loans having Interest Periods which expire on the same date to
Floating Rate Loans on such expiration date; or (C) to continue all or any part
of outstanding Eurodollar Rate Loans having Interest Periods which expire on the
same date as Eurodollar Rate Loans, and the succeeding Interest Period of such
continued Loans shall commence on such expiration date; provided, however, no
such outstanding Loan may be continued as, or be converted into, a Eurodollar
Rate Loan (i) if the continuation of, or the conversion into, would violate any
of the provisions of this Agreement or (ii) if a Default or Event of Default
would occur or has occurred and is continuing. Any conversion into or
continuation of Eurodollar Rate Loans under this Section 2.6 shall be in a
minimum amount of $10,000,000 and in integral multiples of $1,000,000 in excess
of that amount.
(b) To convert or continue a Loan under Section 2.6(a), the
Company shall deliver an irrevocable notice (a "Conversion/Continuation Notice")
to the Agent no later than 11:00 a.m. (New York time) at least three (3)
Business Days in advance of the proposed conversion/continuation date. A
Conversion/Continuation Notice shall specify (A) the proposed
conversion/continuation date (which shall be a Business Day), (B) the principal
amount of the Loan to be converted/continued, (C) whether such Loan shall be
converted and/or continued, and
13
(D) in the case of a conversion to, or continuation of, a Eurodollar Rate Loan,
the requested Interest Period. Promptly after receipt of a
Conversion/Continuation Notice under this Section 2.6(b) (or telephonic notice
in lieu thereof), the Agent shall notify each Bank by telex or telecopy, or
other similar form of transmission, of the proposed conversion/continuation. Any
Conversion/Continuation Notice for conversion to, or continuation of, a Loan (or
telephonic notice in lieu thereof) shall be irrevocable, and the Company shall
be bound to convert or continue in accordance therewith.
2.7 Interest Rates, Interest Payment Dates. (a) Subject to
Section 2.8, each Term Loan shall bear interest as follows:
(i) if it is a Floating Rate Loan, at a rate per annum
equal to the Floating Rate from time to time in effect; and
(ii) if it is a Eurodollar Rate Loan, at a rate per annum
equal to the Eurodollar Rate for each applicable Interest Period
therein.
Changes in the rate of interest on that portion of any Term Loan maintained as a
Floating Rate Loan will take effect simultaneously with each change in the
Floating Rate.
(b) Interest accrued on each Floating Rate Loan shall be payable
on each Payment Date and at maturity. Interest accrued on each Eurodollar Rate
Loan shall be payable on the last day of its applicable Interest Period, on any
date on which such Eurodollar Rate Loan is prepaid and at maturity. Interest
accrued on each Eurodollar Rate Loan having an Interest Period longer than three
months shall also be payable on the last day of each three- month interval
during such Interest Period. Interest on all Term Loans shall be calculated for
actual days elapsed on the basis of a 360-day year. In computing interest on any
Term Loan, the date of the making of the Term Loan or the first day of an
Interest Period, as the case may be, shall be included and the date of payment
or the expiration date an Interest Period, as the case may be, shall be
excluded; provided, however, if a Term Loan is repaid on the same day on which
it is made, one (1) day's interest shall be paid on such Term Loan. If any
payment of principal of or interest on an Advance shall become due on a day
which is not a Business Day, such payment shall be made on the next succeeding
Business Day and, in the case of a principal payment, such extension of time
shall be included in computing interest in connection with such payment.
2.8 Rate after Maturity. Any Term Loan not paid by the Company at
maturity, whether by acceleration or otherwise, shall bear interest until paid
in full at a rate per annum equal to the higher of the rate otherwise applicable
thereto plus 2% or the Floating Rate plus 2%. All other Obligations that are not
paid when due (including, without limitation, overdue interest beyond the
applicable grace period) shall bear interest until paid in full at a rate per
annum equal to the Floating Rate plus 2%. In addition, in the case of overdue
interest beyond the applicable grace period, until such overdue interest is paid
in full, the principal amount to which such interest relates shall also bear
interest at a rate per annum equal to the higher of the rate otherwise
applicable thereto plus 2% or the Floating Rate plus 2%.
2.9 Method of Payment. All payments of principal, interest and
fees hereunder shall be made in immediately available funds to the Agent at its
address specified on its signature page to this Agreement (or at any other
Lending Installation of the Agent specified in writing by the
14
Agent to the Company) not later than 1:00 p.m. (New York time) on the date when
due and shall be applied ratably by the Agent among the Banks. Funds received
after such time shall be deemed received on the following Business Day unless
the Agent shall have received from, or on behalf of, the Company a Federal
Reserve reference number with respect to such payment before 1:00 p.m. (New York
time) on the date of such payment. Each payment delivered to the Agent for the
account of any Bank shall be delivered promptly by the Agent in the same type of
funds received by the Agent to such Bank at the address specified for such Bank
on its signature page to this Agreement or at any Lending Installation specified
in a notice received by the Agent from such Bank. The Agent is hereby authorized
to charge the account of the Company maintained with Citicorp, if any, for each
payment of principal, interest and fees as such payment becomes due hereunder.
2.10 Evidence of Obligation; Telephonic Notices.
(a) The obligation of the Company to repay the Obligations shall
be evidenced by one or more Bonds.
(b) Each Bank shall maintain in accordance with its usual practice
an account or accounts evidencing the indebtedness of the Company to such Bank
resulting from each Term Loan made by such Bank from time to time, including the
amounts of principal and interest payable and paid to such Bank from time to
time hereunder.
(c) The Agent shall also maintain accounts in which it will record
(i) the amount of each Term Loan made hereunder, the Type thereof and the
Interest Period with respect thereto, (ii) the amount of any principal or
interest due and payable or to become due and payable from the Company to each
Bank hereunder, and (iii) the amount of any sum received by the Agent hereunder
from the Company and each Bank's share thereof.
(d) The entries maintained in the accounts maintained pursuant to
paragraphs (b) and (c) above shall be prima facie evidence of the existence and
amounts of the Obligations therein recorded; provided, however, that the failure
of the Agent or any Bank to maintain such accounts or any error therein shall
not in any manner affect the obligation of the Company to repay the Obligations
in accordance with their terms.
(e) The Company hereby authorizes the Banks and the Agent to make,
convert or continue Term Loans based on telephonic notices made by any person or
persons the Agent or any Bank in good faith believes to be acting on behalf of
the Company. The Company agrees to deliver promptly to the Agent a written
confirmation of each telephonic notice signed by a Designated Officer. If the
written confirmation differs in any material respect from the action taken by
the Agent and the Banks, the records of the Agent and the Banks shall govern
absent manifest error.
2.11 Lending Installations. Subject to the provisions of Section
4.6, each Bank may book its Term Loans at any Lending Installation selected by
such Bank and may change its Lending Installation from time to time. All terms
of this Agreement shall apply to any such Lending Installation and the Term
Loans shall be deemed held by the applicable Bank for the benefit of such
Lending Installation. Each Bank may, by written or facsimile notice to the
15
Company, designate a Lending Installation through which Term Loans will be made
by it and for whose account payments on the Term Loans are to be made.
2.12 Non-Receipt of Funds by the Agent. Unless a Bank or the
Company, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Bank, the
proceeds of a Term Loan or (ii) in the case of the Company, a payment of
principal, interest or fees to the Agent for the account of the Banks, that it
does not intend to make such payment, the Agent may assume that such payment has
been made. The Agent may, but shall not be obligated to, make the amount of such
payment available to the intended recipient in reliance upon such assumption. If
such Bank or the Company, as the case may be, has not in fact made such payment
to the Agent, the recipient of such payment shall, on demand by the Agent, repay
to the Agent the amount so made available together with interest thereon in
respect of each day during the period commencing on the date such amount was so
made available by the Agent until the date the Agent recovers such amount at a
rate per annum equal to (i) in the case of payment by a Bank, the Federal Funds
Rate for such day or (ii) in the case of payment by the Company, the interest
rate applicable to the relevant Term Loan.
ARTICLE III
RESERVED
ARTICLE IV
CHANGE IN CIRCUMSTANCES
4.1 Yield Protection. (a) If any change in law or any governmental
rule, regulation, policy, guideline or directive (whether or not having the
force of law), or any interpretation thereof by any agency or authority having
jurisdiction over any Bank,
(i) subjects any Bank or any applicable Lending
Installation to any increased tax, duty, charge or withholding on or
from payments due from the Company (excluding taxation measured by or
attributable to the overall net income of such Bank or applicable
Lending Installation, whether overall or in any geographic area), or
changes the rate of taxation of payments to any Bank in respect of its
Term Loans or other amounts due it hereunder, or
(ii) imposes or increases or deems applicable any reserve,
assessment, insurance charge, special deposit or similar requirement
against assets of, deposits with or for the account of, or credit
extended by any Bank or any applicable Lending Installation (including,
without limitation, any reserve costs under Regulation D with respect
to Eurocurrency liabilities (as defined in Regulation D)), or
(iii) imposes any other condition the result of which is to
increase the cost to any Bank or any applicable Lending Installation of
making, funding or maintaining Term Loans, or reduces any amount
receivable by any Bank or any applicable Lending Installation in
connection with Term Loans or requires any Bank or
16
any applicable Lending Installation to make any payment calculated by
reference to its Term Loans or interest received by it, by an amount
deemed material by such Bank, or
(iv) affects the amount of capital required or expected to
be maintained by any Bank or Lending Installation or any corporation
controlling any Bank and such Bank determines the amount of capital
required is increased by or based upon the existence of this Agreement
or its obligation to make Term Loans hereunder or of commitments of
this type,
then, upon presentation by such Bank to the Company of a certificate (as
referred to in the immediately succeeding sentence of this Section 4.1) setting
forth the basis for such determination and the additional amounts reasonably
determined by such Bank for the period of up to 90 days prior to the date on
which such certificate is delivered to the Company and the Agent, to be
sufficient to compensate such Bank in light of such circumstances, the Company
shall within 30 days of such delivery of such certificate pay to the Agent for
the account of such Bank the specified amounts set forth on such certificate.
The affected Bank shall deliver to the Company and the Agent a certificate
setting forth the basis of the claim and specifying in reasonable detail the
calculation of such increased expense, which certificate shall be prima facie
evidence as to such increase and such amounts. An affected Bank may deliver more
than one certificate to the Company during the term of this Agreement. In making
the determinations contemplated by the above-referenced certificate, any Bank
may make such reasonable estimates, assumptions, allocations and the like that
such Bank in good faith determines to be appropriate, and such Bank's selection
thereof in accordance with this Section 4.1 shall be conclusive and binding on
the Company, absent manifest error.
(b) No Bank shall be entitled to demand compensation or be
compensated hereunder to the extent that such compensation relates to any period
of time more than 90 days prior to the date upon which such Bank first notified
the Company of the occurrence of the event entitling such Bank to such
compensation (unless, and to the extent, that any such compensation so demanded
shall relate to the retroactive application of any event so notified to the
Company).
4.2 Replacement Bank. If any Bank shall make a demand for payment
under Section 4.1, then within 30 days after such demand, the Company may, with
the approval of the Agent (which approval shall not be unreasonably withheld)
and provided that no Default or Event of Default shall then have occurred and be
continuing, demand that such Bank assign to one or more financial institutions
designated by the Company and approved by the Agent all (but not less than all)
of such Bank's outstanding Term Loans within the period ending on the later of
such 30th day and the last day of the longest of the then current Interest
Periods or maturity dates for such outstanding Term Loans. It is understood that
such assignment shall be consummated on terms satisfactory to the Company, the
Agent and the assigning Bank, provided that such assigning Bank's consent to
such an assignment shall not be unreasonably withheld.
4.3 Availability of Eurodollar Rate Loans. If:
(i) any Bank determines that maintenance of a Eurodollar
Rate Loan at a suitable Lending Installation would violate any
applicable law, rule, regulation or directive, whether or not having
the force of law, or
17
(ii) the Majority Banks determine that (A) deposits of a
type and maturity appropriate to match fund Eurodollar Rate Loans are
not available or (B) the Base Eurodollar Rate does not accurately
reflect the cost of making or maintaining a Eurodollar Rate Loan,
then the Agent shall suspend the availability of Eurodollar Rate Loans and, in
the case of clause (i), require any Eurodollar Rate Loans to be converted to
Floating Rate Loans on such date as is required by the applicable law, rule,
regulation or directive.
4.4 Funding Indemnification. If any payment of a Eurodollar Rate
Loan occurs on a date which is not the last day of an applicable Interest
Period, whether because of prepayment or otherwise, or a Eurodollar Rate Loan is
not made on the date specified by the Company for any reason other than default
by the Banks, the Company will indemnify each Bank for any loss or cost (but not
lost profits) incurred by it resulting therefrom, including, without limitation,
any loss or cost in liquidating or employing deposits acquired to fund or
maintain such Eurodollar Rate Loan; provided that the Company shall not be
liable for any of the foregoing to the extent they arise because of acceleration
by any Bank.
4.5 Taxes.
(a) All payments by the Company to or for the account of any Bank
or the Agent hereunder or under any Bond shall be made free and clear of and
without deduction for any and all Taxes. If the Company shall be required by law
to deduct any Taxes from or in respect of any sum payable hereunder to any Bank
or the Agent, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 4.5) such Bank or the Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Company shall make such deductions, (iii) the
Company shall pay the full amount deducted to the relevant authority in
accordance with applicable law and (iv) the Company shall furnish to the Agent
the original copy of a receipt evidencing payment thereof within 30 days after
such payment is made.
(b) In addition, the Company hereby agrees to pay any present or
future stamp or documentary taxes and any other excise or property taxes,
charges or similar levies which arise from any payment made hereunder or under
any Bond or from the execution or delivery of, or otherwise with respect to,
this Agreement or any Bond ("Other Taxes").
(c) The Company hereby agrees to indemnify the Agent and each Bank
for the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed on amounts payable under this Section 4.5) paid by
the Agent or such Bank and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto. Payments due under this
indemnification shall be made within 30 days of the date the Agent or such Bank
makes demand therefor pursuant to Section 4.6.
(d) Each Bank that is not incorporated under the laws of the
United States of America or a state thereof (each a "Non-U.S. Bank ") agrees
that it will, not more than ten Business Days after the date hereof, or, if
later, not more than ten Business Days after becoming a Bank hereunder, (i)
deliver to each of the Company and the Agent two (2) duly completed copies of
18
United States Internal Revenue Service Form W8BEN or W8ECI, certifying in either
case that such Bank is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income taxes, and (ii)
deliver to each of the Company and the Agent a United States Internal Revenue
Form W-8 or W-9, as the case may be, and certify that it is entitled to an
exemption from United States backup withholding tax. Each Non-U.S. Bank further
undertakes to deliver to each of the Company and the Agent (x) renewals or
additional copies of such form (or any successor form) on or before the date
that such form expires or becomes obsolete, and (y) after the occurrence of any
event requiring a change in the most recent forms so delivered by it, such
additional forms or amendments thereto as may be reasonably requested by the
Company or the Agent. All forms or amendments described in the preceding
sentence shall certify that such Bank is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes, unless an event (including without limitation any change in treaty, law
or regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Bank from duly completing and delivering any such form or
amendment with respect to it and such Bank advises the Company and the Agent
that it is not capable of receiving payments without any deduction or
withholding of United States federal income tax.
(e) For any period during which a Non-U.S. Bank has failed to
provide the Company with an appropriate form pursuant to clause (d), above
(unless such failure is due to a change in treaty, law or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, occurring subsequent to the date on which a form originally was
required to be provided), such Non-U.S. Bank shall not be entitled to
indemnification under this Section 4.5 with respect to Taxes imposed by the
United States; provided that, should a Non-U.S. Bank which is otherwise exempt
from or subject to a reduced rate of withholding tax become subject to Taxes
because of its failure to deliver a form required under clause (d) above, the
Company shall take such steps as such Non-U.S. Bank shall reasonably request to
assist such Non-U.S. Bank to recover such Taxes.
(f) Any Bank that is entitled to an exemption from or reduction of
withholding tax with respect to payments under this Agreement or any Bond
pursuant to the law of any relevant jurisdiction or any treaty shall deliver to
the Company (with a copy to the Agent), at the time or times prescribed by
applicable law, such properly completed and executed documentation prescribed by
applicable law as will permit such payments to be made without withholding or at
a reduced rate.
(g) If the U.S. Internal Revenue Service or any other governmental
authority of the United States or any other country or any political subdivision
thereof asserts a claim that the Agent did not properly withhold tax from
amounts paid to or for the account of any Bank (because the appropriate form was
not delivered or properly completed, because such Bank failed to notify the
Agent of a change in circumstances which rendered its exemption from withholding
ineffective, or for any other reason), such Bank shall indemnify the Agent fully
for all amounts paid, directly or indirectly, by the Agent as tax, withholding
therefor, or otherwise, including penalties and interest, and including taxes
imposed by any jurisdiction on amounts payable to the Agent under this
subsection, together with all costs and expenses related thereto (including
attorneys fees and time charges of attorneys for the Agent, which attorneys may
be
19
employees of the Agent). The obligations of the Banks under this Section 4.5(g)
shall survive the payment of the Obligations and termination of this Agreement.
4.6 Bank Certificates; Survival of Indemnity. To the extent
reasonably possible, each Bank shall designate an alternate Lending Installation
with respect to Eurodollar Rate Loans to reduce any liability of the Company to
such Bank under Section 4.1 or to avoid the unavailability of Eurodollar Rate
Loan under Section 4.3, so long as such designation is not disadvantageous to
such Bank. A certificate of such Bank as to the amount due under Section 4.1,
4.4 or 4.5 shall be final, conclusive and binding on the Company in the absence
of manifest error. Determination of amounts payable under such Sections in
connection with a Eurodollar Rate Loan shall be calculated as though each Bank
funded each Eurodollar Rate Loan through the purchase of a deposit of the type
and maturity corresponding to the deposit used as a reference in determining the
Base Eurodollar Rate applicable to such Eurodollar Rate Loan whether in fact
that is the case or not. Unless otherwise provided herein, the amount specified
in any certificate shall be payable on demand after receipt by the Company of
such certificate. The obligations of the Company under Sections 4.1, 4.4 and 4.5
shall survive payment of the Obligations and termination of this Agreement,
provided, that no Bank shall be entitled to compensation to the extent that such
compensation relates to any period of time more than 90 days after the
termination of this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants that:
5.1 Incorporation and Good Standing. The Company is duly
incorporated, validly existing and in good standing under the laws of the State
of Michigan.
5.2 Corporate Power and Authority; No Conflicts. The execution,
delivery and performance by the Company of the Loan Documents are within the
Company's corporate powers, have been duly authorized by all necessary corporate
action and do not (i) violate the Company's charter, bylaws or any applicable
law, or (ii) breach or result in an event of default under any indenture or
material agreement, and do not result in or require the creation of any Lien
upon or with respect to any of its properties (except the lien of the Indenture
securing the Bonds).
5.3 Governmental Approvals. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
the Company of any Loan Document, except for the authorization to issue, sell or
guarantee secured and/or unsecured long-term debt granted by the Federal Energy
Regulatory Commission, which authorization has been obtained and is in full
force and effect.
5.4 Legally Enforceable Agreements. Each Loan Document constitutes
a legal, valid and binding obligation of the Company, enforceable in accordance
with its terms, subject to (a) the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws
20
affecting the enforcement of creditors' rights generally and (b) the application
of general principles of equity (regardless of whether considered in a
proceeding in equity or at law).
5.5 Financial Statements. The audited balance sheet of the Company
and its Consolidated Subsidiaries as at December 31, 2001, and the related
statements of income and cash flows of the Company and its Consolidated
Subsidiaries for the fiscal year then ended, as set forth in the Company's
Annual Report on Form 10-K/A (copies of which have been furnished to each Bank),
and the unaudited balance sheets of the Company and its Consolidated
Subsidiaries as at September 30, 2002, and the related statements of income and
cash flows of the Company and its Consolidated Subsidiaries for the nine-month
period then ended (copies of which have been furnished to each Bank), fairly
present the financial condition of the Company and its Consolidated Subsidiaries
as at such dates and the results of operations of the Company and its
Consolidated Subsidiaries for the periods ended on such dates, all in accordance
with GAAP, and since December 31, 2001, there has been no Material Adverse
Change (except to the extent described in the Company's Quarterly Report on Form
10-Q/A for the quarter ended September 30, 2002 as filed with the SEC, copies of
which have been furnished to each Bank).
5.6 Litigation. Except (i) to the extent described in the
Company's Annual Report on Form 10-K/A for the year ended December 31, 2001 and
Quarterly Report on Form 10-Q/A for the quarter ended September 30, 2002 as
filed with the SEC, copies of which have been furnished to each Bank, and (ii)
such other similar actions, suits and proceedings predicated on the occurrence
of the same events giving rise to any actions, suits and proceedings described
in the Reports filed with the SEC set forth in clause (i) hereof, there is no
pending or threatened action or proceeding against the Company or any of its
Consolidated Subsidiaries before any court, governmental agency or arbitrator,
which, if adversely determined, might reasonably be expected to materially
adversely affect the financial condition, results of operations, business,
Property or prospects of the Company and its Consolidated Subsidiaries, taken as
a whole, or that would materially adversely affect the Company's ability to
perform its obligations under any Loan Document. As of the Effective Date, there
is no litigation challenging the validity or the enforceability of any of the
Loan Documents.
5.7 Margin Stock. The Company is not engaged in the business of
extending credit for the purpose of buying or carrying margin stock (within the
meaning of Regulation U), and no proceeds of any Term Loan will be used to buy
or carry any margin stock or to extend credit to others for the purpose of
buying or carrying any margin stock.
5.8 ERISA. No Termination Event has occurred or is reasonably
expected to occur with respect to any Plan. Neither the Company nor any of its
ERISA Affiliates is an employer under a Multiemployer Plan.
5.9 Insurance. All insurance required by Section 6.2 is in full
force and effect.
5.10 Taxes. The Company and its Subsidiaries have filed all tax
returns (Federal, state and local) required to be filed and paid all taxes shown
thereon to be due, including interest and penalties, or, to the extent the
Company or any of its Subsidiaries is contesting in good faith an assertion of
liability based on such returns, has provided adequate reserves for payment
thereof in accordance with GAAP.
21
5.11 Investment Company Act. The Company is not an investment
company (within the meaning of the Investment Company Act of 1940, as amended).
5.12 Public Utility Holding Company Act. The Company is exempt from
the registration requirements of the Public Utility Holding Company Act of 1935,
as amended, 15 USC 79, et seq.
5.13 Bonds. The issuance to the Agent of Bonds as evidence of the
Obligations (i) will not violate any provision of the Indenture or any other
agreement or instrument, or any law or regulation, or judicial or regulatory
order, judgment or decree, to which the Company or any of its Subsidiaries is a
party or by which any of the foregoing is bound and (ii) will provide the Banks,
as beneficial holders of the Bonds through the Agent, the benefit of the Lien of
the Indenture equally and ratably with the holders of other First Mortgage
Bonds.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Obligations shall remain unpaid, the Company shall:
6.1 Payment of Taxes, Etc. Pay and discharge before the same shall
become delinquent, (a) all taxes, assessments and governmental charges or
levies imposed upon it or upon its property, and (b) all lawful claims which, if
unpaid, might by law become a Lien upon its property, provided that the Company
shall not be required to pay or discharge any such tax, assessment, charge or
claim (i) which is being contested by it in good faith and by proper procedures
or (ii) the non-payment of which will not materially adversely affect the
financial condition or results of operations of the Company and its Consolidated
Subsidiaries, taken as a whole.
6.2 Maintenance of Insurance. Maintain insurance in such amounts
and covering such risks with respect to its business and properties as is
usually carried by companies engaged in similar businesses and owning similar
properties, either with reputable insurance companies or, in whole or in part,
by establishing reserves or one or more insurance funds, either alone or with
other corporations or associations.
6.3 Preservation of Corporate Existence, Etc. Preserve and
maintain its corporate existence, rights and franchises, and qualify and remain
qualified as a foreign corporation in each jurisdiction in which such
qualification is necessary in view of its business and operations or the
ownership of its properties, provided that the Company shall not be required to
preserve any such right or franchise or to remain so qualified unless the
failure to do so would have a material adverse effect on the financial condition
or results of operations of the Company and its Consolidated Subsidiaries, taken
as a whole, or the ability of the Company to enter into, or to perform its
obligations under, any Loan Document.
6.4 Compliance with Laws, Etc. Comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority,
the non-compliance with which would materially adversely affect the financial
condition or results of operations of the
22
Company and its Consolidated Subsidiaries, taken as a whole, or the ability of
the Company to perform its obligations under any Loan Document.
6.5 Visitation Rights. Subject to any necessary approval from the
Nuclear Regulatory Commission, at any reasonable time and from time to time,
permit the Agent, any of the Banks or any agents or representatives thereof to
examine and make copies of and abstracts from its records and books of account,
visit its properties and discuss its affairs, finances and accounts with any of
its officers,
6.6 Keeping of Books. Keep, and cause each Consolidated Subsidiary
to keep, adequate records and books of account, in which full and correct
entries shall be made of all of its financial transactions and its assets and
business so as to permit the Company and its Consolidated Subsidiaries to
present financial statements in accordance with GAAP.
6.7 Reporting Requirements. Furnish to the Agent, with sufficient
copies for each of the Banks:
(a) as soon as practicable and in any event within five Business
Days after becoming aware of the occurrence of any Default or Event of Default,
a statement of a Designated Officer as to the nature thereof, and as soon as
practicable and in any event within five Business Days thereafter, a statement
of a Designated Officer as to the action which the Company has taken, is taking
or proposes to take with respect thereto;
(b) as soon as available and in any event within 60 days after the
end of each of the first three quarters of each fiscal year of the Company, a
consolidated balance sheet of the Company and its Consolidated Subsidiaries as
at the end of such quarter, and the related consolidated statements of income,
cash flows and common stockholder's equity of the Company and its Consolidated
Subsidiaries as at the end of and for the period commencing at the end of the
previous fiscal year and ending with the end of such quarter, setting forth in
each case in comparative form the corresponding figures for the corresponding
date or period of the preceding fiscal year, or statements providing
substantially similar information (which requirement shall be deemed satisfied
by the delivery of the Company's quarterly report on Form 10-Q for such
quarter), all in reasonable detail and duly certified (subject to the absence of
footnotes and to year-end audit adjustments) by a Designated Officer as having
been prepared in accordance with GAAP, together with (i) a certificate of a
Designated Officer (which certificate shall also accompany the financial
statements delivered pursuant to clause (c) below) stating that such officer has
no knowledge (having made due inquiry with respect thereto) that a Default or
Event of Default has occurred and is continuing, or, if a Default or Event of
Default has occurred and is continuing, a statement as to the nature thereof and
the actions which the Company has taken, is taking or proposes to take with
respect thereto, and (ii) a certificate of a Designated Officer, in
substantially the form of Exhibit C hereto, setting forth the Company's
computation of the financial ratios specified in Sections 8.1 and 8.2 as of the
end of the immediately preceding fiscal quarter or year, as the case may be, of
the Company;
(c) as soon as available and in any event within 120 days after
the end of each fiscal year of the Company, a copy of the Annual Report on Form
10-K (or any successor form) for the Company for such year, including therein
the consolidated balance sheet of the Company and its
23
Consolidated Subsidiaries as at the end of such year and the consolidated
statements of income, cash flows and common stockholder's equity of the Company
and its Consolidated Subsidiaries as at the end of and for such year, or
statements providing substantially similar information, in each case certified
by independent public accountants of recognized national standing selected by
the Company (and not objected to by the Majority Banks), together with a
certificate of such accounting firm addressed to the Banks stating that, in the
course of its examination of the consolidated financial statements of the
Company and its Consolidated Subsidiaries, which examination was conducted by
such accounting firm in accordance with GAAP, (1) such accounting firm has
obtained no knowledge that an Event of Default, insofar as such Event of Default
related to accounting or financial matters, has occurred and is continuing, or
if, in the opinion of such accounting firm, such an Event of Default has
occurred and is continuing, a statement as to the nature thereof, and (2) such
accounting firm has examined a certificate prepared by the Company setting forth
the computations made by the Company in determining, as of the end of such
fiscal year, the ratios specified in Sections 8.1 and 8.2 which certificate
shall be attached to the certificate of such accounting firm, and such
accounting firm confirms that such computations accurately reflect such ratio;
(d) promptly after the sending or filing thereof, copies of all
proxy statements which the Company sends to its stockholders, copies of all
regular, periodic and special reports (other than those which relate solely to
employee benefit plans) which the Company files with the SEC and notice of the
sending or filing of (and, upon the request of the Agent or any Bank, a copy of)
any final prospectus filed with the SEC;
(e) as soon as possible and in any event (i) within 30 days after
the Company or any of its ERISA Affiliates knows or has reason to know that any
Termination Event described in clause (a) of the definition of Termination Event
with respect to any Plan has occurred and (ii) within ten days after the Company
or any of its ERISA Affiliates knows or has reason to know that any other
Termination Event with respect to any Plan has occurred, a statement of the
Chief Financial Officer of the Company describing such Termination Event and the
action, if any, which the Company or such ERISA Affiliate, as the case may be,
proposes to take with respect thereto;
(f) promptly upon becoming aware thereof, notice of any upgrading
or downgrading of the rating of the Senior Debt by Fitch, Moody's or S&P;
(g) as soon as possible and in any event within five (5) days
after the occurrence of any material default under any material agreement to
which the Company or any of its Subsidiaries is a party, which default would
materially adversely affect the financial condition, business, results of
operations, Property or prospects of the Company and its Subsidiaries,
considered as a whole, any of which is continuing on the date of such
certificate, a certificate of the president or chief financial officer of the
Company setting forth the details of such material default and the action which
the Company or any such Subsidiary proposes to take with respect thereto; and
(h) such other information respecting the business, properties or
financial condition of the Company as the Agent or any Bank through the Agent
may from time to time reasonably request.
24
6.8 Use of Proceeds. The Company will use the proceeds of the Term
Loans for working capital and other general corporate purposes. The Company will
not, nor will it permit any Subsidiary to, use any of the proceeds of the Term
Loans to purchase or carry any "margin stock" (as defined in Regulation U).
6.9 Maintenance of Properties, Etc. The Company shall, and shall
cause each of its Subsidiaries to, maintain in all material respects all of its
respective owned and leased Property in good and safe condition and repair to
the same degree as other companies engaged in similar businesses and owning
similar properties, and not permit, commit or suffer any waste or abandonment of
any such Property, and from time to time shall make or cause to be made all
material repairs, renewals and replacements thereof, including, without
limitation, any capital improvements which may be required; provided, however,
that such Property may be altered or renovated in the ordinary course of
Company's or its Subsidiaries' business; and provided, further, that the
foregoing shall not restrict the sale of any asset of the Company or any
Subsidiary to the extent not prohibited by Section 7.2.
6.10 Bonds. Beginning on the Effective Date and continuing until
all Obligations have been paid in full, cause the aggregate amount of the Bonds
outstanding to at all times be equal to or greater than the aggregate
outstanding Term Loans.
6.11 Recordation of Supplemental Indenture. The Company shall (i)
within ten days after the Effective Date, deliver the Supplemental Indenture in
recordable form to the appropriate recording office in all applicable
jurisdictions for recording in the real estate records and deliver to the office
of the Secretary of State of Michigan a UCC-1 financing statement with the
Supplemental Indenture as an attachment thereto for filing in such office and
(ii) within 25 days after the Effective Date, deliver to the Agent a certificate
signed by a Designated Officer certifying that the actions required by the
foregoing clause (i) have been taken.
ARTICLE VII
NEGATIVE COVENANTS
So long as any Obligations shall remain unpaid, the Company shall not:
7.1 Liens. Create, incur, assume or suffer to exist any Lien upon
or with respect to any of its properties, now owned or hereafter acquired,
except:
(a) Liens created pursuant to the Indenture securing the First
Mortgage Bonds;
(b) Liens securing pollution control bonds, or bonds issued to
refund or refinance pollution control bonds (including Liens securing
obligations (contingent or otherwise) of the Company under letter of credit
agreements or other reimbursement or similar credit enhancement agreements with
respect to pollution control bonds), provided that the aggregate face amount of
any such bonds so issued shall not exceed the aggregate face amount of such
pollution control bonds, as the case may be, so refunded or refinanced;
(c) Liens in (and only in) assets acquired to secure Debt incurred
to finance the acquisition of such assets;
25
(d) Statutory and common law banker's Liens on bank deposits;
(e) Liens in respect of accounts receivable sold, transferred or
assigned by the Company;
(f) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or being
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP shall have been set aside on its books;
(g) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue or
being contested in good faith by appropriate proceedings and for which adequate
reserves shall have been set aside on its books;
(h) Liens incurred in the ordinary course of business in
connection with workers' compensation, unemployment insurance or other forms of
governmental insurance or benefits, or to secure performance of tenders,
statutory obligations, leases and contracts (other than for borrowed money)
entered into in the ordinary course of business or to secure obligations on
surety or appeal bonds;
(i) Judgment Liens in existence less than 30 days after the entry
thereof or with respect to which execution has been stayed or the payment of
which is covered (subject to a customary deductible) by insurance;
(j) Zoning restrictions, easements, licenses, covenants,
reservations, utility company rights, restrictions on the use of real property
or minor irregularities of title incident thereto which do not in the aggregate
materially detract from the value of the property or assets of the Company or
materially impair the operation of its business;
(k) Liens arising in connection with the financing of the
Company's fuel resources, including, but not limited to, nuclear fuel;
(l) Liens arising pursuant to MCL 324.20138; provided that the
aggregate amount of all obligations secured by such Liens (excluding any such
Liens of which the Company has no knowledge or which are permitted by subsection
(f) above) shall not exceed $20,000,000;
(m) Liens arising in connection with the Securitized Bonds;
(n) Liens on the Facility LC Collateral Account (as defined in the
Credit Agreement) or any funds therein in favor of the agent under the Credit
Agreement;
(o) Liens on natural gas, oil and minerals, or on 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 the Company; provided that (i) such liens secure obligations
not exceeding $500,000,000 in aggregate principal amount and (ii) such liens
shall also be permitted under the terms of the Credit Agreement; and
26
(p) Other Liens securing obligations in an aggregate amount not in
excess of $150,000,000.
7.2 Sale of Assets. Sell, lease, assign, transfer or otherwise
dispose of 15% or more of its assets, calculated with reference to total assets
as reflected on the Company's consolidated balance sheet as at September 30,
2002.
7.3 Mergers, Etc. Merge with or into or consolidate with or into
any other Person, except that the Company may merge with any other Person,
provided that, in each case, immediately after giving effect thereto, (a) no
event shall occur and be continuing which constitutes a Default or Event of
Default, (b) the Company is the surviving corporation, (c) the Company shall not
be liable with respect to any Debt or allow its property to be subject to any
Lien which it could not become liable with respect to or allow its property to
become subject to under this Agreement on the date of such transaction and (d)
the Company's Net Worth shall be equal to or greater than its Net Worth
immediately prior to such merger.
7.4 Compliance with ERISA. Permit to exist any occurrence of any
Reportable Event, or any other event or condition which presents a material (in
the reasonable opinion of the Majority Banks) risk of a termination by the PBGC
of any Plan of the Company or any ERISA Affiliate, which termination will
result in any material (in the reasonable opinion of the Majority Banks)
liability of the Company or such ERISA Affiliate to the PBGC.
7.5 Change in Nature of Business. Make any material change in the
nature of its business as carried on as of the date hereof.
7.6 Restricted Payments. The Company: (a) will not declare or pay
any dividends or make any other distributions on its capital stock (other than
dividends payable solely in such capital stock) or redeem any such capital
stock; and (b) will not, and will not permit any Subsidiary to, purchase or
otherwise acquire or retire any of the Company's capital stock or make any loans
or advances to CMS or any Subsidiary thereof (other than the Company or any
Subsidiary thereof); provided that, so long as no Default or Event of Default
exists, the Company may pay dividends in an aggregate amount not to exceed
$300,000,000 during any calendar year.
7.7 Off-Balance Sheet Liabilities. Create, incur, assume or suffer
to exist, or permit any Subsidiary to create, incur, assume or suffer to exist,
Off-Balance Sheet Liabilities (exclusive of obligations pursuant to the
Receivables Sale Agreement and the Building Lease) in the aggregate in excess of
$250,000,000 at any time.
ARTICLE VIII
FINANCIAL COVENANTS
So long as any Obligations shall remain unpaid, the Company shall:
8.1 Debt to Capital Ratio. At all times, maintain a ratio of Total
Consolidated Debt to Total Consolidated Capitalization of not greater than 0.65
to 1.0.
27
8.2 Interest Coverage Ratio. Not permit the ratio, determined as
of the end of each of its fiscal quarters for the then most-recently ended four
fiscal quarters, of (i) Consolidated EBIT to (ii) Consolidated Interest Expense
to be less than 2.0 to 1.0.
ARTICLE IX
EVENTS OF DEFAULT
9.1 Events of Default. The occurrence of any of the following
events shall constitute an "Event of Default":
(a) The Company shall fail to pay (i) any principal of any Term
Loan when due and payable, or (ii) any interest on any Term Loan or any fee or
other Obligation payable hereunder within five (5) days after such interest or
fee or other Obligation becomes due and payable;
(b) Any representation or warranty made by the Company (or any of
its officers) in this Agreement or any other Loan Document or in any
certificate, document, report, financial or other written statement furnished at
any time pursuant to any Loan Document shall prove to have been incorrect in any
material respect on or as of the date made;
(c) The Company shall fail to perform or observe any term,
covenant or agreement contained in Section 6.10, Section 6.11(i), Article VII or
Article VIII: or the Company shall fail to perform or observe any other term,
covenant or agreement on its part to be performed or observed in this Agreement
or in any other Loan Document and such failure shall continue for 30 consecutive
days after notice thereof by means of facsimile, regular mail or written notice
delivered in person (or telephonic notice thereof confirmed in writing) shall
have been given to the Company by the Agent or the Majority Banks;
(d) The Company shall: (i) fail to pay any Debt (other than the
payment obligations described in subsection (a) above) in excess of $25,000,000,
or any interest or premium thereon, when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure shall
continue after the applicable grace period, if any, specified in the instrument
or agreement relating to such Debt; or (ii) fail to perform or observe any term,
covenant or condition on its part to be performed or observed under any
agreement or instrument relating to any such Debt, when required to be performed
or observed, if the effect of such failure to perform or observe is to
accelerate, or to permit the acceleration of, the maturity of such Debt, unless
the obligee under or holder of such Debt shall have waived in writing such
circumstance, or such circumstance has been cured, so that such circumstance is
no longer continuing; or (iii) any such Debt shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), in each case in accordance with the terms of such agreement or
instrument, prior to the stated maturity thereof; or (iv) generally not, or
shall admit in writing its inability to, pay its debts as such debts become due;
(e) The Company: (i) shall make an assignment for the benefit of
creditors, or petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets, or
(ii) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect, or (iii) shall have had
any such petition or
28
application filed or any such proceeding shall have been commenced, against it,
in which an adjudication or appointment is made or order for relief is entered,
or which petition, application or proceeding remains undismissed for a period of
30 consecutive days or more; or (iv) by any act or omission shall indicate its
consent to, approval of or acquiescence in any such petition, application or
proceeding or order for relief or the appointment of a custodian, receiver or
trustee for all or any substantial part of its property; or (v) shall suffer any
such custodianship, receivership or trusteeship to continue undischarged for a
period of 30 days or more; or (vi) shall take any corporate action to authorize
any of the actions set forth above in this subsection (e);
(f) One or more judgments, decrees or orders for the payment of
money in excess of $25,000,000 in the aggregate shall be rendered against the
Company and either (i) enforcement proceedings shall have been commenced by any
creditor upon any such judgment or order or (ii) there shall be any period of
more than 30 consecutive days during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect;
(g) Any Termination Event with respect to a Plan shall have
occurred, and 30 days after notice thereof shall have been given to the Company
by the Agent, (i) such Termination Event (if correctable) shall not have been
corrected and (ii) the then present value of such Plan's vested benefits exceeds
the then current value of the assets accumulated in such Plan by more than the
amount of $25,000,000 (or in the case of a Termination Event involving the
withdrawal of a "substantial employer" (as defined in Section 4001(A)(2) of
ERISA), the withdrawing employer's proportionate share of such excess shall
exceed such amount); or
(h) Any Bond shall cease to be in full force and effect (except
for Bonds surrendered by the Agent pursuant to Section 2.4 or 2.5); or the
Company shall deny that it has any liability or obligation under any Bond or
purport to revoke, terminate, rescind or redeem any Bond (other than in
accordance with the terms of the Bonds and the Indenture).
9.2 Remedies.
If any Event of Default shall occur and be continuing, the Agent shall upon the
request, or may with the consent, of the Majority Banks, by notice to the
Company, declare the Obligations to be forthwith due and payable, whereupon the
Obligations shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Company, provided that in the case of an Event of Default referred
to in Section 9.1(e) above, the Obligations shall automatically become due and
payable without notice, presentment, demand, protest or other formalities of any
kind, all of which are hereby expressly waived by the Company.
ARTICLE X
WAIVERS, AMENDMENTS AND REMEDIES
10.1 Amendments. Subject to the provisions of this Article X, the
Majority Banks (or the Agent with the consent in writing of the Majority Banks)
and the Company may enter into written agreements supplemental hereto for the
purpose of adding or modifying any provisions to the Loan Documents or changing
in any manner the rights of the Banks or the Company hereunder or waiving any
Event of Default hereunder, provided that (except as provided in the
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proviso immediately below) no such supplemental agreement shall without the
consent of all of the Banks:
(1) extend the maturity of any Term Loan or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest or fees thereon;
(2) modify the percentage specified in the definition of
Majority Banks;
(3) permit the Company to assign its rights under this
Agreement; or
(4) amend Section 6.10, Section 12.12 or this Section 10.1.
Provided, notwithstanding anything in this Section 10.1 or this Agreement to the
contrary (except the ultimate proviso of this paragraph), the Majority Banks may
consent to amend this Agreement to provide for the making of additional term
loans hereunder which additional term loans may have such terms and conditions
as are agreed by the Majority Banks, the Agent and the Company; without limiting
the foregoing, financial institutions which are not Banks as of the date hereof
may be added as Banks hereunder in connection with any such additional term
loans; provided, however, no such amendment or any supplemental agreement to
this Agreement shall increase the amount of the respective Term Loan Commitment
of any Bank hereunder without the consent of such affected Bank and no such
additional term loan shall be made unless the Company issues additional First
Mortgage Bonds in favor of the Agent in an amount at least equal to the
aggregate amount of such additional term loans.
The Agent, as holder of the Bonds, shall not consent to or vote in favor of a
release of all or substantially all of the property subject to the lien of the
Indenture without the consent of all of the Banks. No amendment of any provision
of this Agreement relating to the Agent shall be effective without the written
consent of the Agent.
10.2 Preservation of Rights. No delay or omission of the Banks or
the Agent to exercise any right under the Loan Documents shall impair such right
or be construed to be a waiver of any Default or Event of Default or an
acquiescence therein, and the making of a Term Loan notwithstanding the
existence of a Default or Event of Default or the inability of the Company to
satisfy the conditions precedent to such Term Loan shall not constitute any
waiver or acquiescence. Any single or partial exercise of any such right shall
not preclude other or further exercise thereof or the exercise of any other
right, and no waiver, amendment or other variation of the terms, conditions or
provisions of the Loan Documents whatsoever shall be valid unless in writing
signed by the Banks required pursuant to Section 10.1, and then only to the
extent in such writing specifically set forth. All remedies contained in the
Loan Documents or by law afforded shall be cumulative and all shall be
available to the Agent and the Banks until the Obligations have been paid in
full.
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ARTICLE XI
CONDITIONS PRECEDENT
11.1 Delivery of Documents. This Agreement shall not become
effective and the Banks shall not be required to make the Term Loans hereunder
on the Effective Date unless the Company has furnished to the Agent with
sufficient copies for the Banks:
(a) A certificate, signed by a Designated Officer of the Company,
stating that on the Effective Date no Default or Event of Default has occurred
and is continuing.
(b) Evidence satisfactory to the Agent of the issuance of the
Bonds in the form set forth in the Supplemental Indenture and in an aggregate
principal amount of $150,000,000 pursuant to the Bond Delivery Agreement.
(c) Favorable opinions of:
(i) Michael D. VanHemert, Esq., Deputy General
Counsel of CMS, as to the matters set forth in Exhibit B-1 and as to
such other matters as the Agent may reasonably request;
(ii) Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel to the Company, as to the matters set forth in Exhibit
B-2 and as to such other matters as the Agent may reasonably request;
and
(iii) Miller, Canfield, Paddock and Stone, P.L.C.,
special counsel to the Company, as to the matters set forth in Exhibit
B-3 and as to such other matters as the Agent may reasonably request.
Such opinions shall be addressed to the Agent and the Banks and shall be
satisfactory in form and substance to the Agent.
(d) Evidence, in form and substance satisfactory to the Agent,
that the Company has obtained all governmental approvals, if any, necessary for
it to enter into the Loan Documents.
(e) Evidence, in form and substance satisfactory to the Agent,
that the scheduled termination and maturity date of the Credit Agreement is a
date occurring on or after the Maturity Date, including extensions thereunder.
(f) Such other documents as the Agent or any Bank may reasonably
request.
11.2 Payment of Fees. It shall be a further condition precedent to
the making of the Term Loans on the Effective Date that the Company shall have
paid to the Agent for the account of the Banks the fees required to be paid on
the Effective Date pursuant to the Fee Letter.
11.3 No Default, Etc. No Bank shall be required to make any Term
Loan on the Effective Date unless (i) no Default or Event of Default then
exists, (ii) the representations and warranties contained in Article V are true
and correct as of the Effective Date and (iii) all legal matters incident to the
making of such Term Loan are satisfactory to such Bank and its counsel. The
Company represents and warrants that the conditions contained in subsections
(i) and (ii) above will be satisfied on the Effective Date.
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ARTICLE XII
GENERAL PROVISIONS
12.1 Successors and Assigns. (a) The terms and provisions of the
Loan Documents shall be binding upon and inure to the benefit of the Company and
the Banks and their respective successors and assigns, except that the Company
shall not have the right to assign its rights under the Loan Documents. Any Bank
may sell participations in all or a portion of its rights and obligations under
this Agreement pursuant to subsection (b) below and any Bank may assign all or
any part of its rights and obligations under this Agreement pursuant to
subsection (c) below.
(b) Any Bank may sell participations to one or more banks or other
entities (each a "Participant") in all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Term Loan Commitment and its outstanding Term Loan), provided
that (i) such Bank's obligations under this Agreement (including, without
limitation, its Term Loan Commitment to the Company hereunder) shall remain
unchanged, (ii) such Bank shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) such Bank shall remain the
holder of the Term Loans of such Bank for all purposes of this Agreement and
(iv) the Company shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement. Each
Bank shall retain the sole right to approve, without the consent of any
Participant, any amendment, modification or waiver of any provision of the Loan
Documents other than any amendment, modification or waiver with respect to any
Term Loan or Term Loan Commitment in which such Participant has an interest
which would require consent of all of the Banks pursuant to the terms of Section
10.1 or of any other Loan Document. The Company agrees that each Participant
shall be deemed to have the right of setoff provided in Section 12.11 in respect
of its participating interest in amounts owing under the Loan Documents to the
same extent as if the amount of its participating interest were owing directly
to it as a Bank under the Loan Documents, provided that each Bank shall retain
the right of setoff provided in Section 12.11 with respect to the amount of
participating interests sold to each Participant. The Banks agree to share with
each Participant, and each Participant, by exercising the right of setoff
provided in Section 12.11, agrees to share with each Bank, any amount received
pursuant to the exercise of its right of setoff, such amounts to be shared in
accordance with Section 12.11 as if each Participant were a Bank. The Company
further agrees that each Participant shall be entitled to the benefits of
Sections 4.1, 4.3, 4.4 and 4.5 to the same extent as if it were a Bank and had
acquired its interest by assignment pursuant to Section 12.1(c); provided that
(i) a Participant shall not be entitled to receive any greater payment under
Section.4.1, 4.3, 4.4 or 4.5 than the Bank who sold the participating interest
to such Participant would have received had it retained such interest for its
own account, unless the sale of such interest to such Participant is made with
the prior written consent of the Company, and (ii) any Participant not
incorporated under the laws of the United States of America or any State thereof
agrees to comply with the provisions of Section 4.5 to the same extent as if it
were a Bank.
(c) Any Bank may, in the ordinary course of its business and in
accordance with applicable law, at any time assign to one or more financial
institutions all or any part of its rights and obligations under this Agreement,
provided that the minimum principal amount of any such assignment (other than
assignments to a Federal Reserve Bank, or to any other Bank or affiliate or
Approved Fund of a Bank, or to any direct or indirect contractual counterparties
in swap
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agreements relating to the Term Loans to the extent required in connection with
the physical settlement of any Bank's obligations pursuant thereto) shall be
$1,000,000 (or such lesser amount consented to by the Agent); provided that,
unless such Bank is assigning all of its rights and obligations hereunder, after
giving effect to such assignment the assigning Bank shall have Term Loans in the
aggregate of not less than $1,000,000 (unless otherwise consented to by the
Agent).
(d) Any Bank may, in connection with any sale or participation or
proposed sale or participation pursuant to this Section 12.1 disclose to the
purchaser or participant or proposed purchaser or participant any information
relating to the Company furnished to such Bank by or on behalf of the Company,
provided that prior to any such disclosure of non-public information, the
purchaser or participant or proposed purchaser or participant (which purchaser
or participant is not an affiliate of a Bank) shall agree to preserve the
confidentiality of any confidential information (except any such disclosure as
may be required by law or regulatory process) relating to the Company received
by it from such Bank.
(e) Assignments under this Section 12.1 shall be made pursuant to
an agreement (an "Assignment Agreement") substantially in the form of Exhibit D
hereto or in such other form as may be agreed to by the parties thereto and
shall not be effective until a $3,500 fee has been paid to the Agent by the
assignee, which fee shall cover the cost of processing such assignment,
provided, that such fee shall not be incurred in the event of an assignment by
any Bank of all or a portion of its rights under this Agreement to (i) a Federal
Reserve Bank or (ii) a Bank or an affiliate or Approved Fund of the assigning
Bank or (iii) to any direct or indirect contractual counterparties in swap
agreements relating to the Term Loans to the extent required in connection with
the physical settlement of any Bank's obligations pursuant thereto.
(f) Notwithstanding anything to the contrary contained herein, any
Bank (a "Granting Bank") may grant to a special purpose funding vehicle (an
"SPC"), identified as such in writing from time to time by the Granting Bank to
the Agent and the Company, the option to provide to the Company all or any part
of any Term Loan that such Granting Bank is obligated to make to the Company
pursuant to this Agreement; provided that (i) nothing herein shall constitute a
commitment by any SPC to make any Term Loan, (ii) if an SPC elects not to
exercise such option or otherwise fails to provide all or any part of such Term
Loan, the Granting Bank shall remain obligated to make such Term Loan pursuant
to the terms hereof, (iii) the Company shall not be required to pay any amount
under Section 4.5 that is greater than the amount which it would have been
required to pay had there been no grant to an SPC and (iv) any SPC (or assignee
of an SPC) will comply, if applicable, with the provisions contained in Section
4.5. No grant by any Granting Bank to an SPC agreeing to provide a Term Loan or
the making of such Term Loan by such SPC shall operate to relieve such Granting
Bank of its liabilities and obligations hereunder, except to the extent of the
making of such Term Loan by such SPC. The making of a Term Loan by an SPC
hereunder shall utilize the Term Loan Commitment of the Granting Bank to the
same extent, and as if, such Term Loan were made by such Granting Bank. Each
party hereto hereby agrees that no SPC shall be liable for any indemnity or
similar payment obligation under this Agreement (all liability for which shall
remain with the Granting Bank). In addition, each party hereto hereby agrees
(which agreement shall survive the termination of this Agreement) that any SPC
may (i) with notice to, but without the prior written consent of, the Company
and the Agent and without paying any processing fee therefor, assign all or a
portion
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of its interests in any Term Loans to the Granting Bank or to any financial
institutions (consented to by the Agent in its sole discretion) providing
liquidity and/or credit support to or for the account of such SPC to support the
funding or maintenance of Term Loans and (ii) disclose on a confidential basis
any non-public information relating to its Term Loans to any rating agency,
commercial paper dealer or provider of any surety, guarantee or credit or
liquidity enhancement to such SPC. This Section 12.1(f) may not be amended
without the written consent of any SPC that holds an option to provide Term
Loans. No recourse under any obligation, covenant, or agreement of the SPC
contained in this Agreement shall be had against any shareholder, officer, agent
or director of the SPC as such, by the enforcement of any assessment or by any
proceeding, by virtue of any statute or otherwise; it being expressly agreed and
understood that this Agreement is a corporate obligation of the SPC and no
personal liability shall attach to or be incurred by any officer, agent or
member of the SPC as such, or any of them under or by reason of any of the
obligations, covenants or agreements of the SPC contained in this Agreement, or
implied therefrom, and that any and all personal liability for breaches by the
SPC of any such obligations, covenants or agreements, either at law or by
statute or constitution, of every such shareholder, officer, agent or director
is hereby expressly waived by all parties to this Agreement as a condition of
and consideration for the SPC entering into this Agreement; provided, however,
that the foregoing shall not relieve any such person or entity of any liability
they might otherwise have as a result of fraudulent actions or omissions taken
by them. All parties to this Agreement acknowledge and agree that the SPC shall
only be liable for any claims that each of them may have against the SPC only to
the extent of the SPC's assets. The provisions of this clause shall survive the
termination of this Agreement.
(g) Any Bank may at any time pledge or assign a security interest
in all or any portion of its rights under this Agreement to secure obligations
of such Bank, including without limitation any pledge or assignment to secure
obligations to a Federal Reserve Bank; provided that no such pledge or
assignment shall release such Bank from any of its obligations hereunder or
substitute any such pledgee or assignee for such Bank as a party hereto.
12.2 Survival of Representations. All representations and
warranties of the Company contained in this Agreement shall survive the making
of the Term Loans herein contemplated.
12.3 Governmental Regulation. Anything contained in this Agreement
to the contrary notwithstanding, no Bank shall be obligated to extend credit to
the Company in violation of any limitation or prohibition provided by any
applicable statute or regulation.
12.4 Taxes. Any taxes (excluding income taxes) payable or ruled
payable by any Federal or State authority in respect of the execution of the
Loan Documents shall be paid by the Company, together with interest and
penalties, if any.
12.5 Choice of Law; Waiver of Jury Trial. THE LOAN DOCUMENTS SHALL
BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT
LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF NEW YORK, BUT
OTHERWISE WITHOUT REGARD TO THE LAW OF CONFLICTS) OF THE STATE OF NEW YORK, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. THE COMPANY HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY
34
UNITED STATES FEDERAL OR NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK IN
ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT AND THE
COMPANY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION
OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY HEREBY
WAIVES ANY RIGHT TO A JURY TRIAL IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING HEREUNDER OR UNDER ANY LOAN DOCUMENT.
12.6 Headings. Section headings in the Loan Documents are for
convenience of reference only, and shall not govern the interpretation of any of
the provisions of the Loan Documents.
12.7 Entire Agreement. The Loan Documents embody the entire
agreement and understanding between the Company, the Agent and the Banks and
supersede all prior agreements and understandings between the Company, the Agent
and the Banks relating to the subject matter thereof (other than those contained
in the fee letter described in Section 13.12 which shall survive and remain in
full force and effect during the term of this Agreement).
12.8 Expenses; Indemnification. The Company shall (a) reimburse the
Agent and the Arranger for any reasonable costs, internal charges and
out-of-pocket expenses (including reasonable attorneys' fees and time charges of
attorneys for the Agent) paid or incurred by the Agent or the Arranger in
connection with the preparation, review, execution, delivery, syndication,
distribution (including, without limitation, via the internet), amendment and
modification of the Loan Documents and (b) reimburse the Agent, the Arranger and
each Bank for any reasonable costs, internal charges and out-of-pocket expenses
(including reasonable attorneys' fees and time charges of attorneys for the
Agent or for such Bank) paid or incurred by the Agent, the Arranger or such Bank
in connection with the collection and enforcement of the Loan Documents. The
Company further agrees to indemnify the Agent, the Arranger, each Citigroup
Party and each Bank and their respective directors, officers, employees,
trustees, agents and advisors (collectively, the "Indemnitees") against all
losses, claims, damages, penalties, judgments, liabilities and reasonable
expenses (including, without limitation, all material expenses of litigation or
preparation therefor whether or not the Agent, the Arranger, any Citigroup Party
or any Bank is a party thereto) which any of them may pay or incur arising out
of or relating to this Agreement, the other Loan Documents, the transactions
contemplated hereby or the direct or indirect application or proposed
application of the proceeds of any Term Loan hereunder, provided that the
Company shall not be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the respective Indemnitee.
The obligations of the Company under this Section shall survive the termination
of this Agreement.
12.9 Severability of Provisions. Any provision in any Loan Document
that is held to be inoperative, unenforceable or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
35
12.10 Setoff. In addition to, and without limitation of, any rights
of the Banks under applicable law, if the Company becomes insolvent, however
evidenced, or any Default or Event of Default occurs, any indebtedness from any
Bank to the Company (including all account balances, whether provisional or
final and whether or not collected or available) may be offset and applied
toward the payment of the Obligations owing to such Bank, whether or not the
Obligations, or any part hereof, shall then be due. The Company agrees that any
purchaser or participant under Section 12.1 may, to the fullest extent permitted
by law, exercise all its rights of payment with respect to such purchase or
participation as if it were the direct creditor of the Company in the amount of
such purchase or participation.
12.11 Ratable Payments. If any Bank, whether by setoff or otherwise,
has payment made to it upon its outstanding Term Loans in a greater proportion
than that received by any other Bank, such Bank agrees, promptly upon demand, to
purchase a portion of the aggregate outstanding Term Loans held by the other
Banks so that after such purchase each Bank will hold its Pro Rata Share of the
aggregate outstanding Term Loans. If any Bank, whether in connection with setoff
or amounts which might be subject to setoff or otherwise, receives collateral or
other protection for its Obligations or such amounts which may be subject to
setoff, such Bank agrees, promptly upon demand, to take such action necessary
such that all Banks share in the benefits of such collateral ratably in
proportion to their respective Pro Rata Share of the aggregate outstanding Term
Loans. In case any such payment is disturbed by legal process, or otherwise,
appropriate further adjustments shall be made.
12.12 Nonliability of Banks. The relationship between the Company,
on the one hand, and the Banks and the Agent, on the other hand, shall be solely
that of borrower and lender Neither the Agent, the Arranger nor any Bank shall
have any fiduciary responsibilities to the Company. Neither the Agent, the
Arranger nor any Bank undertakes any responsibility to the Company to review or
inform the Company of any matter in connection with any phase of the Company's
business or operations. The Company shall rely entirely upon its own judgment
with respect to its business, and any review, inspection, supervision or
information supplied to the Company by the Banks is for the protection of the
Banks and neither the Company nor any third party is entitled to rely thereon.
The Company agrees that neither the Agent, the Arranger nor any Bank shall have
liability to the Company (whether sounding in tort, contract or otherwise) for
losses suffered by the Company in connection with, arising out of, or in any way
related to, the transactions contemplated and the relationship established by
the Loan Documents, or any act, omission or event occurring in connection
therewith, unless it is determined in a final non-appealable judgment by a court
of competent jurisdiction that such losses resulted from the gross negligence or
willful misconduct of the party from which recovery is sought. Neither the
Agent, the Arranger nor any Bank shall have any liability with respect to, and
the Company hereby waives, releases and agrees not to sue for, any special,
indirect, consequential or punitive damages suffered by the Company in
connection with, arising out of, or in any way related to the Loan Documents or
the transactions contemplated thereby.
12.13 Certain Disclosures. Notwithstanding any other provision of
this Agreement, each party (and each Participant pursuant to Section 12.1) (and
each employee, representative or other agent of such party (or Participant)) may
disclose to any and all persons, without limitation of any kind, the U.S. tax
treatment and U.S. tax structure of the transactions contemplated by the Loan
Documents and all materials of any kind (including opinions or other tax
analyses) that are
36
provided to such party relating to such U.S. tax treatment and U.S. tax
structure, other than any information for which nondisclosure is reasonably
necessary in order to comply with applicable securities laws.
12.14 Limitation of Liability: Communications. WITH RESPECT TO
COMMUNICATIONS DELIVERED PURSUANT TO SECTION 14.3 OF THIS AGREEMENT, SUCH
COMMUNICATIONS AND THE PLATFORM ARE PROVIDED "AS IS" AND "AS AVAILABLE". THE
CITIGROUP PARTIES DO NOT WARRANT THE ACCURACY, ADEQUACY OR COMPLETENESS OF THE
COMMUNICATIONS OR THE PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR
OMISSIONS IN THE COMMUNICATIONS OR THE PLATFORM. NO WARRANTY OF ANY KIND,
EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD
PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE
CITIGROUP PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE PLATFORM. THE
COMPANY HEREBY ACKNOWLEDGES THAT ALTHOUGH THE PRIMARY WEB PORTAL IS SECURED WITH
A DUAL FIREWALL AND A USER IDENTIFICATION/PASSWORD AUTHORIZATION SYSTEM AND THE
PLATFORM IS SECURED THROUGH A SINGLE USER PER DEAL AUTHORIZATION METHOD WHEREBY
EACH USER MAY ACCESS THE PLATFORM ONLY ON A DEAL-BY-DEAL BASIS, THE DISTRIBUTION
OF MATERIAL THROUGH AN ELECTRONIC MEDIUM IS NOT NECESSARILY SECURE AND THAT
THERE ARE CONFIDENTIALITY AND OTHER RISKS ASSOCIATED WITH SUCH DISTRIBUTION. THE
PROVISIONS OF THIS SECTION 12.13 SHALL SURVIVE THE MAKING OF ANY TERM LOAN, THE
REPAYMENT THEREOF AND THE TERMINATION OF THIS AGREEMENT AND ANY LOAN DOCUMENT.
ARTICLE XIII
THE AGENT
13.1 Appointment. Citicorp North America, Inc. is hereby appointed
Agent hereunder, and each of the Banks irrevocably authorizes the Agent to act
as the contractual representative on behalf of such Bank. The Agent agrees to
act as such upon the express conditions contained in this Article XIII. The
Agent shall not have a fiduciary relationship in respect of any Bank by reason
of this Agreement. The Agent hereby acknowledges and agrees that it shall hold
the Bonds for the ratable benefit of the Banks.
13.2 Powers. The Agent shall have and may exercise such powers
hereunder as are specifically delegated to the Agent by the terms hereof,
together with such powers as are reasonably incidental thereto. The Agent shall
not have any implied duties to the Banks or any obligation to the Banks to take
any action hereunder except any action specifically provided by this Agreement
to be taken by the Agent.
37
13.3 General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Banks or any Bank for any
action taken or omitted to be taken by it or them hereunder or in connection
herewith except for its or their own gross negligence or willful misconduct.
13.4 No Responsibility for Loans, Recitals, Etc. The Agent shall
not be responsible to the Banks for any recitals, reports, statements,
warranties or representations herein or in any Loan Document or be bound to
ascertain or inquire as to the performance or observance of any of the terms of
this Agreement.
13.5 Action on Instructions of Banks. The Agent shall in all cases
be fully protected in acting, or in refraining from acting, hereunder and under
any other Loan Document in accordance with written instructions signed by the
Majority Banks (or all of the Banks if required by Section 10.1), and such
instructions and any action taken or failure to act pursuant thereto shall be
binding on all of the Banks. The Banks hereby acknowledge that the Agent shall
be under no duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement or any other Loan Document unless
it shall be requested in writing to do so by the Majority Banks. The Agent shall
be fully justified in failing or refusing to take any action hereunder and under
any other Loan Document unless it shall first be indemnified to its satisfaction
by the Banks pro rata against any and all liability, cost and expense that it
may incur by reason of taking or continuing to take any such action.
13.6 Employment of Agents and Counsel. The Agent may execute any of
its duties as Agent hereunder by or through employees, agents and attorneys-in-
fact and shall not be answerable to the Banks, except as to money or securities
received by it or its authorized agents, for the default or misconduct of any
such agents or attorneys-in-fact selected by it with reasonable care. The Agent
shall be entitled to advice of counsel concerning all matters pertaining to the
agency hereby created and its duties hereunder.
13.7 Reliance on Documents; Counsel. The Agent shall be entitled to
rely upon any notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
13.8 Agent's Reimbursement and Indemnification. The Banks agree to
reimburse and indemnify the Agent ratably in proportion to their respective Pro
Rata Shares (i) for any amounts not reimbursed by the Company for which the
Agent is entitled to reimbursement by the Company under the Loan Documents and
(ii) for any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
any way relating to or arising out of this Agreement or any other document
delivered in connection with this Agreement or the transactions contemplated
hereby or the enforcement of any of the terms hereof or of any such other
documents, provided that no Bank shall be liable for any of the foregoing to the
extent they arise from the gross negligence or willful misconduct of the Agent.
38
13.9 Rights as a Lender. With respect to its Term Loan Commitment,
if any, and any Term Loan made by it, Citicorp shall have the same rights and
powers hereunder as any Bank and may exercise the same as though it were not the
Agent, and the term "Bank" or "Banks" shall, unless the context otherwise
indicates, include Citicorp in its individual capacity. Citicorp may accept
deposits from, lend money to, and generally engage in any kind of banking or
trust business with the Company or any Subsidiary as if it were not the Agent.
13.10 Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the financial statements prepared by the Company and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement. Each Bank also acknowledges that it will,
independently and without reliance upon the Agent or any other Bank and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement.
13.11 Successor Agent. The Agent may resign at any time by giving
written notice thereof to the Banks and the Company, and the Agent may be
removed at any time with or without cause by written notice received by the
Agent from the Majority Banks. Upon any such resignation or removal, the
Majority Banks shall have the right to appoint, on behalf of the Banks, a
successor Agent. If no successor Agent shall have been so appointed by the
Majority Banks and shall have accepted such appointment within thirty days after
the retiring Agent's giving notice of resignation, then the retiring Agent may
appoint, on behalf of the Banks, a successor Agent. Such successor Agent shall
be a commercial bank having capital and retained earnings of at least
$500,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article XIII shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
the Agent hereunder.
13.12 Agent and Arranger Fees. The Company agrees to pay to the
Agent and the Arranger, for their respective accounts, the fees agreed to by the
Company, the Agent and the Arranger pursuant to that certain letter agreement
dated March [7], 2003, or as otherwise agreed from time to time.
ARTICLE XIV
NOTICES
14.1 Giving Notice. Except as otherwise permitted by Section 2.6
with respect to Conversion/Continuation Notices, all notices, requests and
other communications to any party hereunder shall be in writing (including
electronic transmission, facsimile transmission or similar writing) and shall be
given to such party; (x) in the case of the Company or the Agent, at its address
or facsimile number set forth on the signature pages hereof, except that
Conversion/Continuation Notices shall be sent to the Agent at 2 Penn's Way,
Suite 200, New Castle, DE 19720, Attention: Jason Trala, telephone 302-894-6086,
fax 302-894-6120, or (y) in
39
the case of any Bank, at its address or facsimile number set forth in its
Administrative Details Form provided to the Agent. Each such notice, request or
other communication shall be effective (i) if given by facsimile transmission,
when transmitted to the facsimile number specified in this Section and
confirmation of receipt is received, (ii) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid, or (iii) if given by any other means, when delivered
(or, in the case of electronic transmission, received) at the address specified
in this Section; provided that notices to the Agent under Article II shall not
be effective until received.
14.2 Change of Address. The Company and the Agent may each change
the address for service of notice upon it by a notice in writing to the other
parties hereto in accordance with Section 14.1. Any Bank may change the address
for service of notice upon it by a notice in writing to the Company and the
Agent in accordance with Section 14.1.
14.3 Platform and Primary Web Portal. (a) The Borrower shall
provide to the Agent all information, documents and other materials that it is
obligated to furnish to the Agent pursuant to this Agreement and the other Loan
Documents, including, without limitation, all notices, requests, financial
statements, financial and other reports, certificates and other information
materials, but excluding any such communication that (i) relates to a notice of
borrowing or other extension of credit or a conversion of an existing interest
rate on any Term Loan or borrowing (including, without limitation, any
Conversion/Continuation Notice), (ii) relates to the payment of any principal
or other amount due hereunder prior to the scheduled date therefor, (iii)
provides notice of any Default or Event of Default hereunder or (iv) is required
to be delivered to satisfy any condition precedent to the effectiveness of this
Agreement and/or any extension of credit hereunder (all such non-excluded
communications being referred to herein collectively as "Communications"), by
transmitting the Communications in an electronic/soft medium in a format
acceptable to the Agent to [oploanswebadmin@citigroup.com]. In addition, the
Company shall continue to provide the Communications to the Agent in the manner
specified in this Agreement but only to the extent requested by the Agent. Each
Bank and the Borrower further agree that the Agent may make the Communications
available to the Banks by posting the Communications on "e-Disclosure" (the
"Platform"), the Agent's internet delivery system that is part of SSB Direct,
Global Fixed Income's primary web portal (the "Primary Web Portal").
(b) The Agent agrees that the receipt of the Communications by
the Agent at its e-mail address set forth in clause (a) above shall constitute
effective delivery of the Communications to the Agent for purposes of this
Agreement and under the Loan Documents. Each Bank agrees that notice to it at
its e-mail address provided in clause (a) above specifying that Communications
have been posted to the Platform shall constitute effective delivery of the
Communications to such Bank under this Agreement and under the Loan Documents.
(c) Nothing in this Agreement or any other Loan Document shall
prejudice the right of the Agent or any Bank to give any notice or other
communication pursuant hereto or to any other Loan Document in any other manner
specified herein or therein.
(e) The provisions of Section 14.3(a) and (b) shall terminate
on the date that neither Citicorp North America, Inc. nor any of the Citigroup
Parties is the Agent.
40
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41
ARTICLE XV
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one agreement, and any of the parties
hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be effective when it has been executed by the Company, the Agent
and the Banks and each party has notified the Agent by facsimile or telephone
that it has taken such action.
IN WITNESS WHEREOF, the Company, the Banks and the Agent have executed
this Agreement as of the date first above written.
CONSUMERS ENERGY COMPANY
By:/s/ Laura L. Mountcastle
---------------------------
Name: Laura L. Mountcastle
Title: Vice President
212 West Michigan Avenue
Jackson, MI 49201
Attention: Kimberly C. Wilson
Facsimile No.: (517)788-0768
Confirmation Telephone No: (517)788-2194
E-Mail Address: KCWilson@cmsenergy.com
CITICORP NORTH AMERICA, INC., as
Agent and as a Bank
By:/s/ J. Nicholas McKee
----------------------------
Name: J. Nicholas McKee
Title: Managing Director
388 Greenwich Street
New York, NY 10023
Attention: Nick McKee
Facsimile No.: (212) 816-8098
Confirmation No: (212) 816-8592
43
Exhibit A
EIGHTY-NINTH SUPPLEMENTAL INDENTURE
PROVIDING AMONG OTHER THINGS FOR
FIRST MORTGAGE BONDS,
COLLATERAL SERIES DUE 2006
--------------
DATED AS OF MARCH 28, 2003
--------------
CONSUMERS ENERGY COMPANY
TO
JPMORGAN CHASE BANK,
TRUSTEE
Counterpart _____ of 80
THIS EIGHTY-NINTH SUPPLEMENTAL INDENTURE, dated as of March 28, 2003
(herein sometimes referred to as "this Supplemental Indenture"), made and
entered into by and between CONSUMERS ENERGY COMPANY, a corporation organized
and existing under the laws of the State of Michigan, with its principal
executive office and place of business at 212 West Michigan Avenue, in Jackson,
Jackson County, Michigan 49201, formerly known as Consumers Power Company
(hereinafter sometimes referred to as the "Company"), and JPMORGAN CHASE BANK, a
corporation organized and existing under the laws of the State of New York, with
its corporate trust offices at 4 New York Plaza, New York, New York 10004
(hereinafter sometimes referred to as the "Trustee"), as Trustee under the
Indenture dated as of September 1, 1945 between Consumers Power Company, a Maine
corporation (hereinafter sometimes referred to as the "Maine corporation"), and
City Bank Farmers Trust Company (Citibank, N.A., successor, hereinafter
sometimes referred to as the "Predecessor Trustee"), securing bonds issued and
to be issued as provided therein (hereinafter sometimes referred to as the
"Indenture"),
WHEREAS at the close of business on January 30, 1959, City Bank Farmers
Trust Company was converted into a national banking association under the title
"First National City Trust Company"; and
WHEREAS at the close of business on January 15, 1963, First National
City Trust Company was merged into First National City Bank; and
WHEREAS at the close of business on October 31, 1968, First National
City Bank was merged into The City Bank of New York, National Association, the
name of which was thereupon changed to First National City Bank; and
WHEREAS effective March 1, 1976, the name of First National City Bank
was changed to Citibank, N.A.; and
WHEREAS effective July 16, 1984, Manufacturers Hanover Trust Company
succeeded Citibank, N.A. as Trustee under the Indenture; and
WHEREAS effective June 19, 1992, Chemical Bank succeeded by merger to
Manufacturers Hanover Trust Company as Trustee under the Indenture; and
WHEREAS effective July 15, 1996, The Chase Manhattan Bank (National
Association), merged with and into Chemical Bank which thereafter was renamed
The Chase Manhattan Bank; and
WHEREAS effective November 11, 2001, The Chase Manhattan Bank merged
with Morgan Guaranty Trust Company of New York and the surviving corporation was
renamed JPMorgan Chase Bank; and
WHEREAS the Indenture was executed and delivered for the purpose of
securing such bonds as may from time to time be issued under and in accordance
with the terms of the Indenture, the aggregate principal amount of bonds to be
secured thereby being limited to $5,000,000,000 at any one time outstanding
(except as provided in Section 2.01 of the Indenture), and the Indenture
describes and sets forth the property conveyed thereby and is filed in the
Office of the Secretary of State of the State of Michigan and is of record in
the Office of
-1-
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and
WHEREAS the Indenture has been supplemented and amended by various
indentures supplemental thereto, each of which is filed in the Office of the
Secretary of State of the State of Michigan and is of record in the Office of
the Register of Deeds of each county in the State of Michigan in which this
Supplemental Indenture is to be recorded; and
WHEREAS the Company and the Maine corporation entered into an Agreement
of Merger and Consolidation, dated as of February 14, 1968, which provided for
the Maine corporation to merge into the Company; and
WHEREAS the effective date of such Agreement of Merger and
Consolidation was June 6, 1968, upon which date the Maine corporation was merged
into the Company and the name of the Company was changed from "Consumers Power
Company of Michigan" to "Consumers Power Company"; and
WHEREAS the Company and the Predecessor Trustee entered into a
Sixteenth Supplemental Indenture, dated as of June 4, 1968, which provided,
among other things, for the assumption of the Indenture by the Company; and
WHEREAS said Sixteenth Supplemental Indenture became effective on the
effective date of such Agreement of Merger and Consolidation; and
WHEREAS the Company has succeeded to and has been substituted for the
Maine corporation under the Indenture with the same effect as if it had been
named therein as the mortgagor corporation; and
WHEREAS effective March 11, 1997, the name of Consumers Power Company
was changed to Consumers Energy Company; and
WHEREAS, the Company has entered into a Term Loan Agreement dated as of
March 28, 2003 (the "Term Loan Agreement") with various financial institutions
and Citicorp North America, Inc., as administrative agent (in such capacity, the
"Agent") for the Banks (as such term is defined in the Term Loan Agreement)
providing for the making of certain financial accommodations thereunder, and
pursuant to such Term Loan Agreement the Company has agreed to issue to the
Agent, as evidence of and security for the Obligations (as such term is defined
in the Term Loan Agreement), a new series of bonds under the Indenture; and
WHEREAS, for such purposes the Company desires to issue a new series of
bonds, to be designated First Mortgage Bonds, Collateral Series due 2006, each
of which bonds shall also bear the descriptive title "First Mortgage Bond"
(hereinafter provided for and hereinafter sometimes referred to as the "2006
Collateral Series Bonds"), the bonds of which series are to be issued as
registered bonds without coupons and are to bear interest at the rate per annum
specified herein and are to mature March 28, 2006; and
WHEREAS, each of the registered bonds without coupons of the 2006
Collateral Series Bonds and the Trustee's Authentication Certificate thereon are
to be substantially in the following form, to wit:
-2-
[FORM OF REGISTERED BOND OF THE 2006 COLLATERAL SERIES BONDS]
[FACE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
COLLATERAL SERIES DUE 2006
No. 1 $150,000,000
CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to Citicorp North
America, Inc., as agent (in such capacity, the "Agent") for the Banks under and
as defined in the Amended and Restated Term Loan Agreement dated as of March 28,
2003 among the Company, the Banks and the Agent (the "Term Loan Agreement"), or
registered assigns, the principal sum of One Hundred Fifty Million Dollars
($150,000,000) or such lesser principal amount as shall be equal to the
aggregate principal amount of the Term Loans (as defined in the Term Loan
Agreement) included in the Obligations (as defined in the Term Loan Agreement)
outstanding on March 28, 2006 (the "Maturity Date"), but not in excess, however,
of the principal amount of this bond, and to pay interest thereon at the
Interest Rate (as defined below) until the principal hereof is paid or duly made
available for payment on the Maturity Date, or, in the event of redemption of
this bond, until the redemption date, or, in the event of default in the payment
of the principal hereof, until the Company's obligations with respect to the
payment of such principal shall be discharged as provided in the Indenture (as
defined on the reverse hereof). Interest on this bond shall be payable on each
Interest Payment Date (as defined below), commencing on the first Interest
Payment Date next succeeding March 28, 2003. If the Maturity Date falls on a day
which is not a Business Day, as defined below, principal and any interest and/or
fees payable with respect to the Maturity Date will be paid on the immediately
preceding Business Day. The interest payable, and punctually paid or duly
provided for, on any Interest Payment Date will, subject to certain exceptions,
be paid to the person in whose name this bond (or one or more predecessor bonds)
is registered at the close of business on the Record Date (as defined below);
provided, however, that interest payable on the Maturity Date will be payable to
the person to whom the principal hereof shall be payable. Should the Company
default in the payment of interest ("Defaulted Interest"), the Defaulted
Interest shall be paid to the person in whose name this bond (or one or more
predecessor bonds) is registered on a subsequent record date fixed by the
Company, which subsequent record date shall be fifteen (15) days prior to the
payment of such Defaulted Interest. As used herein, (A) "Business Day" shall
mean any day, other than a Saturday or Sunday, on which banks generally are open
in New York, New York for the conduct of substantially all of their commercial
lending activities and on which interbank wire transfers can be made on the
Fedwire system; (B) "Interest Payment Date" shall mean each date on which
interest and/or fees under the Term Loan Agreement are due and payable from time
to time pursuant to the Term Loan Agreement; (C) "Interest Rate" shall mean a
rate of interest per annum, adjusted as necessary, to result in an interest
payment equal to the aggregate amount of interest and fees due under the Term
Loan Agreement on the applicable Interest Payment Date; and (D) "Record Date"
with respect to any Interest Payment Date shall mean the day (whether or not a
Business Day) immediately next preceding such Interest Payment Date.
- 3 -
Payment of the principal of and interest on this bond will be made in
immediately available funds at the office or agency of the Company maintained
for that purpose in the City of Jackson, Michigan, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts.
The provisions of this bond are continued on the reverse hereof and
such continued provisions shall for all purposes have the same effect as though
fully set forth at this place.
This bond shall not be valid or become obligatory for any purpose
unless and until it shall have been authenticated by the execution by the
Trustee or its successor in trust under the Indenture of the certificate hereon.
IN WITNESS WHEREOF, Consumers Energy Company has caused this bond to be
executed in its name by its Chairman of the Board, its President or one of its
Vice Presidents by his or her signature or a facsimile thereof, and its
corporate seal or a facsimile thereof to be affixed hereto or imprinted hereon
and attested by its Secretary or one of its Assistant Secretaries by his or her
signature or a facsimile thereof.
CONSUMERS ENERGY COMPANY
Dated:
By: _______________________________
Printed: __________________________
Title: ____________________________
Attest: _________________________
TRUSTEE'S AUTHENTICATION CERTIFICATE
This is one of the bonds, of the series designated therein, described
in the within- mentioned Indenture.
JPMORGAN CHASE BANK, Trustee
By__________________________________
Authorized Officer
- 4 -
[REVERSE]
CONSUMERS ENERGY COMPANY
FIRST MORTGAGE BOND
COLLATERAL SERIES DUE 2006
This bond is one of the bonds of a series designated as First Mortgage
Bonds, Collateral Series due 2006 (sometimes herein referred to as the "2006
Collateral Series Bonds") issued under and in accordance with and secured by an
Indenture dated as of September 1, 1945, given by the Company (or its
predecessor, Consumers Power Company, a Maine corporation) to City Bank Farmers
Trust Company (JPMorgan Chase Bank, successor) (hereinafter sometimes referred
to as the "Trustee"), together with indentures supplemental thereto, heretofore
or hereafter executed, to which indenture and indentures supplemental thereto
(hereinafter referred to collectively as the "Indenture") reference is hereby
made for a description of the property mortgaged and pledged, the nature and
extent of the security and the rights, duties and immunities thereunder of the
Trustee and the rights of the holders of said bonds and of the Trustee and of
the Company in respect of such security, and the limitations on such rights. By
the terms of the Indenture, the bonds to be secured thereby are issuable in
series which may vary as to date, amount, date of maturity, rate of interest and
in other respects as provided in the Indenture.
The 2006 Collateral Series Bonds are to be issued and delivered to the
Agent in order evidence and secure the obligation of the Company under the Term
Loan Agreement to make payments to the Banks under the Term Loan Agreement and
to provide the Banks the benefit of the lien of the Indenture with respect to
the 2006 Collateral Series Bonds.
The obligation of the Company to make payments with respect to the
principal of 2006 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2006
Collateral Series Bonds shall be deemed discharged in the same amount as the
payment with respect to the Term Loans discharges the outstanding obligation
with respect to such Term Loans.
The obligation of the Company to make payments with respect to the
interest on 2006 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2006 Collateral Series
- 5 -
Bonds shall be deemed discharged in the same amount as the payment with respect
to the Term Loans discharges the outstanding obligation with respect to such
Term Loans.
The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on this bond, so far as such payments at the time have become due, has
been fully satisfied and discharged unless and until the Trustee shall have
received a written notice from the Agent stating (i) that timely payment of
principal and interest on the 2006 Collateral Series Bonds has not been made,
(ii) that the Company is in arrears as to the payments required to be made by it
to the Agent pursuant to the Term Loan Agreement, and (iii) the amount of the
arrearage.
If an Event of Default (as defined in the Term Loan Agreement) with
respect to the payment of the principal of any Term Loans shall have occurred,
it shall be deemed to be a default for purposes of Section 11.01 of the
Indenture in the payment of the principal of the 2006 Collateral Series Bonds
equal to the amount of such unpaid principal (but in no event in excess of the
principal amount of the 2006 Collateral Series Bonds). If an Event of Default
(as defined in the Term Loan Agreement) with respect to the payment of interest
on any Term Loans or fees shall have occurred, it shall be deemed to be a
default for purposes of Section 11.01 of the Indenture in the payment of the
interest on the 2006 Collateral Series Bonds equal to the amount of such unpaid
interest or fees.
This bond is not redeemable except upon written demand of the Agent
following the occurrence of an Event of Default under the Term Loan Agreement
and the acceleration of the Obligations, as provided in Section 9.2 of the Term
Loan Agreement. This bond is not redeemable by the operation of the improvement
fund or the maintenance and replacement provisions of the Indenture or with the
proceeds of released property.
In case of certain defaults as specified in the Indenture, the
principal of this bond may be declared or may become due and payable on the
conditions, at the time, in the manner and with the effect provided in the
Indenture. The holders of certain specified percentages of the bonds at the time
outstanding, including in certain cases specified percentages of bonds of
particular series, may in certain cases, to the extent and as provided in the
Indenture, waive certain defaults thereunder and the consequences of such
defaults.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than seventy-five per
centum in principal amount of the bonds (exclusive of bonds disqualified by
reason of the Company's interest therein) at the time outstanding, including, if
more than one series of bonds shall be at the time outstanding, not less than
sixty per centum in principal amount of each series affected, to effect, by an
indenture supplemental to the Indenture, modifications or alterations of the
Indenture and of the rights and obligations of the Company and the rights of the
holders of the bonds and coupons; provided, however, that no such modification
or alteration shall be made without the written approval or consent of the
holder hereof which will (a) extend the maturity of this bond or reduce the rate
or extend the time of payment of interest hereon or reduce the amount of the
principal hereof, or (b) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of the Indenture, or (c) reduce
the percentage of the principal amount of the bonds the holders of which are
required to approve any such supplemental indenture.
- 6 -
The Company reserves the right, without any consent, vote or other
action by holders of the 2006 Collateral Series Bonds or any other series
created after the Sixty-eighth Supplemental Indenture to amend the Indenture to
reduce the percentage of the principal amount of bonds the holders of which are
required to approve any supplemental indenture (other than any supplemental
indenture which is subject to the proviso contained in the immediately preceding
sentence) (a) from not less than seventy-five per centum (including sixty per
centum of each series affected) to not less than a majority in principal amount
of the bonds at the time outstanding or (b) in case fewer than all series are
affected, not less than a majority in principal amount of the bonds of all
affected series, voting together.
No recourse shall be had for the payment of the principal of or
interest on this bond, or for any claim based hereon, or otherwise in respect
hereof or of the Indenture, to or against any incorporator, stockholder,
director or officer, past, present or future, as such, of the Company, or of any
predecessor or successor company, either directly or through the Company, or
such predecessor or successor company, or otherwise, under any constitution or
statute or rule of law, or by the enforcement of any assessment or penalty, or
otherwise, all such liability of incorporators, stockholders, directors and
officers, as such, being waived and released by the holder and owner hereof by
the acceptance of this bond and being likewise waived and released by the terms
of the Indenture.
This bond shall be exchangeable for other registered bonds of the same
series, in the manner and upon the conditions prescribed in the Indenture, upon
the surrender of such bonds at the Investor Services Department of the Company,
as transfer agent. However, notwithstanding the provisions of Section 2.05 of
the Indenture, no charge shall be made upon any registration of transfer or
exchange of bonds of said series other than for any tax or taxes or other
governmental charge required to be paid by the Company.
The Agent shall surrender this bond to the Trustee when all of the
principal of and interest on the Term Loans arising under the Term Loan
Agreement, and all of the fees payable pursuant to the Term Loan Agreement,
shall have been duly paid, and the Term Loan Agreement shall have been
terminated.
[END OF FORM OF REGISTERED BOND OF THE 2006 COLLATERAL SERIES BONDS]
- 7 -
AND WHEREAS all acts and things necessary to make the 2006 Collateral
Series Bonds, when duly executed by the Company and authenticated by the Trustee
or its agent and issued as prescribed in the Indenture, as heretofore
supplemented and amended, and this Supplemental Indenture provided, the valid,
binding and legal obligations of the Company, and to constitute the Indenture,
as supplemented and amended as aforesaid, as well as by this Supplemental
Indenture, a valid, binding and legal instrument for the security thereof, have
been done and performed, and the creation, execution and delivery of this
Supplemental Indenture and the creation, execution and issuance of bonds subject
to the terms hereof and of the Indenture, as so supplemented and amended, have
in all respects been duly authorized;
NOW, THEREFORE, in consideration of the premises, of the acceptance and
purchase by the holders thereof of the bonds issued and to be issued under the
Indenture, as supplemented and amended as above set forth, and of the sum of One
Dollar duly paid by the Trustee to the Company, and of other good and valuable
considerations, the receipt whereof is hereby acknowledged, and for the purpose
of securing the due and punctual payment of the principal of and premium, if
any, and interest on all bonds now outstanding under the Indenture and the
$150,000,000 principal amount of the 2006 Collateral Series Bonds proposed to be
issued initially and all other bonds which shall be issued under the Indenture,
as supplemented and amended from time to time, and for the purpose of securing
the faithful performance and observance of all covenants and conditions therein,
and in any indenture supplemental thereto, set forth, the Company has given,
granted, bargained, sold, released, transferred, assigned, hypothecated,
pledged, mortgaged, confirmed, set over, warranted, alienated and conveyed and
by these presents does give, grant, bargain, sell, release, transfer, assign,
hypothecate, pledge, mortgage, confirm, set over, warrant, alien and convey unto
JPMorgan Chase Bank, as Trustee, as provided in the Indenture, and its successor
or successors in the trust thereby and hereby created and to its or their
assigns forever, all the right, title and interest of the Company in and to all
the property, described in Section 11 hereof, together (subject to the
provisions of Article X of the Indenture) with the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, excepting, however, the
property, interests and rights specifically excepted from the lien of the
Indenture as set forth in the Indenture;
TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any wise appertaining to the premises, property,
franchises and rights, or any thereof, referred to in the foregoing granting
clause, with the reversion and reversions, remainder and remainders and (subject
to the provisions of Article X of the Indenture) the tolls, rents, revenues,
issues, earnings, income, products and profits thereof, and all the estate,
right, title and interest and claim whatsoever, at law as well as in equity,
which the Company now has or may hereafter acquire in and to the aforesaid
premises, property, franchises and rights and every part and parcel thereof;
SUBJECT, HOWEVER, with respect to such premises, property, franchises
and rights, to excepted encumbrances as said term is defined in Section 1.02 of
the Indenture, and subject also to all defects and limitations of title and to
all encumbrances existing at the time of acquisition. TO HAVE AND TO HOLD all
said premises, property, franchises and rights hereby conveyed, assigned,
pledged or mortgaged, or intended so to be, unto the Trustee, its successor or
successors in trust and their assigns forever;
- 8 -
BUT IN TRUST, NEVERTHELESS, with power of sale for the equal and
proportionate benefit and security of the holders of all bonds now or hereafter
authenticated and delivered under and secured by the Indenture and interest
coupons appurtenant thereto, pursuant to the provisions of the Indenture and of
any supplemental indenture, and for the enforcement of the payment of said bonds
and coupons when payable and the performance of and compliance with the
covenants and conditions of the Indenture and of any supplemental indenture,
without any preference, distinction or priority as to lien or otherwise of any
bond or bonds over others by reason of the difference in time of the actual
authentication, delivery, issue, sale or negotiation thereof or for any other
reason whatsoever, except as otherwise expressly provided in the Indenture; and
so that each and every bond now or hereafter authenticated and delivered
thereunder shall have the same lien, and so that the principal of and premium,
if any, and interest on every such bond shall, subject to the terms thereof, be
equally and proportionately secured, as if it had been made, executed,
authenticated, delivered, sold and negotiated simultaneously with the execution
and delivery thereof;
AND IT IS EXPRESSLY DECLARED by the Company that all bonds
authenticated and delivered under and secured by the Indenture, as supplemented
and amended as above set forth, are to be issued, authenticated and delivered,
and all said premises, property, franchises and rights hereby and by the
Indenture and indentures supplemental thereto conveyed, assigned, pledged or
mortgaged, or intended so to be, are to be dealt with and disposed of under,
upon and subject to the terms, conditions, stipulations, covenants, agreements,
trusts, uses and purposes expressed in the Indenture, as supplemented and
amended as above set forth, and the parties hereto mutually agree as follows:
SECTION 1. There is hereby created one series of bonds (the "2006
Collateral Series Bonds") designated as hereinabove provided, which shall also
bear the descriptive title "First Mortgage Bond", and the form thereof shall be
substantially as hereinbefore set forth (the "Sample Bond"). The 2006 Collateral
Series Bonds shall be issued in the aggregate principal amount of $150,000,000,
shall mature on March 28, 2006 and shall be issued only as registered bonds
without coupons in denominations of $1,000 and any multiple thereof. The serial
numbers of the 2006 Collateral Series Bonds shall be such as may be approved by
any officer of the Company, the execution thereof by any such officer either
manually or by facsimile signature to be conclusive evidence of such approval.
The 2006 Collateral Series Bonds are to be issued to and registered in the name
of the Agent under the Term Loan Agreement (as such terms are defined in the
Sample Bond) to evidence and secure any and all Obligations (as such term is
defined in the Term Loan Agreement) of the Company under the Term Loan
Agreement.
The 2006 Collateral Series Bonds shall bear interest as set forth in
the Sample Bond. The principal of and the interest on said bonds shall be
payable as set forth in the Sample Bond.
The obligation of the Company to make payments with respect to the
principal of 2006 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due principal of the Term Loans included in
the Obligations shall have been fully or partially paid. Satisfaction of any
obligation to the extent that payment is made with respect to the Term Loans
means that if any payment is made on the principal of the Term Loans, a
corresponding payment obligation with respect to the principal of the 2006
Collateral Series Bonds shall be deemed discharged in the
- 9 -
same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.
The obligation of the Company to make payments with respect to the
interest on 2006 Collateral Series Bonds shall be fully or partially, as the
case may be, satisfied and discharged to the extent that, at the time that any
such payment shall be due, the then due interest and/or fees on the Term Loans
included in the Obligations shall have been fully or partially paid.
Satisfaction of any obligation to the extent that payment is made with respect
to the Term Loans means that if any payment is made on the interest and/or fees
on the Term Loans, a corresponding payment obligation with respect to the
interest on the 2006 Collateral Series Bonds shall be deemed discharged in the
same amount as the payment with respect to the Term Loans discharges the
outstanding obligation with respect to such Term Loans.
The Trustee may at any time and all times conclusively assume that the
obligation of the Company to make payments with respect to the principal of and
interest on the 2006 Collateral Series Bonds, so far as such payments at the
time have become due, has been fully satisfied and discharged unless and until
the Trustee shall have received a written notice from the Agent stating (i) that
timely payment of principal and interest on the 2006 Collateral Series Bonds has
not been made, (ii) that the Company is in arrears as to the payments required
to be made by it to the Agent pursuant to the Term Loan Agreement, and (iii) the
amount of the arrearage.
The 2006 Collateral Series Bonds shall be exchangeable for other
registered bonds of the same series, in the manner and upon the conditions
prescribed in the Indenture, upon the surrender of such bonds at the Investor
Services Department of the Company, as transfer agent. However, notwithstanding
the provisions of Section 2.05 of the Indenture, no charge shall be made upon
any registration of transfer or exchange of bonds of said series other than for
any tax or taxes or other governmental charge required to be paid by the
Company.
SECTION 2. The 2006 Collateral Series Bonds are not redeemable by the
operation of the maintenance and replacement provisions of this Indenture or
with the proceeds of released property.
SECTION 3. Upon the occurrence of an Event of Default under the Term
Loan Agreement and the acceleration of the Obligations, the 2006 Collateral
Series Bonds shall be redeemable in whole upon receipt by the Trustee of a
written demand from the Agent stating that there has occurred under the Term
Loan Agreement both an Event of Default and a declaration of acceleration of the
Obligations and demanding redemption of the 2006 Collateral Series Bonds
(including a description of the amount of principal, interest and fees which
comprise such Obligations). The Company waives any right it may have to prior
notice of such redemption under the Indenture. Upon surrender of the 2006
Collateral Series Bonds by the Agent to the Trustee, the 2006 Collateral Series
Bonds shall be redeemed at a redemption price equal to the aggregate amount of
the Obligations.
SECTION 4. The Company reserves the right, without any consent, vote or
other action by the holder of the 2006 Collateral Series Bonds or of any
subsequent series of bonds issued under the Indenture, to make such amendments
to the Indenture, as supplemented, as shall be necessary in order to amend
Section 17.02 to read as follows:
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SECTION 17.02. With the consent of the holders of not less than a
majority in principal amount of the bonds at the time outstanding or their
attorneys-in-fact duly authorized, or, if fewer than all series are affected,
not less than a majority in principal amount of the bonds at the time
outstanding of each series the rights of the holders of which are affected,
voting together, the Company, when authorized by a resolution, and the Trustee
may from time to time and at any time enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of any
supplemental indenture or modifying the rights and obligations of the Company
and the rights of the holders of any of the bonds and coupons; provided,
however, that no such supplemental indenture shall (1) extend the maturity of
any of the bonds or reduce the rate or extend the time of payment of interest
thereon, or reduce the amount of the principal thereof, or reduce any premium
payable on the redemption thereof, without the consent of the holder of each
bond so affected, or (2) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien of this Indenture, without the
consent of the holders of all the bonds then outstanding, or (3) reduce the
aforesaid percentage of the principal amount of bonds the holders of which are
required to approve any such supplemental indenture, without the consent of the
holders of all the bonds then outstanding. For the purposes of this Section,
bonds shall be deemed to be affected by a supplemental indenture if such
supplemental indenture adversely affects or diminishes the rights of holders
thereof against the Company or against its property. The Trustee may in its
discretion determine whether or not, in accordance with the foregoing, bonds of
any particular series would be affected by any supplemental indenture and any
such determination shall be conclusive upon the holders of bonds of such series
and all other series. Subject to the provisions of Sections 16.02 and 16.03
hereof, the Trustee shall not be liable for any determination made in good faith
in connection herewith.
Upon the written request of the Company, accompanied by a resolution
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of bondholders as aforesaid
(the instrument or instruments evidencing such consent to be dated within one
year of such request), the Trustee shall join with the Company in the execution
of such supplemental indenture unless such supplemental indenture affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise, in
which case the Trustee may in its discretion but shall not be obligated to enter
into such supplemental indenture.
It shall not be necessary for the consent of the bondholders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such consent shall approve the substance thereof.
The Company and the Trustee, if they so elect, and either before or
after such consent has been obtained, may require the holder of any bond
consenting to the execution of any such supplemental indenture to submit his
bond to the Trustee or to ask such bank, banker or trust company as may be
designated by the Trustee
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for the purpose, for the notation thereon of the fact that the holder
of such bond has consented to the execution of such supplemental
indenture, and in such case such notation, in form satisfactory to the
Trustee, shall be made upon all bonds so submitted, and such bonds
bearing such notation shall forthwith be returned to the persons
entitled thereto.
Prior to the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the
Company shall publish a notice, setting forth in general terms the
substance of such supplemental indenture, at least once in one daily
newspaper of general circulation in each city in which the principal of
any of the bonds shall be payable, or, if all bonds outstanding shall
be registered bonds without coupons or coupon bonds registered as to
principal, such notice shall be sufficiently given if mailed, first
class, postage prepaid, and registered if the Company so elects, to
each registered holder of bonds at the last address of such holder
appearing on the registry books, such publication or mailing, as the
case may be, to be made not less than thirty days prior to such
execution. Any failure of the Company to give such notice, or any
defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.
SECTION 5. As supplemented and amended as above set forth, the
Indenture is in all respects ratified and confirmed, and the Indenture and all
indentures supplemental thereto shall be read, taken and construed as one and
the same instrument.
SECTION 6. Nothing contained in this Supplemental Indenture shall, or
shall be construed to, confer upon any person other than a holder of bonds
issued under the Indenture, as supplemented and amended as above set forth, the
Company, the Trustee and the Agent, for the benefit of the Banks (as such term
is defined in the Term Loan Agreement), any right or interest to avail himself
of any benefit under any provision of the Indenture, as so supplemented and
amended.
SECTION 7. The Trustee assumes no responsibility for or in respect of
the validity or sufficiency of this Supplemental Indenture or of the Indenture
as hereby supplemented or the due execution hereof by the Company or for or in
respect of the recitals and statements contained herein (other than those
contained in the sixth, seventh and eighth recitals hereof), all of which
recitals and statements are made solely by the Company.
SECTION 8. This Supplemental Indenture may be simultaneously executed
in several counterparts and all such counterparts executed and delivered, each
as an original, shall constitute but one and the same instrument.
SECTION 9. In the event the date of any notice required or permitted
hereunder shall not be a Business Day, then (notwithstanding any other provision
of the Indenture or of any supplemental indenture thereto) such notice 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 fixed for such notice.
"Business Day" means, with respect to this Section 9, any day, other than a
Saturday or Sunday, on which banks generally are open in New York, New York for
the conduct
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of substantially all of their commercial lending activities and on which
interbank wire transfers can be made on the Fedwire system.
SECTION 10. This Supplemental Indenture and the 2006 Collateral Series
Bonds shall be governed by and deemed to be a contract under, and construed in
accordance with, the laws of the State of Michigan, and for all purposes shall
be construed in accordance with the laws of such state, except as may otherwise
be required by mandatory provisions of law.
SECTION 11. Detailed Description of Property Mortgaged:
I.
ELECTRIC GENERATING PLANTS AND DAMS
All the electric generating plants and stations of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, including all powerhouses, buildings, reservoirs, dams,
pipelines, flumes, structures and works and the land on which the same are
situated and all water rights and all other lands and easements, rights of way,
permits, privileges, towers, poles, wires, machinery, equipment, appliances,
appurtenances and supplies and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with such
plants and stations or any of them, or adjacent thereto.
II.
ELECTRIC TRANSMISSION LINES
All the electric transmission lines of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including towers, poles, pole lines, wires, switches, switch racks,
switchboards, insulators and other appliances and equipment, and all other
property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such transmission lines or any of them or
adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises and rights for or relating to the construction,
maintenance or operation thereof, through, over, under or upon any private
property or any public streets or highways, within as well as without the
corporate limits of any municipal corporation. Also all the real property,
rights of way, easements, permits, privileges and rights for or relating to the
construction, maintenance or operation of certain transmission lines, the land
and rights for which are owned by the Company, which are either not built or now
being constructed.
III.
ELECTRIC DISTRIBUTION SYSTEMS
All the electric distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including substations, transformers, switchboards,
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towers, poles, wires, insulators, subways, trenches, conduits, manholes, cables,
meters and other appliances and equipment, and all other property, real or
personal, forming a part of or appertaining to or used, occupied or enjoyed in
connection with such distribution systems or any of them or adjacent thereto;
together with all real property, rights of way, easements, permits, privileges,
franchises, grants and rights, for or relating to the construction, maintenance
or operation thereof, through, over, under or upon any private property or any
public streets or highways within as well as without the corporate limits of any
municipal corporation.
IV.
ELECTRIC SUBSTATIONS, SWITCHING STATIONS AND SITES
All the substations, switching stations and sites of the Company,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture, for transforming, regulating, converting or distributing or
otherwise controlling electric current at any of its plants and elsewhere,
together with all buildings, transformers, wires, insulators and other
appliances and equipment, and all other property, real or personal, forming a
part of or appertaining to or used, occupied or enjoyed in connection with any
of such substations and switching stations, or adjacent thereto, with sites to
be used for such purposes.
V.
GAS COMPRESSOR STATIONS, GAS PROCESSING PLANTS, DESULPHURIZATION STATIONS,
METERING STATIONS, ODORIZING STATIONS, REGULATORS AND SITES
All the compressor stations, processing plants, desulphurization
stations, metering stations, odorizing stations, regulators and sites of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, for compressing, processing, desulphurizing, metering,
odorizing and regulating manufactured or natural gas at any of its plants and
elsewhere, together with all buildings, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with any of such
purposes, with sites to be used for such purposes.
VI.
GAS STORAGE FIELDS
The natural gas rights and interests of the Company, including wells
and well lines (but not including natural gas, oil and minerals), the gas
gathering system, the underground gas storage rights, the underground gas
storage wells and injection and withdrawal system used in connection therewith,
constructed or otherwise acquired by it and not heretofore described in the
Indenture or any supplement thereto and not heretofore released from the lien of
the Indenture: In the Overisel Gas Storage Field, located in the Township of
Overisel, Allegan County, and in the Township of Zeeland, Ottawa County,
Michigan; in the Northville Gas Storage Field located
- 14 -
in the Township of Salem, Washtenaw County, Township of Lyon, Oakland County,
and the Townships of Northville and Plymouth and City of Plymouth, Wayne County,
Michigan; in the Salem Gas Storage Field, located in the Township of Salem,
Allegan County, and in the Township of Jamestown, Ottawa County, Michigan; in
the Ray Gas Storage Field, located in the Townships of Ray and Armada, Macomb
County, Michigan; in the Lenox Gas Storage Field, located in the Townships of
Lenox and Chesterfield, Macomb County, Michigan; in the Ira Gas Storage Field,
located in the Township of Ira, St. Clair County, Michigan; in the Puttygut Gas
Storage Field, located in the Township of Casco, St. Clair County, Michigan; in
the Four Corners Gas Storage Field, located in the Townships of Casco, China,
Cottrellville and Ira, St. Clair County, Michigan; in the Swan Creek Gas Storage
Field, located in the Township of Casco and Ira, St. Clair County, Michigan; and
in the Hessen Gas Storage Field, located in the Townships of Casco and Columbus,
St. Clair, Michigan.
VII.
GAS TRANSMISSION LINES
All the gas transmission lines of the Company, constructed or otherwise
acquired by it and not heretofore described in the Indenture or any supplement
thereto and not heretofore released from the lien of the Indenture, including
gas mains, pipes, pipelines, gates, valves, meters and other appliances and
equipment, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such
transmission lines or any of them or adjacent thereto; together with all real
property, right of way, easements, permits, privileges, franchises and rights
for or relating to the construction, maintenance or operation thereof, through,
over, under or upon any private property or any public streets or highways,
within as well as without the corporate limits of any municipal corporation.
VIII.
GAS DISTRIBUTION SYSTEMS
All the gas distribution systems of the Company, constructed or
otherwise acquired by it and not heretofore described in the Indenture or any
supplement thereto and not heretofore released from the lien of the Indenture,
including tunnels, conduits, gas mains and pipes, service pipes, fittings,
gates, valves, connections, meters and other appliances and equipment, and all
other property, real or personal, forming a part of or appertaining to or used,
occupied or enjoyed in connection with such distribution systems or any of them
or adjacent thereto; together with all real property, rights of way, easements,
permits, privileges, franchises, grants and rights, for or relating to the
construction, maintenance or operation thereof, through, over, under or upon any
private property or any public streets or highways within as well as without the
corporate limits of any municipal corporation.
- 15 -
IX.
OFFICE BUILDINGS, SERVICE BUILDINGS, GARAGES, ETC.
All office, garage, service and other buildings of the Company,
wherever located, in the State of Michigan, constructed or otherwise acquired by
it and not heretofore described in the Indenture or any supplement thereto and
not heretofore released from the lien of the Indenture, together with the land
on which the same are situated and all easements, rights of way and
appurtenances to said lands, together with all furniture and fixtures located in
said buildings.
X.
TELEPHONE PROPERTIES AND
RADIO COMMUNICATION EQUIPMENT
All telephone lines, switchboards, systems and equipment of the
Company, constructed or otherwise acquired by it and not heretofore described in
the Indenture or any supplement thereto and not heretofore released from the
lien of the Indenture, used or available for use in the operation of its
properties, and all other property, real or personal, forming a part of or
appertaining to or used, occupied or enjoyed in connection with such telephone
properties or any of them or adjacent thereto; together with all real estate,
rights of way, easements, permits, privileges, franchises, property, devices or
rights related to the dispatch, transmission, reception or reproduction of
messages, communications, intelligence, signals, light, vision or sound by
electricity, wire or otherwise, including all telephone equipment installed in
buildings used as general and regional offices, substations and generating
stations and all telephone lines erected on towers and poles; and all radio
communication equipment of the Company, together with all property, real or
personal (except any in the Indenture expressly excepted), fixed stations,
towers, auxiliary radio buildings and equipment, and all appurtenances used in
connection therewith, wherever located, in the State of Michigan.
XI.
OTHER REAL PROPERTY
All other real property of the Company and all interests therein, of
every nature and description (except any in the Indenture expressly excepted)
wherever located, in the State of Michigan, acquired by it and not heretofore
described in the Indenture or any supplement thereto and not heretofore released
from the lien of the Indenture. Such real property includes but is not limited
to the following described property, such property is subject to any interests
that were excepted or reserved in the conveyance to the Company:
ALCONA COUNTY
Certain land in Caledonia Township, Alcona County, Michigan described
as:
The East 330 feet of the South 660 feet of the SW 1/4 of the
SW 1/4 of Section 8, T28N, R8E, except the West 264 feet of the South
330 feet thereof; said land being more particularly described as
follows: To find the place of
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beginning of this description, commence at the Southwest corner of said
section, run thence East along the South line of said section 1243 feet
to the place of beginning of this description, thence continuing East
along said South line of said section 66 feet to the West 1/8 line of
said section, thence N 02 degrees 09' 30" E along the said West 1/8
line of said section 660 feet, thence West 330 feet, thence S 02
degrees 09' 30" W, 330 feet, thence East 264 feet, thence S 02 degrees
09' 30" W, 330 feet to the place of beginning.
ALLEGAN COUNTY
Certain land in Lee Township, Allegan County, Michigan described as:
The NE 1/4 of the NW 1/4 of Section 16, T1N, R15W.
ALPENA COUNTY
Certain land in Wilson and Green Townships, Alpena County, Michigan
described as:
All that part of the S'ly 1/2 of the former Boyne City-Gaylord
and Alpena Railroad right of way, being the Southerly 50 feet of a 100
foot strip of land formerly occupied by said Railroad, running from the
East line of Section 31, T31N, R7E, Southwesterly across said Section
31 and Sections 5 and 6 of T30N, R7E and Sections 10, 11 and the E 1/2
of Section 9, except the West 1646 feet thereof, all in T30N, R6E.
ANTRIM COUNTY
Certain land in Mancelona Township, Antrim County, Michigan described
as:
The S 1/2 of the NE 1/4 of Section 33, T29N, R6W, excepting
therefrom all mineral, coal, oil and gas and such other rights as were
reserved unto the State of Michigan in that certain deed running from
the State of Michigan to August W. Schack and Emma H. Schack, his wife,
dated April 15, 1946 and recorded May 20, 1946 in Liber 97 of Deeds on
page 682 of Antrim County Records.
ARENAC COUNTY
Certain land in Standish Township, Arenac County, Michigan described
as:
A parcel of land in the SW 1/4 of the NW 1/4 of Section 12,
T18N, R4E, described as follows: To find the place of beginning of said
parcel of land, commence at the Northwest corner of Section 12, T18N,
R4E; run thence South along the West line of said section, said West
line of said section being also the center line of East City Limits
Road 2642.15 feet to the W 1/4 post of said section and the place of
beginning of said parcel of land; running thence N 88 degrees 26' 00" E
along the East and West 1/4 line of said section, 660.0 feet; thence
North parallel with the West line of said section, 310.0 feet; thence S
88 degrees 26' 00"
- 17 -
W, 330.0 feet; thence South parallel with the West line of said
section, 260.0 feet; thence S 88 degrees 26' 00" W, 330.0 feet to the
West line of said section and the center line of East City Limits Road;
thence South along the said West line of said section, 50.0 feet to the
place of beginning.
BARRY COUNTY
Certain land in Johnstown Township, Barry County, Michigan described
as:
A strip of land 311 feet in width across the SW 1/4 of the NE
1/4 of Section 31, T1N, R8W, described as follows: To find the place of
beginning of this description, commence at the E 1/4 post of said
section; run thence N 00 degrees 55' 00" E along the East line of said
section, 555.84 feet; thence N 59 degrees 36' 20" W, 1375.64 feet;
thence N 88 degrees 30' 00" W, 130 feet to a point on the East 1/8 line
of said section and the place of beginning of this description; thence
continuing N 88 degrees 30' 00" W, 1327.46 feet to the North and South
1/4 line of said section; thence S 00 degrees 39'35" W along said North
and South 1/4 line of said section, 311.03 feet to a point, which said
point is 952.72 feet distant N'ly from the East and West 1/4 line of
said section as measured along said North and South 1/4 line of said
section; thence S 88 degrees 30' 00" E, 1326.76 feet to the East 1/8
line of said section; thence N 00 degrees 47' 20" E along said East 1/8
line of said section, 311.02 feet to the place of beginning.
BAY COUNTY
Certain land in Frankenlust Township, Bay County, Michigan described
as:
The South 250 feet of the N 1/2 of the W 1/2 of the W 1/2 of
the SE 1/4 of Section 9, T13N, R4E.
BENZIE COUNTY
Certain land in Benzonia Township, Benzie County, Michigan described
as:
A parcel of land in the Northeast 1/4 of Section 7, Township
26 North, Range 14 West, described as beginning at a point on the East
line of said Section 7, said point being 320 feet North measured along
the East line of said section from the East 1/4 post; running thence
West 165 feet; thence North parallel with the East line of said section
165 feet; thence East 165 feet to the East line of said section; thence
South 165 feet to the place of beginning.
BRANCH COUNTY
Certain land in Girard Township, Branch County, Michigan described as:
A parcel of land in the NE 1/4 of Section 23 T5S, R6W,
described as beginning at a point on the North and South quarter line
of said section at a point
- 18 -
1278.27 feet distant South of the North quarter post of said section,
said distance being measured along the North and South quarter line of
said section, running thence S89 degrees21'E 250 feet, thence North
along a line parallel with the said North and South quarter line of
said section 200 feet, thence N89 degrees21'W 250 feet to the North and
South quarter line of said section, thence South along said North and
South quarter line of said section 200 feet to the place of beginning.
CALHOUN COUNTY
Certain land in Convis Township, Calhoun County, Michigan described as:
A parcel of land in the SE 1/4 of the SE 1/4 of Section 32,
T1S, R6W, described as follows: To find the place of beginning of this
description, commence at the Southeast corner of said section; run
thence North along the East line of said section 1034.32 feet to the
place of beginning of this description; running thence N 89 degrees 39'
52" W, 333.0 feet; thence North 290.0 feet to the South 1/8 line of
said section; thence S 89 degrees 39' 52" E along said South 1/8 line
of said section 333.0 feet to the East line of said section; thence
South along said East line of said section 290.0 feet to the place of
beginning. (Bearings are based on the East line of Section 32, T1S,
R6W, from the Southeast corner of said section to the Northeast corner
of said section assumed as North.)
CASS COUNTY
Certain easement rights located across land in Marcellus Township, Cass
County, Michigan described as:
The East 6 rods of the SW 1/4 of the SE 1/4 of Section 4, T5S,
R13W.
CHARLEVOIX COUNTY
Certain land in South Arm Township, Charlevoix County, Michigan
described as:
A parcel of land in the SW 1/4 of Section 29, T32N, R7W,
described as follows: Beginning at the Southwest corner of said section
and running thence North along the West line of said section 788.25
feet to a point which is 528 feet distant South of the South 1/8 line
of said section as measured along the said West line of said section;
thence N 89 degrees 30' 19" E, parallel with said South 1/8 line of
said section 442.1 feet; thence South 788.15 feet to the South line of
said section; thence S 89 degrees 29' 30" W, along said South line of
said section 442.1 feet to the place of beginning.
- 19 -
CHEBOYGAN COUNTY
Certain land in Inverness Township, Cheboygan County, Michigan
described as:
A parcel of land in the SW frl 1/4 of Section 31, T37N, R2W,
described as beginning at the Northwest corner of the SW frl 1/4,
running thence East on the East and West quarter line of said Section,
40 rods, thence South parallel to the West line of said Section 40
rods, thence West 40 rods to the West line of said Section, thence
North 40 rods to the place of beginning.
CLARE COUNTY
Certain land in Frost Township, Clare County, Michigan described as:
The East 150 feet of the North 225 feet of the NW 1/4 of the
NW 1/4 of Section 15, T20N, R4W.
CLINTON COUNTY
Certain land in Watertown Township, Clinton County, Michigan described
as:
The NE 1/4 of the NE 1/4 of the SE 1/4 of Section 22, and the
North 165 feet of the NW 1/4 of the NE 1/4 of the SE 1/4 of Section 22,
T5N, R3W.
CRAWFORD COUNTY
Certain land in Lovells Township, Crawford County, Michigan described
as:
A parcel of land in Section 1, T28N, R1W, described as:
Commencing at NW corner said section; thence South 89 degrees53'30"
East along North section line 105.78 feet to point of beginning; thence
South 89 degrees53'30" East along North section line 649.64 feet;
thence South 55 degrees 42'30" East 340.24 feet; thence South 55
degrees 44' 37"" East 5,061.81 feet to the East section line; thence
South 00 degrees 00' 08"" West along East section line 441.59 feet;
thence North 55 degrees 44' 37" West 5,310.48 feet; thence North 55
degrees 42'30" West 877.76 feet to point of beginning.
EATON COUNTY
Certain land in Eaton Township, Eaton County, Michigan described as:
A parcel of land in the SW 1/4 of Section 6, T2N, R4W,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section; run
thence N 89 degrees 51' 30" E along the South line of said section 400
feet to the place of beginning of this description; thence continuing N
89 degrees 51' 30" E, 500 feet; thence N 00 degrees 50' 00" W, 600
feet; thence S 89 degrees 51' 30" W parallel with the South line of
said
- 20 -
section 500 feet; thence S 00 degrees 50' 00" E, 600 feet to the place
of beginning.
EMMET COUNTY
Certain land in Wawatam Township, Emmet County, Michigan described as:
The West 1/2 of the Northeast 1/4 of the Northeast 1/4 of
Section 23, T39N, R4W.
GENESEE COUNTY
Certain land in Argentine Township, Genesee County, Michigan described
as:
A parcel of land of part of the SW 1/4 of Section 8, T5N, R5E,
being more particularly described as follows:
Beginning at a point of the West line of Duffield Road, 100
feet wide, (as now established) distant 829.46 feet measured N01
degrees42'56"W and 50 feet measured S88 degrees14'04"W` from the South
quarter corner, Section 8, T5N, R5E; thence S88 degrees14'04"W a
distance of 550 feet; thence N01 degrees42'56"W a distance of 500 feet
to a point on the North line of the South half of the Southwest quarter
of said Section 8; thence N88 degrees14'04"E along the North line of
South half of the Southwest quarter of said Section 8 a distance 550
feet to a point on the West line of Duffield Road, 100 feet wide (as
now established); thence S01 degrees42'56"E along the West line of said
Duffield Road a distance of 500 feet to the point of beginning.
GLADWIN COUNTY
Certain land in Secord Township, Gladwin County, Michigan described as:
The East 400 feet of the South 450 feet of Section 2, T19N,
R1E.
GRAND TRAVERSE COUNTY
Certain land in Mayfield Township, Grand Traverse County, Michigan
described as:
A parcel of land in the Northwest 1/4 of Section 3, T25N,
R11W, described as follows: Commencing at the Northwest corner of said
section, running thence S 89 degrees19'15" E along the North line of
said section and the center line of Clouss Road 225 feet, thence South
400 feet, thence N 89 degrees19'15" W 225 feet to the West line of said
section and the center line of Hannah Road, thence North along the West
line of said section and the center line of Hannah Road 400 feet to the
place of beginning for this description.
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GRATIOT COUNTY
Certain land in Fulton Township, Gratiot County, Michigan described as:
A parcel of land in the NE 1/4 of Section 7, Township 9 North,
Range 3 West, described as beginning at a point on the North line of
George Street in the Village of Middleton, which is 542 feet East of
the North and South one-quarter (1/4) line of said Section 7; thence
North 100 feet; thence East 100 feet; thence South 100 feet to the
North line of George Street; thence West along the North line of George
Street 100 feet to place of beginning.
HILLSDALE COUNTY
Certain land in Litchfield Village, Hillsdale County, Michigan
described as:
Lot 238 of Assessors Plat of the Village of Litchfield.
HURON COUNTY
Certain easement rights located across land in Sebewaing Township,
Huron County, Michigan described as:
The North 1/2 of the Northwest 1/4 of Section 15, T15N, R9E.
INGHAM COUNTY
Certain land in Vevay Township, Ingham County, Michigan described as:
A parcel of land 660 feet wide in the Southwest 1/4 of Section
7 lying South of the centerline of Sitts Road as extended to the
North-South 1/4 line of said Section 7, T2N, R1W, more particularly
described as follows: Commence at the Southwest corner of said Section
7, thence North along the West line of said Section 2502.71 feet to the
centerline of Sitts Road; thence South 89 degrees54'45" East along said
centerline 2282.38 feet to the place of beginning of this description;
thence continuing South 89 degrees54'45" East along said centerline and
said centerline extended 660.00 feet to the North-South 1/4 line of
said section; thence South 00 degrees07'20" West 1461.71 feet; thence
North 89 degrees34'58" West 660.00 feet; thence North 00 degrees07'20"
East 1457.91 feet to the centerline of Sitts Road and the place of
beginning.
IONIA COUNTY
Certain land in Sebewa Township, Ionia County, Michigan described as:
A strip of land 280 feet wide across that part of the SW 1/4
of the NE 1/4 of Section 15, T5N, R6W, described as follows:
- 22 -
To find the place of beginning of this description commence at
the E 1/4 corner of said section; run thence N 00 degrees 05' 38" W
along the East line of said section, 1218.43 feet; thence S 67 degrees
18' 24" W, 1424.45 feet to the East 1/8 line of said section and the
place of beginning of this description; thence continuing S 67 degrees
18' 24" W, 1426.28 feet to the North and South 1/4 line of said section
at a point which said point is 105.82 feet distant N'ly of the center
of said section as measured along said North and South 1/4 line of said
section; thence N 00 degrees 04' 47" E along said North and South 1/4
line of said section, 303.67 feet; thence N 67 degrees 18' 24" E,
1425.78 feet to the East 1/8 line of said section; thence S 00 degrees
00' 26" E along said East 1/8 line of said section, 303.48 feet to the
place of beginning. (Bearings are based on the East line of Section 15,
T5N, R6W, from the E 1/4 corner of said section to the Northeast corner
of said section assumed as N 00 degrees 05' 38" W.)
IOSCO COUNTY
Certain land in Alabaster Township, Iosco County, Michigan described
as:
A parcel of land in the NW 1/4 of Section 34, T21N, R7E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run thence
South along the North and South 1/4 line of said section, 1354.40 feet
to the place of beginning of this description; thence continuing South
along the said North and South 1/4 line of said section, 165.00 feet to
a point on the said North and South 1/4 line of said section which said
point is 1089.00 feet distant North of the center of said section;
thence West 440.00 feet; thence North 165.00 feet; thence East 440.00
feet to the said North and South 1/4 line of said section and the place
of beginning.
ISABELLA COUNTY
Certain land in Chippewa Township, Isabella County, Michigan described
as:
The North 8 rods of the NE 1/4 of the SE 1/4 of Section 29,
T14N, R3W.
JACKSON COUNTY
Certain land in Waterloo Township, Jackson County, Michigan described
as:
A parcel of land in the North fractional part of the N
fractional 1/2 of Section 2, T1S, R2E, described as follows: To find
the place of beginning of this description commence at the E 1/4 post
of said section; run thence N 01 degrees 03' 40" E along the East line
of said section 1335.45 feet to the North 1/8 line of said section and
the place of beginning of this description; thence N 89 degrees 32' 00"
W, 2677.7 feet to the North and South 1/4 line of said section; thence
S 00 degrees 59' 25" W along the North and South 1/4 line of said
section 22.38 feet to the North 1/8 line of said section; thence S 89
degrees 59' 10" W along the North 1/8 line of said section 2339.4 feet
to the center line of State Trunkline Highway M-52; thence N 53 degrees
46' 00" W along the center line of said State
- 23 -
Trunkline Highway 414.22 feet to the West line of said section; thence
N 00 degrees 55' 10" E along the West line of said section 74.35 feet;
thence S 89 degrees 32' 00" E, 5356.02 feet to the East line of said
section; thence S 01 degrees 03' 40" W along the East line of said
section 250 feet to the place of beginning.
KALAMAZOO COUNTY
Certain land in Alamo Township, Kalamazoo County, Michigan described
as:
The South 350 feet of the NW 1/4 of the NW 1/4 of Section 16,
T1S, R12W, being more particularly described as follows: To find the
place of beginning of this description, commence at the Northwest
corner of said section; run thence S 00 degrees 36' 55" W along the
West line of said section 971.02 feet to the place of beginning of this
description; thence continuing S 00 degrees 36' 55" W along said West
line of said section 350.18 feet to the North 1/8 line of said section;
thence S 87 degrees 33' 40" E along the said North 1/8 line of said
section 1325.1 feet to the West 1/8 line of said section; thence N 00
degrees 38' 25" E along the said West 1/8 line of said section 350.17
feet; thence N 87 degrees 33' 40" W, 1325.25 feet to the place of
beginning.
KALKASKA COUNTY
Certain land in Kalkaska Township, Kalkaska County, Michigan described
as:
The NW 1/4 of the SW 1/4 of Section 4, T27N, R7W, excepting
therefrom all mineral, coal, oil and gas and such other rights as were
reserved unto the State of Michigan in that certain deed running from
the Department of Conservation for the State of Michigan to George
Welker and Mary Welker, his wife, dated October 9, 1934 and recorded
December 28, 1934 in Liber 39 on page 291 of Kalkaska County Records,
and subject to easement for pipeline purposes as granted to Michigan
Consolidated Gas Company by first party herein on April 4, 1963 and
recorded June 21, 1963 in Liber 91 on page 631 of Kalkaska County
Records.
KENT COUNTY
Certain land in Caledonia Township, Kent County, Michigan described as:
A parcel of land in the Northwest fractional 1/4 of Section
15, T5N, R10W, described as follows: To find the place of beginning of
this description commence at the North 1/4 corner of said section, run
thence S 0 degrees 59' 26" E along the North and South 1/4 line of said
section 2046.25 feet to the place of beginning of this description,
thence continuing S 0 degrees 59' 26" E along said North and South 1/4
line of said section 332.88 feet, thence S 88 degrees 58' 30" W 2510.90
feet to a point herein designated "Point A" on the East bank of the
Thornapple River, thence continuing S 88 degrees 53' 30" W to the
center thread of the Thornapple River, thence NW'ly along the center
thread of said Thornapple
- 24 -
River to a point which said point is S 88 degrees 58' 30" W of a point
on the East bank of the Thornapple River herein designated "Point B",
said "Point B" being N 23 degrees 41' 35" W 360.75 feet from said
above-described "Point A", thence N 88 degrees 58' 30" E to said "Point
B", thence continuing N 88 degrees 58' 30" E 2650.13 feet to the place
of beginning. (Bearings are based on the East line of Section 15, T5N,
R10W between the East 1/4 corner of said section and the Northeast
corner of said section assumed as N 0 degrees 59' 55" W.)
LAKE COUNTY
Certain land in Pinora and Cherry Valley Townships, Lake County,
Michigan described as:
A strip of land 50 feet wide East and West along and adjoining
the West line of highway on the East side of the North 1/2 of Section
13 T18N, R12W. Also a strip of land 100 feet wide East and West along
and adjoining the East line of the highway on the West side of
following described land: The South 1/2 of NW 1/4, and the South 1/2 of
the NW 1/4 of the SW 1/4, all in Section 6, T18N, R11W.
LAPEER COUNTY
Certain land in Hadley Township, Lapeer County, Michigan described as:
The South 825 feet of the W 1/2 of the SW 1/4 of Section 24,
T6N, R9E, except the West 1064 feet thereof.
LEELANAU COUNTY
Certain land in Cleveland Township, Leelanau County, Michigan described
as:
The North 200 feet of the West 180 feet of the SW 1/4 of the
SE 1/4 of Section 35, T29N, R13W.
LENAWEE COUNTY
Certain land in Madison Township, Lenawee County, Michigan described
as:
A strip of land 165 feet wide off the West side of the
following described premises: The E 1/2 of the SE 1/4 of Section 12.
The E 1/2 of the NE 1/4 and the NE 1/4 of the SE 1/4 of Section 13,
being all in T7S, R3E, excepting therefrom a parcel of land in the E
1/2 of the SE 1/4 of Section 12, T7S, R3E, beginning at the Northwest
corner of said E 1/2 of the SE 1/4 of Section 12, running thence East 4
rods, thence South 6 rods, thence West 4 rods, thence North 6 rods to
the place of beginning.
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LIVINGSTON COUNTY
Certain land in Cohoctah Township, Livingston County, Michigan
described as:
Parcel 1
The East 390 feet of the East 50 rods of the SW 1/4 of Section
30, T4N, R4E.
Parcel 2
A parcel of land in the NW 1/4 of Section 31, T4N, R4E,
described as follows: To find the place of beginning of this
description commence at the N 1/4 post of said section; run thence N 89
degrees 13' 06" W along the North line of said section, 330 feet to the
place of beginning of this description; running thence S 00 degrees 52'
49" W, 2167.87 feet; thence N 88 degrees 59' 49" W, 60 feet; thence N
00 degrees 52' 49" E, 2167.66 feet to the North line of said section;
thence S 89 degrees 13' 06" E along said North line of said section, 60
feet to the place of beginning.
MACOMB COUNTY
Certain land in Macomb Township, Macomb County, Michigan described as:
A parcel of land commencing on the West line of the E 1/2 of
the NW 1/4 of fractional Section 6, 20 chains South of the NW corner of
said E 1/2 of the NW 1/4 of Section 6; thence South on said West line
and the East line of A. Henry Kotner's Hayes Road Subdivision #15,
according to the recorded plat thereof, as recorded in Liber 24 of
Plats, on page 7, 24.36 chains to the East and West 1/4 line of said
Section 6; thence East on said East and West 1/4 line 8.93 chains;
thence North parallel with the said West line of the E 1/2 of the NW
1/4 of Section 6, 24.36 chains; thence West 8.93 chains to the place of
beginning, all in T3N, R13E.
MANISTEE COUNTY
Certain land in Manistee Township, Manistee County, Michigan described
as:
A parcel of land in the SW 1/4 of Section 20, T22N, R16W,
described as follows: To find the place of beginning of this
description, commence at the Southwest corner of said section; run
thence East along the South line of said section 832.2 feet to the
place of beginning of this description; thence continuing East along
said South line of said section 132 feet; thence North 198 feet; thence
West 132 feet; thence South 198 feet to the place of beginning,
excepting therefrom the South 2 rods thereof which was conveyed to
Manistee Township for highway purposes by a Quitclaim Deed dated June
13, 1919 and recorded July [11], 1919 in Liber 88 of Deeds on page 638
of Manistee County Records.
- 26 -
MASON COUNTY
Certain land in Riverton Township, Mason County, Michigan described as:
Parcel 1
The South 10 acres of the West 20 acres of the S 1/2 of the NE
1/4 of Section 22, T17N, R17W.
Parcel 2
A parcel of land containing 4 acres of the West side of
highway, said parcel of land being described as commencing 16 rods
South of the Northwest corner of the NW 1/4 of the SW 1/4 of Section
22, T17N, R17W, running thence South 64 rods, thence NE'ly and N'ly and
NW'ly along the W'ly line of said highway to the place of beginning,
together with any and all right, title, and interest of Howard C.
Wicklund and Katherine E. Wicklund in and to that portion of the
hereinbefore mentioned highway lying adjacent to the E'ly line of said
above described land.
MECOSTA COUNTY
Certain land in Wheatland Township, Mecosta County, Michigan described
as:
A parcel of land in the SW 1/4 of the SW 1/4 of Section 16,
T14N, R7W, described as beginning at the Southwest corner of said
section; thence East along the South line of Section 133 feet; thence
North parallel to the West section line 133 feet; thence West 133 feet
to the West line of said Section; thence South 133 feet to the place of
beginning.
MIDLAND COUNTY
Certain land in Ingersoll Township, Midland County, Michigan described
as:
The West 200 feet of the W 1/2 of the NE 1/4 of Section 4,
T13N, R2E.
MISSAUKEE COUNTY
Certain land in Norwich Township, Missaukee County, Michigan described
as:
A parcel of land in the NW 1/4 of the NW 1/4 of Section 16,
T24N, R6W, described as follows: Commencing at the Northwest corner of
said section, running thence N 89 degrees 01' 45" E along the North
line of said section 233.00 feet; thence South 233.00 feet; thence S 89
degrees 01' 45" W, 233.00 feet to the West line of said section; thence
North along said West line of said section 233.00 feet to the place of
beginning. (Bearings are based on the West line of Section 16, T24N,
R6W, between the Southwest and Northwest corners of said section
assumed as North.)
- 27 -
MONROE COUNTY
Certain land in Whiteford Township, Monroe County, Michigan described
as:
A parcel of land in the SW1/4 of Section 20, T8S, R6E,
described as follows: To find the place of beginning of this
description commence at the S 1/4 post of said section; run thence West
along the South line of said section 1269.89 feet to the place of
beginning of this description; thence continuing West along said South
line of said section 100 feet; thence N 00 degrees 50' 35" E, 250 feet;
thence East 100 feet; thence S 00 degrees 50' 35" W parallel with and
16.5 feet distant W'ly of as measured perpendicular to the West 1/8
line of said section, as occupied, a distance of 250 feet to the place
of beginning.
MONTCALM COUNTY
Certain land in Crystal Township, Montcalm County, Michigan described
as:
The N 1/2 of the S 1/2 of the SE 1/4 of Section 35, T10N, R5W.
MONTMORENCY COUNTY
Certain land in the Village of Hillman, Montmorency County, Michigan
described as:
Lot 14 of Hillman Industrial Park, being a subdivision in the
South 1/2 of the Northwest 1/4 of Section 24, T31N, R4E, according to
the plat thereof recorded in Liber 4 of Plats on Pages 32-34,
Montmorency County Records.
MUSKEGON COUNTY
Certain land in Casnovia Township, Muskegon County, Michigan described
as:
The West 433 feet of the North 180 feet of the South 425 feet
of the SW 1/4 of Section 3, T10N, R13W.
NEWAYGO COUNTY
Certain land in Ashland Township, Newaygo County, Michigan described
as:
The West 250 feet of the NE 1/4 of Section 23, T11N, R13W.
OAKLAND COUNTY
Certain land in Wixcom City, Oakland County, Michigan described as:
The E 75 feet of the N 160 feet of the N 330 feet of the W
526.84 feet of the NW 1/4 of the NW 1/4 of Section 8, T1N, R8E, more
particularly described as follows: Commence at the NW corner of said
Section 8, thence N 87 degrees 14' 29" E along the North line of said
Section 8 a distance of 451.84 feet to the place
- 28 -
of beginning for this description; thence continuing N 87 degrees 14'
29" E along said North section line a distance of 75.0 feet to the East
line of the West 526.84 feet of the NW 1/4 of the NW 1/4 of said
Section 8; thence S 02 degrees 37' 09" E along said East line a
distance of 160.0 feet; thence S 87 degrees 14' 29" W a distance of
75.0 feet; thence N 02 degrees 37' 09" W a distance of 160.0 feet to
the place of beginning.
OCEANA COUNTY
Certain land in Crystal Township, Oceana County, Michigan described as:
The East 290 feet of the SE 1/4 of the NW 1/4 and the East 290
feet of the NE 1/4 of the SW 1/4, all in Section 20, T16N, R16W.
OGEMAW COUNTY
Certain land in West Branch Township, Ogemaw County, Michigan described
as:
The South 660 feet of the East 660 feet of the NE 1/4 of the
NE 1/4 of Section 33, T22N, R2E.
OSCEOLA COUNTY
Certain land in Hersey Township, Osceola County, Michigan described as:
A parcel of land in the North 1/2 of the Northeast 1/4 of
Section 13, T17N, R9W, described as commencing at the Northeast corner
of said Section; thence West along the North Section line 999 feet to
the point of beginning of this description; thence S 01 degrees 54' 20"
E 1327.12 feet to the North 1/8 line; thence S 89 degrees 17' 05" W
along the North 1/8 line 330.89 feet; thence N 01 degrees 54' 20" W
1331.26 feet to the North Section line; thence East along the North
Section line 331 feet to the point of beginning.
OSCODA COUNTY
Certain land in Comins Township, Oscoda County, Michigan described as:
The East 400 feet of the South 580 feet of the W 1/2 of the SW
1/4 of Section 15, T27N, R3E.
OTSEGO COUNTY
Certain land in Corwith Township, Otsego County, Michigan described as:
Part of the NW 1/4 of the NE 1/4 of Section 28, T32N, R3W,
described as: Beginning at the N 1/4 corner of said section; running
thence S 89 degrees 04' 06" E along the North line of said section,
330.00 feet; thence S 00 degrees 28' 43" E, 400.00 feet; thence N 89
degrees 04' 06" W, 330.00 feet to the North and
- 29 -
South 1/4 line of said section; thence N 00 degrees 28' 43" W along the
said North and South 1/4 line of said section, 400.00 feet to the point
of beginning; subject to the use of the N'ly 33.00 feet thereof for
highway purposes.
OTTAWA COUNTY
Certain land in Robinson Township, Ottawa County, Michigan described
as:
The North 660 feet of the West 660 feet of the NE 1/4 of the
NW 1/4 of Section 26, T7N, R15W.
PRESQUE ISLE COUNTY
Certain land in Belknap and Pulawski Townships, Presque Isle County,
Michigan described as:
Part of the South half of the Northeast quarter, Section 24,
T34N, R5E, and part of the Northwest quarter, Section 19, T34N, R6E,
more fully described as: Commencing at the East 1/4 corner of said
Section 24; thence N 00 degrees15'47" E, 507.42 feet, along the East
line of said Section 24 to the point of beginning; thence S 88
degrees15'36" W, 400.00 feet, parallel with the North 1/8 line of said
Section 24; thence N 00 degrees15'47" E, 800.00 feet, parallel with
said East line of Section 24; thence N 88 degrees15'36"E, 800.00 feet,
along said North 1/8 line of Section 24 and said line extended; thence
S 00 degrees15'47" W, 800.00 feet, parallel with said East line of
Section 24; thence S 88 degrees15'36" W, 400.00 feet, parallel with
said North 1/8 line of Section 24 to the point of beginning.
Together with a 33 foot easement along the West 33 feet of the
Northwest quarter lying North of the North 1/8 line of Section 24,
Belknap Township, extended, in Section 19, T34N, R6E.
ROSCOMMON COUNTY
Certain land in Gerrish Township, Roscommon County, Michigan described
as:
A parcel of land in the NW 1/4 of Section 19, T24N, R3W,
described as follows: To find the place of beginning of this
description commence at the Northwest corner of said section, run
thence East along the North line of said section 1,163.2 feet to the
place of beginning of this description (said point also being the place
of intersection of the West 1/8 line of said section with the North
line of said section), thence S 01 degrees 01' E along said West 1/8
line 132 feet, thence West parallel with the North line of said section
132 feet, thence N 01 degrees 01' W parallel with said West 1/8 line of
said section 132 feet to the North line of said section, thence East
along the North line of said section 132 feet to the place of
beginning.
- 30 -
SAGINAW COUNTY
Certain land in Chapin Township, Saginaw County, Michigan described as:
A parcel of land in the SW 1/4 of Section 13, T9N, R1E,
described as follows: To find the place of beginning of this
description commence at the Southwest corner of said section; run
thence North along the West line of said section 1581.4 feet to the
place of beginning of this description; thence continuing North along
said West line of said section 230 feet to the center line of a creek;
thence S 70 degrees 07' 00" E along said center line of said creek
196.78 feet; thence South 163.13 feet; thence West 185 feet to the West
line of said section and the place of beginning.
SANILAC COUNTY
Certain easement rights located across land in Minden Township, Sanilac
County, Michigan described as:
The Southeast 1/4 of the Southeast 1/4 of Section 1, T14N,
R14E, excepting therefrom the South 83 feet of the East 83 feet
thereof.
SHIAWASSEE COUNTY
Certain land in Burns Township, Shiawassee County, Michigan described
as:
The South 330 feet of the E 1/2 of the NE 1/4 of Section 36,
T5N, R4E.
ST. CLAIR COUNTY
Certain land in Ira Township, St. Clair County, Michigan described as:
The N 1/2 of the NW 1/4 of the NE 1/4 of Section 6, T3N, R15E.
ST. JOSEPH COUNTY
Certain land in Mendon Township, St. Joseph County, Michigan described
as:
The North 660 feet of the West 660 feet of the NW 1/4 of SW
1/4, Section 35, T5S, R10W.
TUSCOLA COUNTY
Certain land in Millington Township, Tuscola County, Michigan described
as:
A strip of land 280 feet wide across the East 96 rods of the
South 20 rods of the N 1/2 of the SE 1/4 of Section 34, T10N, R8E, more
particularly described as commencing at the Northeast corner of Section
3, T9N, R8E, thence S 89 degrees 55' 35" W along the South line of said
Section 34 a distance of 329.65 feet, thence N 18 degrees 11' 50" W a
distance of 1398.67 feet to the South 1/8
- 31 -
line of said Section 34 and the place of beginning for this
description; thence continuing N 18 degrees 11' 50" W a distance of
349.91 feet; thence N 89 degrees 57' 01" W a distance of 294.80 feet;
thence S 18 degrees 11' 50" E a distance of 350.04 feet to the South
1/8 line of said Section 34; thence S 89 degrees 58' 29" E along the
South 1/8 line of said section a distance of 294.76 feet to the place
of beginning.
VAN BUREN COUNTY
Certain land in Covert Township, Van Buren County, Michigan described
as:
All that part of the West 20 acres of the N 1/2 of the NE
fractional 1/4 of Section 1, T2S, R17W, except the West 17 rods of the
North 80 rods, being more particularly described as follows: To find
the place of beginning of this description commence at the N 1/4 post
of said section; run thence N 89 degrees 29' 20" E along the North line
of said section 280.5 feet to the place of beginning of this
description; thence continuing N 89 degrees 29' 20" E along said North
line of said section 288.29 feet; thence S 00 degrees 44' 00" E,
1531.92 feet; thence S 89 degrees 33' 30" W, 568.79 feet to the North
and South 1/4 line of said section; thence N 00 degrees 44' 00" W along
said North and South 1/4 line of said section 211.4 feet; thence N 89
degrees 29' 20" E, 280.5 feet; thence N 00 degrees 44' 00" W, 1320 feet
to the North line of said section and the place of beginning.
WASHTENAW COUNTY
Certain land in Manchester Township, Washtenaw County, Michigan
described as:
A parcel of land in the NE 1/4 of the NW 1/4 of Section 1,
T4S, R3E, described as follows: To find the place of beginning of this
description commence at the Northwest corner of said section; run
thence East along the North line of said section 1355.07 feet to the
West 1/8 line of said section; thence S 00 degrees 22' 20" E along said
West 1/8 line of said section 927.66 feet to the place of beginning of
this description; thence continuing S 00 degrees 22' 20" E along said
West 1/8 line of said section 660 feet to the North 1/8 line of said
section; thence N 86 degrees 36' 57" E along said North 1/8 line of
said section 660.91 feet; thence N 00 degrees22' 20" W, 660 feet;
thence S 86 degrees 36' 57" W, 660.91 feet to the place of beginning.
WAYNE COUNTY
Certain land in Livonia City, Wayne County, Michigan described as:
Commencing at the Southeast corner of Section 6, T1S, R9E;
thence North along the East line of Section 6 a distance of 253 feet to
the point of beginning; thence continuing North along the East line of
Section 6 a distance of 50 feet; thence Westerly parallel to the South
line of Section 6, a distance of 215 feet; thence Southerly parallel to
the East line of Section 6 a distance of 50 feet;
- 32 -
thence easterly parallel with the South line of Section 6 a distance of
215 feet to the point of beginning.
WEXFORD COUNTY
Certain land in Selma Township, Wexford County, Michigan described as:
A parcel of land in the NW 1/4 of Section 7, T22N, R10W,
described as beginning on the North line of said section at a point 200
feet East of the West line of said section, running thence East along
said North section line 450 feet, thence South parallel with said West
section line 350 feet, thence West parallel with said North section
line 450 feet, thence North parallel with said West section line 350
feet to the place of beginning.
SECTION 12. The Company is a transmitting utility under Section 9501(2)
of the Michigan Uniform Commercial Code (M.C.L. 440.9501(2)) as defined in
M.C.L. 440.9102(1)(aaaa).
IN WITNESS WHEREOF, said Consumers Energy Company has caused this
Supplemental Indenture to be executed in its corporate name by its Chairman of
the Board, President, a Vice President or its Treasurer and its corporate seal
to be hereunto affixed and to be attested by its Secretary or an Assistant
Secretary, and said JPMorgan Chase Bank, as Trustee as aforesaid, to evidence
its acceptance hereof, has caused this Supplemental Indenture to be executed in
its corporate name by a Vice President and its corporate seal to be hereunto
affixed and to be attested by a Trust Officer, in several counterparts, all as
of the day and year first above written.
- 33 -
CONSUMERS ENERGY COMPANY
(SEAL) By
---------------------------------
Paul A. Stadnikia
Attest: Treasurer
- ----------------------------
Joyce H. Norkey
Assistant Secretary
Signed, sealed and delivered
by CONSUMERS ENERGY COMPANY
in the presence of
- ----------------------------
Kimberly C. Wilson
- ----------------------------
Sammie B. Dalton
STATE OF MICHIGAN )
ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this 28th day of
March, 2003, by Paul A. Stadnikia, Treasurer of CONSUMERS ENERGY COMPANY, a
Michigan corporation, on behalf of the corporation.
--------------------------------------
Margaret Hillman, Notary Public
[Seal] Jackson County, Michigan
My Commission Expires: June 14, 2004
S-1
JPMORGAN CHASE BANK, AS TRUSTEE
(SEAL) By
---------------------------------
L. O'Brien
Attest: Vice President
- ------------------
Rosa Ciaccia
Trust Officer
Signed, sealed and delivered
by JPMORGAN CHASE BANK
in the presence of
- ----------------------------
James D. Heaney
Vice President
- ----------------------------
William G. Keenan
Vice President
STATE OF NEW YORK )
ss.
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 28th day of
March, 2003, by L. O'Brien, a Vice President of JPMORGAN CHASE BANK, a New York
corporation, on behalf of the corporation.
------------------------------------
Notary Public
[Seal]
New York County, New York
My Commission Expires:
Prepared by: When recorded, return to:
Kimberly C. Wilson Consumers Energy Company
212 West Michigan Avenue Business Services Real Estate Dept.
Jackson, MI 49201 Attn: Nancy Fisher EP7-439
One Energy Plaza
Jackson, MI 49201
S-2
EXHIBIT B-1
REQUIRED OPINIONS FROM
MICHAEL D. VANHEMERT, ESQ.
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Michigan.
2. The execution and delivery of the Loan Documents by the
Company and the performance by the Company of the Obligations have been duly
authorized by all necessary corporate action and proceedings on the part of the
Company and will not:
(a) contravene the Company's Restated Articles of
Incorporation, as amended, or bylaws;
(b) contravene any law or any contractual restriction
imposed by any indenture or any other agreement or instrument
evidencing or governing indebtedness for borrowed money of the Company;
or
(c) result in or require the creation of any Lien upon or
with respect to any of the Company's properties except the lien of the
Indenture securing the Bonds.
3. The Loan Documents have been duly executed and delivered by
the Company.
4. To the best of my knowledge, there is no pending or threatened
action or proceeding against the Company or any of its Consolidated Subsidiaries
before any court, governmental agency or arbitrator (except (i) to the extent
described in the Company's annual report on Form 10-K/A for the year ended
December 31, 2001, quarterly report on Form 10-Q/A for the quarter ended
September 30, 2002, and current reports on Form 8-K filed by the Company on May
29, 2002, July 30, 2002 and September 8, 2002, in each case as filed with the
SEC, and (ii) such other similar actions, suits and proceedings predicated on
the occurrence of the same events giving rise to any actions, suits and
proceedings described in the reports filed with the SEC set forth in clause (i)
of this paragraph 4) which might reasonably be expected to materially adversely
affect the financial condition or results of operations of the Company and its
Consolidated Subsidiaries, taken as a whole, or that would materially adversely
affect the Company's ability to perform its obligations under any Loan Document.
To the best of my knowledge, there is no litigation challenging the validity or
the enforceability of any of the Loan Documents.
5. No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Company of any Loan Document,
except for the authorization to issue, sell or guarantee secured and/or
unsecured long-term debt granted by the Federal Energy Regulatory Commission in
Docket No. ES02-36-001 (hereinafter the "FERC Order"). The FERC Order is in full
force and effect as of the date hereof.
6. The Bonds, assuming due authentication in accordance with the
terms of the Indenture, are in due and proper form and, when delivered to the
Agent pursuant to the Bond Delivery Agreement, will evidence and secure the
Obligations owing under the Agreement and will be valid and enforceable
obligations of the Company in accordance with their terms, secured by the lien
of the Indenture on an equal and ratable basis with all other bonds issued
thereunder and otherwise entitled to the benefits provided by the Indenture.
7. The Indenture has been qualified under the Trust Indenture Act
of 1939, as amended, and the execution and delivery of the Supplemental
Indenture will not cause the Indenture to not be so qualified.
8. The Company is not an "investment company" or a company
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
9. The Company (i) is a "public utility" and a "subsidiary
company" of a "holding company", as such terms are defined in the Public Utility
Holding Company Act of 1935, as amended (the "Holding Company Act"), and (ii) is
currently exempt from all provisions of the Holding Company Act, except Section
9(a)(2) thereof.
10. In a properly presented case, a Michigan court or a federal
court applying Michigan choice of law rules should give effect to the choice of
law provisions of the Agreement and should hold that the Agreement is to be
governed by the laws of the State of New York rather than the laws of the State
of Michigan, except in the case of those provisions set forth in the Agreement
the enforcement of which would contravene a fundamental policy of the State of
Michigan. In the course of our review of the Agreement, nothing has come to my
attention to indicate that any of such provisions would do so. Notwithstanding
the foregoing, even if a Michigan court or a federal court holds that the
Agreement is to be governed by the laws of the State of Michigan, the Agreement
constitutes a legal, valid and binding obligation of the Company, enforceable
under Michigan law (including usury provisions) against the Company in
accordance with its terms, subject to (a) the effect of applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (b) the application of general
principles of equity (regardless of whether considered in a proceeding in equity
or at law).
EXHIBIT B-2
REQUIRED OPINIONS FROM
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1. The Agreement constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, subject to (a) the effect of applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (b) the application of general principles of
equity (regardless of whether considered in a preceding in equity or at law).
EXHIBIT B-3
REQUIRED OPINIONS FROM
MILLER, CANFIELD, PADDOCK AND STONE, P.L.C.
1. The Bonds, assuming due authentication in accordance with the
terms of the Indenture, are in due and proper form and, when delivered to the
Agent pursuant to the Bond Delivery Agreement, will evidence and secure the
Obligations owing under the Agreement and will be valid and enforceable
obligations of the Company in accordance with their terms, secured by the lien
of the Indenture on an equal and ratable basis with all other bonds issued
thereunder and otherwise entitled to the benefits provided by the Indenture.
EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
I, ___________, _________ of Consumers Energy Company, a Michigan
corporation (the "Company"), DO HEREBY CERTIFY in connection with the Term Loan
Agreement dated as of March 28, 2003 (the "Loan Agreement"; the terms defined
therein being used herein as so defined) among the Company, various financial
institutions and Citicorp North America, Inc., as Agent, that;
I. Section 8.1 of the Loan Agreement provides that the Company shall: "At
all times, maintain a ratio of Total Consolidated Debt to Total
Consolidated Capitalization of not greater than 0.65 to 1.0."
The following calculations are made in accordance with the definitions
of Total Consolidated Debt and Total Consolidated Capitalization in the
Loan Agreement and are correct and accurate as of ________, __:
A. Total Consolidated Debt
(a) Indebtedness for borrowed money $
plus (b) Indebtedness for deferred purchase
price of property/services
plus (c) Unfunded Vested Liabilities
plus (d) Obligations under acceptance facilities
plus (e) Obligations under Capital Leases
plus (f) Obligations under interest rate swap,
"cap", "collar" or other hedging
agreement
minus (g) Guaranties, endorsements and other
contingent obligations
minus (h) Principal amount of any Securitized
Bonds
minus (i) Junior Subordinated Debt owned by
any Hybrid Preferred Securities
Subsidiary
minus (j) Subordinated guaranties by the
Company of payments with respect to
Hybrid Preferred Securities
Hybrid Preferred Securities
minus (k) Agreed upon percentage of Net
Proceeds from issuance of hybrid
debt/equity securities (other than
Junior Subordinated Debt and Hybrid
Preferred Securities ________________
Total $
B. Total Consolidated Capitalization:
(a) Total Consolidated Debt $
(b) Equity of common stockholders
(c) Equity of preference stockholders
(d) Equity of preferred stockholders ________________
Total $
C. Debt to Capital Ratio ___ to 1.00
(total of A divided by total of B)
II. Section 8.2 of the Loan Agreement provides that the Company shall: "Not
permit the ratio, determined as of the end of each of its fiscal
quarters for the then most-recently ended four fiscal quarters, of (i)
Consolidated EBIT to (ii) Consolidated Interest Expense to be less than
2.0 to 1.0"
The following calculations are made in accordance with the definitions
of Consolidated EBIT and Consolidated Interest Expense in the Loan Agreement and
are correct and accurate as of ___________, __:
A. Consolidated EBIT
(a) Consolidated Net Income $
plus (b) Consolidated Interest Expense $
plus (c) Expense for taxes paid or accrued $
plus (d) Non-cash write-offs and write-downs $
contained in the Company's
Consolidated Net Income, including,
without limitation, write-offs or write-
downs related to the sale of assets,
impairment of assets and loss on
contracts
plus (e) The pre-tax under recovery arising $
from the loss on Power Purchase
Agreement - MCV Partnership
minus (f) Extraordinary gains realized other than $
in the ordinary course of business ________________
Total $
B. Consolidated Interest Expense $
C. Interest Coverage Ratio ___ to 1.00
(total of A divided by total of B)
IN WITNESS WHEREOF, I have signed this Certificate this __ day of
_________, ____.
EXHIBIT D
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption (the "Assignment and Assumption") is
dated as of the Effective Date set forth below and is entered into by and
between [Insert name of Assignor], (the "Assignor") and [Insert name of
Assignee] (the "Assignee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Loan Agreement identified below (as
amended, the "Loan Agreement "), receipt of a copy of which is hereby
acknowledged by the Assignee. The Terms and Conditions set forth in Annex 1
attached hereto are hereby agreed to and incorporated herein by reference and
made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and
assigns to the Assignee, and the Assignee hereby irrevocably purchases and
assumes from the Assignor, subject to and in accordance with the Standard Terms
and Conditions and the Loan Agreement, as of the Effective Date inserted by the
Agent as contemplated below, the interest in and to all of the Assignor's rights
and obligations in its capacity as a Bank under the Loan Agreement and any other
documents or instruments delivered pursuant thereto that represents the amount
and percentage interest identified below of all of the Assignor's outstanding
rights and obligations under the respective facilities identified below
(including without limitation, to the extent permitted to be assigned under
applicable law, all claims (including without limitation contract claims, tort
claims, malpractice claims, statutory claims and all other claims at law or in
equity), suits, causes of action and any other right of the Assignor against any
Person whether known or unknown arising under or in connection with the Loan
Agreement, any other documents or instruments delivered pursuant thereto or the
loan transactions governed thereby) (the "Assigned Interest"). Such sale and
assignment is without recourse to the Assignor and, except as expressly provided
in this Assignment and Assumption, without representation or warranty by the
Assignor.
1 Assignor: ________________________
2. Assignee: ________________________ [and is an affiliate of Assignor]
3 Borrower: CONSUMERS ENERGY COMPANY
4. Agent: Citicorp North America, Inc., as the Agent under the Loan
Agreement.
5. Loan Agreement: The Term Loan Agreement dated as of March 28, 2003 among
Consumers Energy Company, the Banks party thereto, and Citicorp North America,
Inc., as Agent.
6. Assigned Interest:
Aggregate Amount of
Outstanding Term
Loans for all Banks** Amount of Outstanding Percentage Assigned of
Facility Assigned ? Term Loans Assigned* Outstanding Term Loans(1)
- -----------------------------------------------------------------------------------------------------------
Term Loans $______________ $________________ _______%
- -----------------------------------------------------------------------------------------------------------
7. Trade Date: _______________________________________
Effective Date: _____________, 20__ [TO BE INSERTED BY AGENT AND WHICH SHALL
BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER BY THE AGENT](2)
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR
[NAME OF ASSIGNOR]
By:______________________________
Title:
ASSIGNEE
[NAME OF ASSIGNEE]
By:______________________________
Title:
[Consented to and (3)] Accepted:
CITICORP NORTH AMERICA, INC., as Agent
By:_________________
Title:
- ----------------------------
* Amount to be adjusted by the counter parties to take into account any payments
or prepayments made between the Trade Date and the Effective Date.
(1)Set forth, to at least 9 decimals, as a percentage of the Term Loans of all
Banks hereunder.
(2)Insert if satisfaction of minimum amounts is to be determined as of the Trade
Date.
(3)To be added only if the consent of the Agent is required by the terms of the
Loan Agreement.
ANNEX 1
TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties.
1.1. Assignor. The Assignor represents and
warrants that(i) it is the legal and beneficial owner of the Assigned Interest,
(ii) the Assigned Interest is free and clear of any lien, encumbrance or other
adverse claim and (iii) it has full power and authority, and has taken all
action necessary, to execute and deliver this Assignment and Assumption and to
consummate the transactions contemplated hereby. Neither the Assignor nor any of
its officers, directors, employees, agents or attorneys shall be responsible for
(i) any statements, warranties or representations made in or in connection with
the Loan Agreement or any other Loan Document, (ii) the execution, legality,
validity, enforceability, genuineness, sufficiency, perfection, priority,
collectibility, or value of the Loan Documents or any collateral thereunder,
(iii) the financial condition of the Company, any of its Subsidiaries or
Affiliates or any other Person obligated in respect of any Loan Document, (iv)
the performance or observance by the Company, any of its Subsidiaries or
Affiliates or any other Person of any of their respective obligations under any
Loan Document, (v) inspecting any of the property, books or records of the
Company, or any guarantor, or (vi) any mistake, error of judgment, or action
taken or omitted to be taken in connection with the Term Loans or the Loan
Documents.
1.2. Assignee. The Assignee (a) represents and
warrants that (i) it has full power and authority, and has taken all action
necessary, to execute and deliver this Assignment and Assumption and to
consummate the transactions contemplated hereby and to become a Bank under the
Loan Agreement, (ii) from and after the Effective Date, it shall be bound by the
provisions of the Loan Agreement as a Bank thereunder and, to the extent of the
Assigned Interest, shall have the obligations of a Bank thereunder, (iii) its
payment instructions and notice instructions are delivered with this Assignment
and Assumption, (iv) none of the funds, monies, assets or other consideration
being used to make the purchase and assumption hereunder are "plan assets" as
defined under ERISA and that its rights, benefits and interests in and under the
Loan Documents will not be "plan assets" under ERISA, (v) it shall indemnify and
hold the Assignor harmless against all losses, costs and expenses (including,
without limitation, reasonable attorneys' fees) and liabilities incurred by the
Assignor in connection with or arising in any manner from the Assignee's
non-performance of the obligations assumed under this Assignment and Assumption,
(vi) it has received a copy of the Loan Agreement, together with copies of
financial statements and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Assumption and to purchase the Assigned Interest on the basis of
which it has made such analysis and decision independently and without reliance
on the Agent or any other Bank, and (vii) together with this Assignment and
Assumption is any documentation required to be delivered by the Assignee with
respect to its tax status pursuant to the terms of the Loan Agreement, duly
completed and executed by the Assignee and (b) agrees that (i) it will,
independently and without reliance on the Agent, the Assignor or any other Bank,
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Loan Documents, and (ii) it will
perform in accordance with their terms all of the obligations which by the terms
of the Loan Documents are required to be performed by it as a Bank.
2. Payments. The Assignee shall pay the Assignor, on the
Effective Date, the amount agreed to by the Assignor and the Assignee. From and
after the Effective Date, the Agent shall make all payments in respect of the
Assigned Interest (including payments of principal, interest, fees and other
amounts) to the Assignor for amounts which have accrued to but excluding the
Effective Date and to the Assignee for amounts which have accrued from and after
the Effective Date.
3. General Provisions. This Assignment and Assumption shall be
binding upon, and inure to the benefit of, the parties hereto and their
respective successors and assigns. This Assignment and Assumption may be
executed in any number of counterparts, which together shall constitute one
instrument. Delivery of an executed counterpart of a signature page of this
Assignment and Assumption by telecopy shall be effective as delivery of a
manually executed counterpart of this Assignment and Assumption. This Assignment
and Assumption shall be governed by, and construed in accordance with, the law
of the State of New York.
SCHEDULE 1
ADMINISTRATIVE DETAILS FORM
DEAL NAME: CONSUMERS ENERGY COMPANY
GENERAL INFORMATION
YOUR INSTITUTIONS LEGAL NAME:
TAX WITHHOLDING:
Note: To avoid the potential of having interest income withheld, all investors
must deliver all current and appropriate tax forms.
Tax ID #: _________________
SUB-ALLOCATION: (United States only)
Note: If your institution is sub-allocating its allocation, please fill out the
information below. Additionally, an administrative detail form is required for
each legal entity. Execution copies (e.g. Credit Agreement/Assignment Agreement)
will be sent for signature to the Sub-Allocation Contact below.
Sub-Allocated Amount: $
______________________
Signing Credit Agreement? [ ] Yes [ ] No
Coming In Via Assignment? [ ] Yes [ ] No
SUB-ALLOCATION CONTACT:
NAME:
Address: ___________________________________ E- mail: ___________
___________________________________
City: _______________ State: ___________ Phone #: ___________
Postal Code: _______________ Country:___________ Fax #: ___________
CONTACT LIST
BUSINESS/CREDIT MATTERS: (Responsible for trading and credit approval process of
the deal)
Primary:
NAME:
Address: ___________________________________ E- mail: ___________
___________________________________
City: _______________ State: ___________ Phone #: ___________
Postal Code: _______________ Country:___________ Fax #: ___________
Backup:
NAME:
Address: ___________________________________ E- mail: ___________
___________________________________
City: _______________ State: ___________ Phone #: ___________
Postal Code: _______________ Country:___________ Fax #: ___________
- --------------------------------------------------------------------------------
Admin Details can be submitted online, via Citigroup's Global Loans Web Site.
Send an e- mail to oploanswebadmin@ssmb.com with your contact information and
the deal name to request a user ID/password to submit/modify Admin Details
online.
ADMINISTRATIVE DETAILS FORM
ADMIN/OPERATIONS MATTERS: (Responsible for interest, fee, principal payment,
borrowing & pay-downs)
Primary:
NAME:
Address: ___________________________________ E- mail: ___________
___________________________________
City: _______________ State: ___________ Phone #: ___________
Postal Code: _______________ Country:___________ Fax #: ___________
Backup:
NAME:
Address: ___________________________________ E- mail: ___________
___________________________________
City: _______________ State: ___________ Phone #: ___________
Postal Code: _______________ Country:___________ Fax #: ___________
CLOSING CONTACT: (Responsible for Deal Closing matters)
NAME:
Address: ___________________________________ E- mail: ___________
___________________________________
City: _______________ State: ___________ Phone #: ___________
Postal Code: _______________ Country:___________ Fax #: ___________
DISCLOSURE CONTACT: (Receives disclosure materials, such as financial reports,
via our web site)
NAME:
Address: ___________________________________ E- mail: ___________
___________________________________
City: _______________ State: ___________ Phone #: ___________
Postal Code: _______________ Country:___________ Fax #: ___________
Admin Details can be submitted online, via Citigroup's Global Loans Web Site.
Send an e- mail to oploanswebadmin@ssmb.com with your contact information and
the deal name to request a user ID/password to submit/modify Admin Details
online.
ADMINISTRATIVE DETAILS FORM
ROUTING INSTRUCTIONS
ROUTING INSTRUCTIONS FOR THIS DEAL:
City: _____ State: ________ ACCOUNT NAME: ____________
Postal Code: _______ ACCOUNT#: ____________
Payment Type: BENEF. ACCT. NAME: ____________
[ ]Fed [ ]ABA [ ]CHIPS BENEF. ACCT. #: ____________
ABA/CHIPS #:
REFERENCE: ________________________
Attention: ________________________
ADMINISTRATIVE AGENT INFORMATION
BANK LOANS SYNDICATION - AGENT CONTACT AGENT WIRING INSTRUCTIONS
Name: Jason Trala
Telephone: 302-894-6086 Citibank, NA
Fax: 302-894-6120 ABA #: 021-00-0089
Acct Name: Agency
Address: 2 Penn's Way Medium Term Finance
Suite 200 Acct #: 36852248
New Castle, De
19720
INITIAL FUNDING STANDARDS: LIBOR - Fund 2 days after rates are set.
Admin Details can be submitted online, via Citigroup's Global Loans Web Site.
Send an e-mail to oploanswebadmin@ssmb.com with your contact information and the
deal name to request a user ID/password to submit/modify Admin Details online.
EXHIBIT E
TERMS OF SUBORDINATION
[JUNIOR SUBORDINATED DEBT]
ARTICLE ___
SUBORDINATION
Section __.1. Applicability of Article; Securities Subordinated to
Senior Indebtedness.
(a) This Article __ shall apply only to the Securities of any
series which, pursuant to Section __, are expressly made subject to this
Article. Such Securities are referred to in this Article __ as "Subordinated
Securities."
(b) The Issuer covenants and agrees, and each Holder of
Subordinated Securities by his acceptance thereof likewise covenants and agrees,
that the indebtedness represented by the Subordinated Securities and the payment
of the principal and interest, if any, on the Subordinated Securities is
subordinated and subject in right, to the extent and in the manner provided in
this Article, to the prior payment in full of all Senior Indebtedness.
"Senior Indebtedness" means the principal of and premium, if any, and
interest on the following, whether outstanding on the date hereof or thereafter
incurred, created or assumed: (i) indebtedness of the Issuer for money borrowed
by the Issuer (including purchase money obligations) or evidenced by debentures
(other than the Subordinated Securities), notes, bankers' acceptances or other
corporate debt securities, or similar instruments issued by the Issuer; (ii) all
capital lease obligations of the Issuer; (iii) all obligations of the Issuer
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of the Issuer and all obligations of the Issuer under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) obligations with respect to letters of
credit; (v) all indebtedness of others of the type referred to in the preceding
clauses (i) through (iv) assumed by or guaranteed in any manner by the Issuer or
in effect guaranteed by the Issuer; (vi) all obligations of the type referred to
in clauses (i) through (v) above of other persons secured by any lien on any
property or asset of the Issuer (whether or not such obligation is assumed by
the Issuer), except for (1) any such indebtedness that is by its terms
subordinated to or pari passu with the Subordinated Notes, as the case may be,
including all other debt securities and guaranties in respect of those debt
securities, issued to any other trusts, partnerships or other entities
affiliated with the Issuer which act as a financing vehicle of the Issuer in
connection with the issuance of preferred securities by such entity or other
securities which rank pari passu with, or junior to, the Preferred Securities,
and (2) any indebtedness between or among the Issuer and its affiliates; and/or
(vii) renewals, extensions or refundings of any of the indebtedness referred to
in the preceding clauses unless, in the case of any particular indebtedness,
renewal, extension or refunding, under the express provisions of the instrument
creating or evidencing the same or the assumption or guarantee of the same, or
pursuant to which the same is outstanding, such indebtedness or such renewal,
extension or refunding thereof is not superior in right of payment to the
Subordinated Securities.
This Article shall constitute a continuing obligation to all Persons
who, in reliance upon such provisions become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the holders
of Senior Indebtedness, and such holders are made obligees hereunder and they
and/or each of them may enforce such provisions.
Section __.2. Issuer Not to Make Payments with Respect to Subordinated
Securities in Certain Circumstances.
(a) Upon the maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, all principal thereof and premium and interest
thereon shall first be paid in full, or such payment duly provided for in cash
in a manner satisfactory to the holders of such Senior Indebtedness, before any
payment is made on account of the principal of, or interest on, Subordinated
Securities or to acquire any Subordinated Securities or on account of any
sinking fund provisions of any Subordinated Securities (except payments made in
capital stock of the Issuer or in warrants, rights or options to purchase or
acquire capital stock of the Issuer, sinking fund payments made in Subordinated
Securities acquired by the Issuer before the maturity of such Senior
Indebtedness, and payments made through the exchange of other debt obligations
of the Issuer for such Subordinated Securities in accordance with the terms of
such Subordinated Securities, provided that such debt obligations are
subordinated to Senior Indebtedness at least to the extent that the Subordinated
Securities for which they are exchanged are so subordinated pursuant to this
Article __).
(b) Upon the happening and during the continuation of any default
in payment of the principal of, or interest on, any Senior Indebtedness when the
same becomes due and payable or in the event any judicial proceeding shall be
pending with respect to any such default, then, unless and until such default
shall have been cured or waived or shall have ceased to exist, no payment shall
be made by the Issuer with respect to the principal of, or interest on,
Subordinated Securities or to acquire any Subordinated Securities or on account
of any sinking fund provisions of Subordinated Securities (except payments made
in capital stock of the Issuer or in warrants, rights, or options to purchase or
acquire capital stock of the Issuer, sinking fund payments made in Subordinated
Securities acquired by the Issuer before such default and notice thereof, and
payments made through the exchange of other debt obligations of the Issuer for
such Subordinated Securities in accordance with the terms of such Subordinated
Securities, provided that such debt obligations are subordinated to Senior
Indebtedness at least to the extent that the Subordinated Securities for which
they are exchanged are so subordinated pursuant to this Article __).
(c) In the event that, notwithstanding the provisions of this
Section __.2, the Issuer shall make any payment to the Trustee on account of the
principal of or interest on Subordinated Securities, or on account of any
sinking fund provisions of such Securities, after the maturity of any Senior
Indebtedness as described in Section __.2(a) above or after the happening of a
default in payment of the principal of or interest on any Senior Indebtedness as
described in Section __.2(b) above, then, unless and until all Senior
Indebtedness which shall have matured, and all premium and interest thereon,
shall have been paid in full (or the declaration of acceleration thereof shall
have been rescinded or annulled), or such default shall have been cured or
waived or shall have ceased to exist, such payment (subject to the provisions of
Sections __.6 and __.7) shall be held by the Trustee, in trust for the benefit
of, and shall be paid forthwith over and
delivered to, the holders of such Senior Indebtedness (pro rata as to each of
such holders on the basis of the respective amounts of Senior Indebtedness held
by them) or their representative or the trustee under the indenture or other
agreement (if any) pursuant to which such Senior Indebtedness may have been
issued, as their respective interests may appear, for application to the payment
of all such Senior Indebtedness remaining unpaid to the extent necessary to pay
the same in full in accordance with its terms, after giving effect to any
concurrent payment or distribution to or for the holders of Senior
Indebtedness. The Issuer shall give prompt written notice to the Trustee of any
default in the payment of principal of or interest on any Senior Indebtedness.
Section __.3. Subordinated Securities Subordinated to Prior Payment of
All Senior Indebtedness on Dissolution. Liquidation or Reorganization of Issuer.
Upon any distribution of assets of the Issuer in any dissolution, winding up,
liquidation or reorganization of the Issuer (whether voluntary or involuntary,
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise):
(a) the holders of all Senior Indebtedness shall first be entitled
to receive payments in full of the principal thereof and premium and interest
due thereon, or provision shall be made for such payment, before the Holders of
Subordinated Securities are entitled to receive any payment on account of the
principal of or interest on such Securities;
(b) any payment or distribution of assets of the Issuer of any
kind or character, whether in cash, property or securities (other than
securities of the Issuer as reorganized or readjusted or securities of the
Issuer or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this Article __ with respect to Subordinated Securities, to the
payment in full without diminution or modification by such plan of all Senior
Indebtedness), to which the Holders of Subordinated Securities or the Trustee on
behalf of the Holders of Subordinated Securities would be entitled except for
the provisions of this Article __ shall be paid or delivered by the liquidating
trustee or agent or other person making such payment or distribution directly to
the holders of Senior Indebtedness or their representative, or to the trustee
under any indenture under which Senior Indebtedness may have been issued (pro
rata as to each such holder, representative or trustee on the basis of the
respective amounts of unpaid Senior Indebtedness held or represented by each),
to the extent necessary to make payment in full of all Senior Indebtedness
remaining unpaid, after giving effect to any concurrent payment or distribution
or provision thereof to the holders of such Senior Indebtedness; and
(c) in the event that notwithstanding the foregoing provisions of
this Section __.3, any payment or distribution of assets of the Issuer of any
kind or character, whether in cash, property or securities (other than
securities of the Issuer as reorganized or readjusted or securities of the
Issuer or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this Article __ with respect to Subordinated Securities, to the
payment in full without diminution or modification by such plan of all Senior
Indebtedness shall be received by the Trustee or the Holders of the Subordinated
Securities on account of principal of or interest on the Subordinated Securities
before all Senior Indebtedness is paid in full, or effective provision made for
its payment, such payment or distribution (subject to the provisions of Section
_.6 and _.7) shall be received and
held in trust for and shall be paid over to the holders of the Senior
Indebtedness remaining unpaid or unprovided for or their representative, or to
the trustee under any indenture under which such Senior Indebtedness may have
been issued (pro rata as provided in subsection (b) above), for application to
the payment of such Senior Indebtedness until all such Senior Indebtedness
shall have been paid in full, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of such Senior Indebtedness,
The Issuer shall give prompt written notice to the Trustee of any
dissolution, winding up, liquidation or reorganization of the Issuer.
The consolidation of the Issuer with, or the merger of the Issuer into,
another corporation or the liquidation or dissolution of the Issuer following
the conveyance or transfer of its property as an entirety, or substantially as
an entirety, to another corporation upon the terms and conditions provided for
in Article __ hereof shall not be deemed a dissolution, winding up, liquidation
or reorganization for the purposes of this Section __.3 if such other
corporation shall, as a part of such consolidation, merger, conveyance or
transfer, comply with the conditions stated such in Article __.
Section __.4. Holders of Subordinated Securities to be Subrogated to
Right of Holders of Senior Indebtedness. Subject to the payment in full of all
Senior Indebtedness, the Holders of Subordinated Securities shall be subrogated
to the rights of the holders of Senior Indebtedness to receive payments or
distributions of assets of the Issuer applicable to the Senior Indebtedness
until all amounts owing on Subordinated Securities shall be paid in full, and
for the purposes of such subrogation no payments or distributions to the holders
of the Senior Indebtedness by or on behalf of the Issuer or by or on behalf of
the Holders of Subordinated Securities by virtue of this Article __ which
otherwise would have been made to the Holders of Subordinated Securities shall,
as between the Issuer, its creditors other than holders of Senior Indebtedness
and the Holders of Subordinated Securities, be deemed to be payment by the
Issuer to or on account of the Senior Indebtedness, it being understood that the
provisions of this Article __ are and are intended solely for the purpose of
defining the relative rights of the Holders of the Subordinated Securities, on
the one hand, and the holders of the Senior Indebtedness, on the other hand.
Section __.5. Obligation of the Issuer Unconditional. Nothing contained
in this Article __ or elsewhere in this Indenture or in any Subordinated
Security is intended to or shall impair, as among the Issuer, its creditors
other than holders of Senior Indebtedness and the Holders of Subordinated
Securities, the obligation of the Issuer, which is absolute and unconditional,
to pay to the Holders of Subordinated Securities the principal of, and interest
on, Subordinated Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders of Subordinated Securities and creditors of the Issuer
other than the holders of the Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or the Holder of any Subordinated Security from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article __ of the
holders of Senior Indebtedness in respect of cash, property or securities of the
Issuer received upon the exercise of any such remedy. Upon any payment or
distribution of assets of the Issuer referred to in this Article __, the Trustee
and Holders of Subordinated Securities shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which such dissolution,
winding up, liquidation or
reorganization proceedings are pending, or, subject to the provisions of Section
__ and __, a certificate of the receiver, trustee in bankruptcy, liquidating
trustee or agent or other Person making such payment or distribution to the
Trustee or the Holders of Subordinated Securities, for the purposes of
ascertaining the Persons entitled to participate in such distribution, the
holders of the Senior Indebtedness and other indebtedness of the Issuer, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article __.
Nothing contained in this Article __ or elsewhere in this Indenture or
in any Subordinated Security is intended to or shall affect the obligation of
the Issuer to make, or prevent the Issuer from making, at any time except during
the pendency of any dissolution, winding up, liquidation or reorganization
proceeding, and, except as provided in subsections (a) and (b) of Section __.2,
payments at any time of the principal of, or interest on, Subordinated
Securities.
Section __.6. Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice. The Issuer shall give prompt written notice to the Trustee of
any fact known to the Issuer which would prohibit the making of any payment or
distribution to or by the Trustee in respect of the Subordinated Securities.
Notwithstanding the provisions of this Article __ or any provision of this
Indenture, the Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment or
distribution to or by the Trustee, unless at least two Business Days prior to
the making of any such payment, the Trustee shall have received written notice
thereof from the Issuer or from one or more holders of Senior Indebtedness or
from any representative thereof or from any trustee therefor, together with
proof satisfactory to the Trustee of such holding of Senior Indebtedness or of
the authority of such representative or trustee; and, prior to the receipt of
any such written notice, the Trustee, subject to the provisions of Sections __
and __, shall be entitled to assume conclusively that no such facts exist. The
Trustee shall be entitled to rely on the delivery to it of a written notice by a
Person representing himself to be a holder of Senior Indebtedness (or a
representative or trustee on behalf of the holder) to establish that such notice
has been given by a holder of Senior Indebtedness (or a representative of or
trustee on behalf of any such holder). In the event that the Trustee determines,
in good faith, that further evidence is required with respect to the right of
any Person as a holder of Senior Indebtedness to participate in any payments or
distribution pursuant of this Article __, the Trustee may request such Person to
furnish evidence to the reasonable satisfaction of the Trustee as to the amount
of Senior Indebtedness held by such Person, as to the extent to which such
Person is entitled to participate in such payment or distribution, and as to
other facts pertinent to the rights of such Person under this Article __, and if
such evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment. The Trustee, however, shall not be deemed to owe any fiduciary duty to
the holders of Senior Indebtedness and nothing in this Article __ shall apply to
claims of, or payments to, the Trustee under or pursuant to Section __.
Section __.7. Application by Trustee of Monies or Government
Obligations Deposited with It. Money or Government Obligations deposited in
trust with the Trustee pursuant to and in accordance with Section __ shall be
for the sole benefit of Securityholders and, to the extent allocated for the
payment of Subordinated Securities, shall not be subject to the subordination
provisions of this Article __, if the same are deposited in trust prior to the
happening of any
event specified in Section __.2. Otherwise, any deposit of monies or Government
Obligations by the Issuer with the Trustee or any paying agent (whether or not
in trust) for the payment of the principal of, or interest on, any Subordinated
Securities shall be subject to the provisions of Section __.1, __.2 and __.3
except that, if prior to the date on which by the terms of this Indenture any
such monies may become payable for any purposes (including, without limitation,
the payment of the principal of, or the interest, if any, on any Subordinated
Security) the Trustee shall not have received with respect to such monies the
notice provided for in Section __.6, then the Trustee or the paying agent shall
have full power and authority to receive such monies and Government Obligations
and to apply the same to the purpose for which they were received, and shall not
be affected by any notice to the contrary which may be received by it on or
after such date. This Section __.7 shall be construed solely for the benefit of
the Trustee and paying agent and, as to the first sentence hereof, the
Securityholders, and shall not otherwise effect the rights of holders of Senior
Indebtedness.
Section __.8. Subordination Rights Not Impaired by Acts or Omissions of
Issuer or Holders of Senior Indebtedness. No rights of any present or future
holders of any Senior Indebtedness to enforce subordination as provided herein
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Issuer or by any act or failure to act, in good faith, by
any such holders or by any noncompliance by the Issuer with the terms of this
Indenture, regardless of any knowledge thereof which any such holder may have or
be otherwise charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness of the Issuer may, at any time and from time
to time, without the consent of or notice to the Trustee or the Holders of the
Subordinated Securities, without incurring responsibility to the Holders of the
Subordinated Securities and without impairing or releasing the subordination
provided in this Article __ or the obligations hereunder of the Holders of the
Subordinated Securities to the holders of such Senior Indebtedness, do any one
or more of the following: (i) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, such Senior Indebtedness, or
otherwise amend or supplement in any manner such Senior Indebtedness or any
instrument evidencing the same or any agreement under which such Senior
Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with
any property pledged, mortgaged or otherwise securing such Senior Indebtedness;
(iii) release any Person liable in any manner for the collection for such Senior
Indebtedness; and (iv) exercise or refrain from exercising any rights against
the Issuer, as the case may be, and any other Person.
Section __.9. Securityholders Authorize Trustee to Effectuate
Subordination of Securities. Each Holder of Subordinated Securities by his
acceptance thereof authorizes and expressly directs the Trustee on his behalf to
take such action as may be necessary or appropriate to effectuate the
subordination provided in this Article __ and appoints the Trustee his
attorney-in-fact for such purpose, including in the event of any dissolution,
winding up, liquidation or reorganization of the Issuer (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors or otherwise) the immediate filing of a claim for the unpaid balance
of his Subordinated Securities in the form required in said proceedings and
causing said claim to be approved. If the Trustee does not file a proper claim
or proof of debt in the form required in such proceeding prior to 30 days before
the expiration of the time to file
such claim or claims, then the holders of Senior Indebtedness have the right to
file and are hereby authorized to file an appropriate claim for and on behalf of
the Holders of said Securities.
Section __.10. Right of Trustee to Hold Senior Indebtedness. The
Trustee in its individual capacity shall be entitled to all of the rights set
forth in this Article __ in respect of any Senior Indebtedness at any time held
by it to the same extent as any other holder of Senior Indebtedness, and nothing
in this Indenture shall be construed to deprive the Trustee of any of its rights
as such holder.
With respect to the holders of Senior Indebtedness of the Issuer, the
Trustee undertakes to perform or to observe only such of its covenants and
obligations as are specifically set forth in this Article __, and no implied
covenants or obligations with respect to the holders of such Senior Indebtedness
shall be read into this Indenture against the Trustee. The Trustee shall not be
deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and,
subject to the provisions of Sections __.2 and __.3, the Trustee shall not be
liable to any holder of such Senior Indebtedness if it shall pay over or deliver
to Holders of Subordinated Securities, the Issuer or any other Person money or
assets to which any holder of such Senior Indebtedness shall be entitled by
virtue of this Article __ or otherwise.
Section __.11. Article Not to Prevent Events of Defaults. The failure
to make a payment on account of principal or interest by reason of any provision
in this Article __ shall not be construed as preventing the occurrence of an
Event of Default under Section ____.
EXHIBIT F
TERMS OF SUBORDINATION
[GUARANTY OF HYBRID PREFERRED SECURITIES]
SECTION __. This Guarantee will constitute an unsecured obligation of
the Guarantor and will rank subordinate and junior in right of payment to all
other liabilities of the Guarantor and pari passu with any guarantee now or
hereafter entered into by the Guarantor in respect of the securities
representing common beneficial interests in the assets of the Issuer or of any
preferred or preference stock of any affiliate of the Guarantor.
EXHIBIT G
FORM OF BOND DELIVERY AGREEMENT
BOND DELIVERY AGREEMENT
CONSUMERS ENERGY COMPANY
TO
CITICORP NORTH AMERICA, INC., AS AGENT
Dated as of March 28, 2003
-------------------
Relating to
First Mortgage Bonds, Collateral Series due March 28, 2006
------------------
THIS BOND DELIVERY AGREEMENT (this "Agreement"), dated as of March 28,
2003, is between Consumers Energy Company (the "Company"), and Citicorp North
America, Inc., as agent (the "Agent") under the Term Loan Agreement (as amended,
supplemented or otherwise modified from time to time, the "Loan Agreement")
dated as of March 28, 2003, among the Company, the financial institutions
parties thereto (the "Banks"), and the Agent. Capitalized terms used but not
otherwise defined herein have the respective meanings assigned to such terms in
the Loan Agreement.
Whereas, the Company has established its First Mortgage Bonds,
Collateral Series due 2006, in the aggregate principal amount of $150,000,000
(the "Bonds"), to be issued under and in accordance with the Eighty-Ninth
Supplemental Indenture dated as of March 28, 2003 (the "Supplemental
Indenture"), to the Indenture of the Company to JPMorgan Chase Bank (formerly
known as The Chase Manhattan Bank) dated as of September 1, 1945 (as amended and
supplemented, the "Indenture"); and
Whereas, the Company proposes to issue and deliver to the Agent, for
the benefit of the Banks, the Bonds in order to provide the Bonds as evidence of
(and the benefit of the lien of the Indenture with respect to the Bonds for) the
Obligations of the Company arising under the Loan Agreement;
Now, therefore, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the Company and the Agent hereby agree as follows:
ARTICLE I
THE BONDS
Section 1.1 Delivery of Bonds.
In order to provide the Bonds as evidence of (and through the Bonds the
benefit of the Lien of the Indenture for) the Obligations of the Company under
the Loan Agreement as aforesaid, the Company hereby delivers to the Agent the
Bonds in the aggregate principal amount of $150,000,000, maturing on March 28,
2006 and bearing interest as provided in the Supplemental Indenture. The
obligation of the Company to pay the principal of and interest on the Bonds
shall be deemed to have been satisfied and discharged in full or in part, as the
case may be, to the extent of payment by the Company of the Obligations, all as
set forth in the Bonds and in Section 1 of the Supplemental Indenture.
The Bonds are registered in the name of the Agent and shall be owned
and held by the Agent, subject to the provisions of this Agreement, for the
benefit of the Banks, and the Company shall have no interest therein. The Agent
shall be entitled to exercise all rights of bondholders under the Indenture with
respect to the Bonds.
Section 1.2 Payments on the Bonds.
Any payments received by the Agent on account of the principal of or
interest on the Bonds shall be deemed to be and treated in all respects as
payments of the Obligations, and such payments shall be distributed by the Agent
to the Banks in accordance with the provisions of the
Loan Agreement applicable to payments received by the Agent in respect of the
Obligations (and the Company hereby consents to such distributions).
ARTICLE II
NO TRANSFER OF BONDS; SURRENDER OF BONDS
Section 2.1 No Transfer of the Bonds.
The Agent shall not sell, assign or otherwise transfer any Bonds
delivered to it under this Agreement except to a successor administrative agent
under the Loan Agreement. The Company may take such actions as it shall deem
necessary, desirable or appropriate to effect compliance with such restrictions
on transfer, including the issuance of stop-transfer instructions to the trustee
under the Indenture or any other transfer agent thereunder.
Section 2.2 Surrender of Bonds.
(a) The Agent shall forthwith surrender to or upon the order of
the Company all Bonds held by it at the first time at which all Obligations
shall have been paid in full.
(b) Upon any prepayments of Term Loans pursuant to the terms of
the Loan Agreement, the Agent shall forthwith surrender to or upon the order of
the Company Bonds in an aggregate principal amount equal to the excess of the
aggregate principal amount of Bonds held by the Agent over the aggregate
outstanding Term Loans.
ARTICLE III
GOVERNING LAW
This Agreement shall construed in accordance with and governed by the
internal laws (without regard to the conflict of laws provisions) of the State
of New York, but giving effect to Federal laws applicable to national banks.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company and the Agent have caused this
Agreement to be executed and delivered as of the date first above written.
CONSUMERS ENERGY COMPANY
_______________________________
Name:
Title:
CITICORP NORTH AMERICA, INC., as Agent
_______________________________
Name:
Title:
COMMITMENT SCHEDULE
TERM LOAN
BANK COMMITMENT
---- ----------
Citicorp North America, Inc. $ 150,000,000.00
$
$
$
$
$
AGGREGATE TERM LOAN $ 150,000,000
COMMITMENTS
EXHIBIT 4(h)
EXECUTION COPY
- --------------------------------------------------------------------------------
$409,000,000
SECOND AMENDED AND RESTATED CREDIT
AGREEMENT
Dated as of March 30, 2003,
Among
CMS ENERGY CORPORATION
as Borrower
THE BANKS NAMED HEREIN
as Banks
CITICORP USA, INC.
as Administrative Agent and Collateral Agent
------------------------
SALOMON SMITH BARNEY INC.
as Sole Book Manager and Sole Lead Arranger
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms........................................................... 1
SECTION 1.02. Computation of Time Periods; Construction....................................... 22
SECTION 1.03. Accounting Terms................................................................ 22
ARTICLE II
LOANS, FEES, PREPAYMENTS AND OUTSTANDINGS
SECTION 2.01. Re-Evidencing of "Loans" under the Initial Amendment and Restatement............ 23
SECTION 2.02. Fees............................................................................ 24
SECTION 2.03. Mandatory Prepayments........................................................... 24
SECTION 2.04. Computations of Outstandings.................................................... 26
ARTICLE III
LOANS
SECTION 3.01. Evidence of Loans............................................................... 26
SECTION 3.02. Conversion of Loans............................................................. 27
SECTION 3.03. Interest Periods................................................................ 27
SECTION 3.04. Other Terms Relating to the Making and Conversion of Loans...................... 28
SECTION 3.05. Repayment of Loans; Interest.................................................... 30
ARTICLE IV
PAYMENTS, COMPUTATIONS AND YIELD PROTECTION
SECTION 4.01. Payments and Computations....................................................... 30
SECTION 4.02. Interest Rate Determination..................................................... 32
SECTION 4.03. Prepayments..................................................................... 32
SECTION 4.04. Yield Protection................................................................ 33
SECTION 4.05. Sharing of Payments, Etc........................................................ 34
SECTION 4.06. Taxes........................................................................... 35
SECTION 4.07. Apportionment of Payments....................................................... 36
SECTION 4.08. Proceeds of Collateral.......................................................... 37
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01. Conditions Precedent to the Effectiveness of this Agreement..................... 38
SECTION 5.02. Conditions Precedent to Each Extension of Credit................................ 40
SECTION 5.03. Reliance on Certificates........................................................ 41
i
TABLE OF CONTENTS (CONT'D)
SECTION PAGE
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties of the Borrower.................................. 42
ARTICLE VII
COVENANTS OF THE BORROWER
SECTION 7.01. Affirmative Covenants........................................................... 46
SECTION 7.02. Negative Covenants.............................................................. 49
SECTION 7.03. Reporting Obligations........................................................... 56
ARTICLE VIII
DEFAULTS
SECTION 8.01. Events of Default............................................................... 59
SECTION 8.02. Remedies........................................................................ 61
ARTICLE IX
THE AGENTS
SECTION 9.01. Authorization and Action........................................................ 62
SECTION 9.02. Indemnification................................................................. 64
SECTION 9.03. Concerning the Collateral and the Loan Documents................................ 64
SECTION 9.04. Release of Guarantors........................................................... 65
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc................................................................ 65
SECTION 10.02. Notices, Etc................................................................... 66
SECTION 10.03. No Waiver of Remedies.......................................................... 67
SECTION 10.04. Costs, Expenses and Indemnification............................................ 67
SECTION 10.05. Right of Set-off............................................................... 68
SECTION 10.06. Binding Effect................................................................. 68
SECTION 10.07. Assignments and Participation.................................................. 68
SECTION 10.08. Confidentiality................................................................ 71
SECTION 10.09. Waiver of Jury Trial........................................................... 72
SECTION 10.10. GOVERNING LAW; SUBMISSION TO JURISDICTION...................................... 72
SECTION 10.11. Relation of the Parties; No Beneficiary........................................ 73
SECTION 10.12. Execution in Counterparts...................................................... 73
SECTION 10.13. Survival of Agreement.......................................................... 73
ii
TABLE OF CONTENTS (CONT'D)
SECTION PAGE
ARTICLE XI
NO NOVATION; REFERENCES TO THIS AGREEMENT IN LOAN DOCUMENTS
SECTION 11.01. No Novation.................................................................... 75
SECTION 11.02. References to This Agreement In Loan Documents................................. 75
iii
Exhibits
- --------
EXHIBIT A - Form of Notice of Borrowing
EXHIBIT B - Form of Notice of Conversion
EXHIBIT C - Form of Opinion of Belinda Foxworth, Esq., counsel to the Borrower
EXHIBIT D - Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special
counsel to the Borrower
EXHIBIT E - Form of Compliance Schedule
EXHIBIT F - Form of Lender Assignment
EXHIBIT G - Terms of Subordination (Junior Subordinated Debt)
EXHIBIT H - Terms of Subordination (Guaranty of Hybrid Preferred Securities)
EXHIBIT I - Form of Guaranty
EXHIBIT J - Form of Amended and Restated Pledge and Security Agreement
(Borrower)
EXHIBIT K - Form of Pledge and Security Agreement (Grantors)
EXHIBIT L - AIG Pledge Agreement
EXHIBIT M - Intercreditor Agreement
Schedules
- ---------
COMMITMENT
SCHEDULE
SCHEDULE I Certain Debt
SCHEDULE II Pledged Ownership Interests
ATTACHMENT A Reaffirmation
iv
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of March 30, 2003
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT (the "AGREEMENT") is
made by and among:
(i) CMS Energy Corporation, a Michigan corporation (the
"BORROWER"),
(ii) the banks (the "BANKS") listed on the signature pages hereof
and the other Lenders (as hereinafter defined) from time to
time party hereto, and
(iii) Citicorp USA, Inc. ("CUSA"), as administrative agent (the
"ADMINISTRATIVE AGENT") for the Lenders hereunder and as
collateral agent (the "COLLATERAL AGENT") for the Lenders
hereunder.
PRELIMINARY STATEMENTS
The Borrower has requested the Banks (i) to amend and restate the
Existing Credit Agreements (as hereafter defined) on the Initial Funding Date as
a revolving credit facility on the same terms and conditions set forth in the
Existing Credit Agreements (the "Initial Amendment and Restatement"), which
Initial Amendment and Restatement is evidenced in full pursuant to this
paragraph, and to make Loans in an amount equal to the "Available Commitments"
(such term having the same meaning as set forth in the Existing 3-Year Credit
Agreement) pursuant to such Initial Amendment and Restatement (such Loans being
the "Initial Amendment and Restatement Revolving Loans"), and (ii) immediately
thereafter to amend and restate the Initial Amendment and Restatement to provide
the credit facility hereinafter described in the amount and on the terms and
conditions set forth herein. The Banks have so agreed on the terms and
conditions set forth herein, and the Agents have agreed to act as agents for the
Lenders on such terms and conditions.
The parties hereto acknowledge and agree that neither Consumers (as
hereinafter defined) nor any of its Subsidiaries (as hereinafter defined) will
be a party to, or will in any way be bound by any provision of, this Agreement
or any other Loan Document (as hereinafter defined), and that no Loan Document
will be enforceable against Consumers or any of its Subsidiaries or their
respective assets.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
1
"ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are
bearing interest at a rate determined by reference to the Alternate
Base Rate.
"ABR LOAN" means a Loan that bears interest as provided in
Section 3.05(b)(i).
"ADJUSTED LIBO RATE" means, for each Interest Period for each
Eurodollar Rate Loan made as part of the same Borrowing, an interest
rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%)
equal to (a) the LIBO Rate for such Interest Period multiplied by (b)
the Statutory Reserve Rate.
"ADMINISTRATIVE QUESTIONNAIRE" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"AFFILIATE" means, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to
all directors and officers of such Person), controlled by, or under
direct or indirect common control with such Person. A Person shall be
deemed to control another entity if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the
management and policies of such entity, whether through the ownership
of voting securities, by contract, or otherwise.
"AGENT" means, as the context may require, the Administrative
Agent or the Collateral Agent, and "AGENTS" means any or all of the
foregoing.
"AIG PLEDGE AGREEMENT" means that certain Pledge and Security
Agreement, dated as of January 8, 2003, by and among Enterprises and
the other grantors parties thereto in favor of American Home Assurance
Company, as collateral agent, a copy of which is attached hereto as
Exhibit L, as amended, restated, supplemented or otherwise modified
from time to time.
"ALTERNATE BASE RATE" means, for any day, a rate per annum
equal to the greater of (a) the Prime Rate in effect on such day, (b)
1/2 of one percent above the CD Rate, and (c) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Alternate Base Rate due to a change in the Prime Rate, the CD Rate or
the Federal Funds Effective Rate shall be effective from and including
the effective date of such change in the Prime Rate, CD Rate or the
Federal Funds Effective Rate, respectively.
"APPLICABLE LENDING OFFICE" means, with respect to each
Lender, at the address specified for such Lender on its signature page
to this Agreement or in the Lender Assignment pursuant to which it
became a Lender, as applicable, or at any office, branch, subsidiary or
affiliate of such Lender specified in a notice received by the
Administrative Agent and the Borrower from such Lender.
"APPLICABLE MARGIN" means, on any date of determination with
respect to any Loans, the per annum rate specified in the table below
for such Loans:
2
Applicable Margin Applicable Margin
for Facility A for Facility B
Loans Loans
ABR Loans 4.50% 6.00%
Eurodollar
Rate Loans 5.50% 7.00%
" APPLICABLE RATE" means:
(i) in the case of each ABR Loan, a rate per
annum equal at all times to the sum of the Alternate Base Rate
in effect from time to time plus the Applicable Margin; and
(ii) in the case of each Eurodollar Rate Loan
comprising part of the same Borrowing, a rate per annum during
each Interest Period equal at all times to the sum of the
Adjusted LIBO Rate for such Interest Period plus the
Applicable Margin.
"APPROVED FUND" means, with respect to any Lender that is a
fund that invests in commercial loans, any other fund that invests in
commercial loans and is managed or advised by the same investment
advisor as such Lender or by an affiliate of such investment advisor.
"ARRANGER" means Salomon Smith Barney Inc.
"AVAILABLE FACILITY A REVOLVING COMMITMENT" means, for each
Lender on any day, the unused portion of such Lender's Facility A
Revolving Commitment, computed after giving effect to all Extensions of
Credit or prepayments to be made on such day and the application of
proceeds therefrom. "AVAILABLE FACILITY A REVOLVING COMMITMENTS" means
the aggregate of the Lenders' Available Facility A Revolving
Commitments.
"BOARD" means the Board of Governors of the Federal Reserve
System of the United States of America.
"BORROWER INTEREST EXPENSE" means at any date, the total
interest expense in respect of Debt of the Borrower for the four
calendar quarters immediately preceding such date, including, without
duplication, (i) interest expense attributable to capital leases, (ii)
amortization of debt discount, (iii) capitalized interest, (iv) cash
and noncash payments, (v) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs under interest rate swap, "cap", "collar" or
other hedging agreements (including amortization of discount) and (vii)
interest expense in respect of obligations of Persons deemed to be Debt
of the Borrower under clause (viii) of the definition of Debt,
provided, however that Borrower Interest Expense shall exclude any
costs otherwise included in interest expense recognized on early
retirement of debt.
3
"BORROWING" means a borrowing consisting of Loans of the same
Type, having the same Interest Period and made or Converted on the same
day by the Lenders, ratably in accordance with their respective
Percentages. Any Borrowing consisting of Loans of a particular Type may
be referred to as being a Borrowing of such "TYPE". All Loans of the
same Type, having the same Interest Period and made or Converted on the
same day shall be deemed a single Borrowing hereunder until repaid or
next Converted.
"BUSINESS DAY" means a day of the year on which banks are not
required or authorized to close in New York City and Detroit, Michigan,
and, if the applicable Business Day relates to any Eurodollar Rate
Loan, on which dealings are carried on in the London interbank market.
"CASH DIVIDEND INCOME" means, for any period, the amount of
all cash dividends received by the Borrower from its Subsidiaries
during such period that are paid out of the net income or loss (without
giving effect to: any extraordinary gains in excess of $25,000,000, the
amount of any write-off or write-down of assets, including, without
limitation, write-offs or write-downs related to the sale of assets,
impairment of assets and loss on contracts, in each case in accordance
with GAAP consistently applied, and up to $200,000,000 of other
non-cash write-offs) of such Subsidiaries during such period.
"CD RATE" means the latest three-week moving average of
secondary market morning offering rates in the United States for
three-month certificates of deposit of major United States money market
banks, such three-week moving average being determined weekly on each
Monday (or, if such day is not a Business Day, on the next succeeding
Business Day) for the three-week period ending on the previous Friday
by Citibank on the basis of such rates reported by certificate of
deposit dealers to and published by the Federal Reserve Bank of New
York or, if such publication shall be suspended or terminated, on the
basis of quotations for such rates received by Citibank from three New
York certificate of deposit dealers of recognized standing selected by
Citibank, in either case, adjusted to the nearest 1/16 of one percent
or, if there is no nearest 1/16 of one percent, to the next higher 1/16
of one percent.
"CHANGE OF CONTROL" means (a) any "person" or "group" within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act shall
become the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the then outstanding voting capital
stock of the Borrower, or (b) the majority of the board of directors of
the Borrower shall fail to consist of Continuing Directors, or (c) a
consolidation or merger of the Borrower shall occur after which the
holders of the outstanding voting capital stock of the Borrower
immediately prior thereto hold less than 50% of the outstanding voting
capital stock of the surviving entity, or (d) more than 50% of the
outstanding voting capital stock of the Borrower shall be transferred
to any entity of which the Borrower owns less than 50% of the
outstanding voting capital stock.
"CITIBANK" means Citibank, N.A., a national banking
association.
4
"CITIGROUP PARTIES" means Citibank, CUSA, Salomon Smith Barney
Inc. and each of their respective Affiliates, and each of their
respective officers, directors, employees, agents, advisors, and
representatives.
"CLOSING DATE" means March 30, 2003.
"COLLATERAL" means all property and interests in property now
owned or hereafter acquired by any Loan Party upon which a Lien is
granted under any of the Loan Documents.
"COMMITMENT" means, for each Lender, such Lender's Facility A
Commitment (including such Lender's Facility A Revolving Commitment)
and Facility B Commitment. "COMMITMENTS" means the total of the
Lenders' Commitments hereunder. As of the Closing Date the aggregate of
all of the Lenders' Commitments equals $409,000,000.
"COMMITMENT FEE MARGIN" means a per annum rate equal to the
sum of the Adjusted LIBO Rate for such Interest Period plus 5.50%.
"COMMITMENT SCHEDULE" means the Schedule identifying each
Lender's Commitment as of the Closing Date attached hereto and
identified as such.
"COMMITMENT TERMINATION DATE" means the earlier of (i) the
Conversion Date, (ii) the date of delivery of any Notice to Convert,
and (iii) the date of termination or reduction in whole of the Facility
A Revolving Commitments pursuant to Section 2.03 or 8.02.
"COMMUNICATIONS" is defined in Section 10.15.
"CONFIDENTIAL INFORMATION" has the meaning assigned to that
term in Section 10.08.
"CONSOLIDATED DEBT" means, without duplication, as determined
on a consolidated basis in accordance with GAAP, at any date of
determination, the sum of the aggregate Debt of the Borrower plus the
aggregate debt (as such term is construed in accordance with GAAP) of
the Consolidated Subsidiaries; provided, however, that:
(a) Consolidated Debt shall not include any
Support Obligation described in clause (iv) or (v) of the
definition thereof if such Support Obligation or the primary
obligation so supported is not fixed or conclusively
determined or is not otherwise reasonably quantifiable as of
the date of determination;
(b) Consolidated Debt shall not include (i) any
Junior Subordinated Debt owned by any Hybrid Preferred
Securities Subsidiary or (ii) any guaranty by the Borrower of
payments with respect to any Hybrid Preferred Securities,
provided that such guaranty is subordinated to the rights of
the Lenders hereunder and under the other Loan Documents
pursuant to terms of subordination
5
substantially similar to those set forth in Exhibit H, or
pursuant to other terms and conditions satisfactory to the
Required Lenders;
(c) for purposes of this definition only, the
percentage of the Net Proceeds from any issuance of hybrid
debt/equity securities (other than Junior Subordinated Debt
and Hybrid Preferred Securities) by the Borrower or any
Consolidated Subsidiary that shall be considered Consolidated
Debt shall be agreed by the Arranger and the Borrower (and
consented to by the Required Lenders) and shall be based on,
among other things, the treatment (if any) given to such
hybrid securities by the rating agencies;
(d) with respect to any Support Obligations
provided by the Borrower in connection with a purchase or sale
by MS&T or its Subsidiaries of natural gas, natural gas
liquids, gas condensates, electricity, oil, propane, coal, any
other commodity, weather derivatives or any derivative
instrument with respect to any commodity with any other Person
(a "COUNTERPARTY"), Consolidated Debt shall include only the
excess, if any, of (A) the aggregate amount of any Support
Obligations provided by the Borrower in respect of MS&T's or
any of its Subsidiary's obligations under any such purchase or
sale transaction (a "COVERING TRANSACTION") entered into by
MS&T or any of its Subsidiaries in connection with such
purchase or sale over (B) the aggregate amount of (i) any
Support Obligations provided by the direct or indirect parent
company of such Counterparty (the "COUNTERPARTY GUARANTOR")
and (ii) any irrevocable letter of credit provided by any
financial institution for the account of such Counterparty or
Counterparty Guarantor, in each case for the benefit of MS&T
or any of its Subsidiaries in support of such Counterparty's
payment obligations to MS&T or such Subsidiary arising from
such purchase or sale, provided that (x) the senior,
unsecured, non-credit enhanced indebtedness of such
Counterparty Guarantor or such financial institution (as the
case may be) is rated BBB- (or its equivalent) or higher by
any two of S&P, Fitch and Moody's, provided that in the event
that such Counterparty Guarantor has no such rated
indebtedness, Dun & Bradstreet Inc. has rated such
Counterparty Guarantor at least investment grade, (y) no
default by such Counterparty Guarantor in respect of any such
Support Obligations provided by such Counterparty Guarantor
has occurred and is continuing and (z) such Counterparty
Guarantor is not the Borrower or any Affiliate of the Borrower
or any of its Subsidiaries;
(e) Consolidated Debt shall not include any
Project Finance Debt of the Borrower or any Consolidated
Subsidiary; and
(f) Consolidated Debt shall not include the
principal amount of any Securitized Bonds.
"CONSOLIDATED EBITDA" means, with reference to any period, the
pretax operating income of the Borrower and its Subsidiaries ("PRETAX
OPERATING INCOME") for such period plus, to the extent deducted in
determining Pretax Operating Income (without duplication), (i)
depreciation, depletion and amortization, and (ii) any non-cash
6
write-offs and write-downs contained in the Borrower's Pretax Operating
Income, including, without limitation, write-offs or write-downs
related to the sale of assets, impairment of assets and loss on
contracts, in each case in accordance with GAAP consistently applied,
all calculated for the Borrower and its Subsidiaries on a consolidated
basis for such period; provided, however that Consolidated EBITDA shall
not include any operating income attributable to that portion of the
revenues of Consumers dedicated to the repayment of the Securitized
Bonds.
"CONSOLIDATED SUBSIDIARY" means any Subsidiary whose accounts
are or are required to be consolidated with the accounts of the
Borrower in accordance with GAAP.
"CONSUMERS" means Consumers Energy Company, a Michigan
corporation, all of whose common stock is on the Closing Date owned by
the Borrower.
"CONSUMERS CREDIT FACILITY" means, collectively, Consumer's
existing (i) $300,000,000 term loan facility, (ii) $150,000,000 term
loan B facility, (iii) $140,000,000 term loan facility and (iv)
$250,000,000 revolving loan facility, as in effect on the date hereof.
"CONSUMERS DIVIDEND RESTRICTION" means any restriction enacted
or imposed after October 1, 1992 upon the ability of Consumers to pay
cash dividends to the Borrower in respect of Consumers' capital stock,
whether such restriction is imposed by statute, regulation, decisions
or rulings by the Michigan Public Service Commission or the Federal
Energy Regulatory Commission (or any successor agency or agencies),
final judgments of any court of competent jurisdiction, indentures,
agreements, contracts or restrictions to which Consumers is a party or
by which it is bound or otherwise; provided, that no restriction on
such dividends existing on October 1, 1992 shall be a Consumers
Dividend Restriction at any time.
"CONTINUING DIRECTOR" means, as of any date of determination,
any member of the board of directors of the Borrower who (a) was a
member of such board of directors on the Closing Date, or (b) was
nominated for election or elected to such board of directors with the
approval of the Continuing Directors who were members of such board of
directors at the time of such nomination or election; provided that an
individual who is so elected or nominated in connection with a merger,
consolidation, acquisition or similar transaction shall not be a
Continuing Director unless such individual was a Continuing Director
prior thereto.
"CONVERSION", "CONVERT" or "CONVERTED" refers to a conversion
of Loans of one Type into Loans of another Type, or to the selection of
a new, or the renewal of the same, Interest Period for Loans, as the
case may be, pursuant to Section 3.02 or 3.03.
"CONVERSION DATE" is defined in Section 2.01(d).
"DEBT" means, for any Person, without duplication, any and all
indebtedness, liabilities and other monetary obligations of such Person
(whether for principal, interest, fees, costs, expenses or otherwise,
and whether contingent or otherwise) (i) for borrowed money or
evidenced by bonds, debentures, notes or other similar instruments,
(ii) to pay
7
the deferred purchase price of property or services (except trade
accounts payable arising in the ordinary course of business which are
not overdue), (iii) as lessee under leases which shall have been or
should be, in accordance with GAAP, recorded as capital leases, (iv)
under reimbursement or similar agreements with respect to letters of
credit issued thereunder (except reimbursement obligations and letters
of credit that are cash collateralized), (v) under any interest rate
swap, "cap", "collar" or other hedging agreements; provided, however,
for purposes of the calculation of Debt for this clause (v) only, the
actual amount of Debt of such Person shall be determined on a net basis
to the extent such agreements permit such amounts to be calculated on a
net basis, (vi) to pay rent or other amounts under leases entered into
in connection with sale and leaseback transactions involving assets of
such Person being sold in connection therewith, (vii) arising from any
accumulated funding deficiency (as defined in Section 412(a) of the
Internal Revenue Code of 1986, as amended) for a Plan, (viii) arising
in connection with any withdrawal liability under ERISA to any
Multiemployer Plan and (ix) arising from (A) direct or indirect
guaranties in respect of, and obligations to purchase or otherwise
acquire, or otherwise to warrant or hold harmless, pursuant to a
legally binding agreement, a creditor against loss in respect of, Debt
of others referred to in clauses (i) through (viii) above and (B) other
guaranty or similar financial obligations in respect of the performance
of others, including Support Obligations. Notwithstanding the
foregoing, solely for purposes of the calculation required under
Section 7.01(j)(ii), Debt shall not include any Junior Subordinated
Debt issued by the Borrower and owned by any Hybrid Preferred
Securities Subsidiary.
"DEBT FOR BORROWED MONEY" means, for any Person, without
duplication, the sum of (i) Debt of such Person described in clause (i)
of the definition of "Debt", plus (ii) all obligations of such Person
with respect to receivables sold or otherwise discounted with recourse,
plus (iii) all Project Finance Debt entered into by such Person on or
after the Closing Date (other than Project Finance Debt incurred
substantially contemporaneously with the acquisition or construction of
the assets securing such Project Finance Debt), but shall exclude (a)
notes, bills and checks presented in the ordinary course of business by
such Person to banks for collection or deposit, (b) with respect to the
Borrower and its Subsidiaries, all obligations of the Borrower and its
Subsidiaries of the character referred to in this definition to the
extent owing to the Borrower or any of its Subsidiaries, (c) with
respect to Panhandle and its Subsidiaries, refinancings of Debt of
Panhandle and its Subsidiaries existing as of the Closing Date, and
Debt incurred or collateral delivered on or after the Closing Date with
respect to any Support Obligations of Panhandle or its Subsidiaries
existing as of the Closing Date, and (d) refinancings of Debt existing
as of the Closing Date or incurred after the Closing Date in accordance
with this Agreement, as applicable, to the extent such refinancing Debt
is otherwise permitted under this Agreement.
"DEFAULT" means an event that, with the giving of notice or
lapse of time or both, would constitute an Event of Default.
"DEFAULT RATE" means a rate per annum equal at all times to
(i) in the case of any amount of principal of any Loan that is not paid
when due, 2% per annum above the Applicable Rate required to be paid on
such Loan immediately prior to the date on which
8
such amount became due, and (ii) in the case of any amount of interest,
fees or other amounts payable hereunder that is not paid when due, 2%
per annum above the Applicable Rate for an ABR Loan in effect from time
to time.
"DESIGNATED PREPAYMENT" means each mandatory prepayment
required by clauses (i), (ii) and (iii) of Section 2.03(b).
"DIVIDEND COVERAGE RATIO" means, at any date, the ratio of (i)
Pro Forma Dividend Amounts to (ii) Borrower Interest Expense.
"DOLLARS" and the sign "$" each means lawful money of the
United States.
"ENTERPRISES" means CMS Enterprises Company, a Michigan
corporation, all of whose common stock is on the Closing Date owned by
the Borrower.
"ENTERPRISES CREDIT AGREEMENT" means that certain $150,000,000
Credit Agreement, dated as of July 12, 2002, by and among Enterprises,
as borrower, the Borrower, the lenders from time to time parties
thereto, and Citicorp USA, Inc., as administrative agent and as
collateral agent, which agreement has been paid in full and terminated.
"ENTERPRISES 2003 CREDIT AGREEMENT" means that certain
revolving Credit Agreement, dated as of March 30, 2003, by and among
Enterprises, as borrower, the Borrower, the lenders from time to time
parties thereto, and CUSA, as administrative agent, as the same may be
amended, restated, supplemented or otherwise modified from time to
time.
"ENTERPRISES SIGNIFICANT SUBSIDIARY" means CMS Generation Co.,
CMS Gas Transmission Company, Panhandle, any direct or indirect
subsidiary of Panhandle and any other direct subsidiary of Enterprises
having a net worth in excess of $50,000,000.
"ENVIRONMENTAL LAWS" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or
binding agreements issued, promulgated or entered into by any
governmental agency or authority, relating in any way to the
environment, preservation or reclamation of natural resources, the
management, release or threatened release of any Hazardous Substance or
to health and safety matters.
"ENVIRONMENTAL LIABILITY" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of the Borrower or any
of its Subsidiaries directly or indirectly resulting from or based upon
(a) violation of any Environmental Law, (b) the generation, use,
handling, transportation, storage, treatment or disposal of any
Hazardous Substances, (c) exposure to any Hazardous Substances, (d) the
release or threatened release of any Hazardous Substances into the
environment or (e) any contract, agreement or other consensual
arrangement pursuant to which liability is assumed or imposed with
respect to any of the foregoing.
9
"EQUITY DISTRIBUTIONS" means, for any period, the aggregate
amount of cash received by the Borrower from its Subsidiaries during
such period that are paid out of proceeds from the sale of common
equity of Subsidiaries of the Borrower.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" means, with respect to any Person, any trade
or business (whether or not incorporated) that is a member of a
commonly controlled trade or business under Sections 414(b), (c), (m)
and (o) of the Internal Revenue Code of 1986, as amended.
"EURODOLLAR", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing,
are bearing interest at a rate determined by reference to the Adjusted
LIBO Rate.
"EURODOLLAR RATE LOAN" means a Loan that bears interest as
provided in Section 3.05(b)(ii).
"EVENT OF DEFAULT" is defined in Section 8.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXISTING CREDIT AGREEMENTS" means, collectively, (i) that
certain $300,000,000 Amended and Restated Credit Agreement (the
"EXISTING 3-YEAR CREDIT AGREEMENT"), and (ii) that certain $295,800,000
Amended and Restated Credit Agreement (the "EXISTING 364-DAY CREDIT
AGREEMENT"), each dated as of July 12, 2002, among the Borrower, the
lenders party thereto, Barclays Bank PLC, as administrative agent,
Citicorp USA, Inc, as collateral agent, Bank of America, N.A. and
JPMorgan Chase Bank, as co-syndication agents, and Citicorp USA, Inc.
and Union Bank of California, N.A., as documentation agents, as the
same may have been amended, restated, supplemented or otherwise
modified from time to time.
"EXTENSION OF CREDIT" means the making of a Borrowing
(including any Conversion).
"FACILITY A COMMITMENT" means, for each Lender, the obligation
of such Lender to make Facility A Loans (including Facility A Revolving
Loans pursuant to such Lender's Facility A Revolving Commitment) to the
Borrower in an aggregate amount no greater than the amount set forth
opposite such Lender's name on the Commitment Schedule under the
heading "Facility A Commitment".
"FACILITY A LOAN" means, for any Lender, term loans made by
such Lender as set forth in Section 2.01 and such Lender's Facility A
Revolving Loans.
"FACILITY A MATURITY DATE" means April 30, 2004.
10
"FACILITY A REVOLVING COMMITMENT" means, for each Lender, the
obligation of such Lender to make Facility A Revolving Loans to the
Borrower prior to the Commitment Termination Date in an aggregate
amount no greater than aggregate outstanding principal amount of the
Initial Amendment and Restatement Revolving Loans as of the Closing
Date, or, if such Lender has entered into one or more Lender
Assignments, set forth for such Lender in the Register maintained by
the Administrative Agent pursuant to Section 10.07(c), in each such
case as such amount may be reduced from time to time pursuant to
Section 2.03.
"FACILITY A REVOLVING LOANS" means, for each Lender, Loans
made pursuant to such Lender's Facility A Revolving Commitment
hereunder.
"FACILITY B COMMITMENT" means, for each Lender, the obligation
of such Lender to make Facility B Loans to the Borrower in an aggregate
amount no greater than the amount set forth opposite such Lender's name
on the Commitment Schedule under the heading "Facility B Commitment".
"FACILITY B LOAN" is defined in Section 2.01.
"FACILITY B MATURITY DATE" means September 30, 2004.
"FAIR MARKET VALUE" means, with respect to any asset, the
value of the consideration obtainable in a sale of such asset in the
open market, assuming a sale by a willing seller to a willing purchaser
dealing at arm's length and arranged in an orderly manner over a
reasonable period of time, each having reasonable knowledge of the
nature and characteristics of such asset, neither being under any
compulsion to act, and, if in excess of $50,000,000, as determined in
good faith by the Board of Directors of the Borrower.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of
1%) of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day that
is a Business Day, the average (rounded upwards, if necessary, to the
next 1/100 of 1%) of the quotations for such day for such transactions
received by the Administrative Agent from three Federal funds brokers
of recognized standing selected by it.
"FEE LETTER" is defined in Section 2.02(b).
"FITCH" means Fitch, Inc. or any successor thereto.
"FOREIGN LENDER" means any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is
located. For purposes of this definition, the United States of America,
each State thereof and the District of Columbia shall be deemed to
constitute a single jurisdiction.
"FOREIGN SUBSIDIARY" is defined in Section 7.01(l).
11
"GAAP" is defined in Section 1.03.
"GOVERNMENTAL APPROVAL" means any authorization, consent,
approval, license, permit, certificate, exemption of, or filing or
registration with, any governmental authority or other legal or
regulatory body, required in connection with (i) the execution,
delivery, or performance of any Loan Document by any Loan Party, (ii)
the grant and perfection of any Lien in favor of the Collateral Agent
contemplated by the Loan Documents, or (iii) the exercise by any Agent
(on behalf of the Lenders) of any right or remedy provided for under
the Loan Documents.
"GRANTOR(S)" means each Guarantor and each of the following
Subsidiaries of the Borrower: CMS Capital, L.L.C., a Michigan limited
liability company, CMS Electric & Gas, L.L.C. (formerly known as CMS
Electric and Gas Company), a Michigan limited liability company, MS&T,
CMS International Ventures, L.L.C., a Michigan limited liability
company, CMS Field Services, Inc., a Michigan corporation, Dearborn
Industrial Energy, L.L.C., a Michigan limited liability company,
Dearborn Industrial Generation, L.L.C., a Michigan limited liability
company, CMS Generation Michigan Power L.L.C., a Michigan limited
liability company, CMS Gas Processing, L.L.C., an Oklahoma limited
liability company, CMS Natural Gas Gathering, L.L.C., an Oklahoma
limited liability company and CMS Field Services Holdings Company, an
Oklahoma corporation.
"GUARANTOR" means Enterprises, CMS Generation Co., a Michigan
corporation, CMS Gas Transmission Company, a Michigan corporation, and
each other Restricted Subsidiary (excluding Panhandle and its
Subsidiaries) that has delivered, or shall be obligated to deliver, a
guaranty under and pursuant to the terms of Section 7.01(l).
"GUARANTY" means that certain Guaranty (and any and all
supplements thereto) executed from time to time by each Guarantor in
favor of the Collateral Agent for the benefit of itself and the
Lenders, in substantially the form of Exhibit I attached hereto, as
amended, restated, supplemented or otherwise modified from time to
time.
"HAZARDOUS SUBSTANCE" means any waste, substance, or material
identified as hazardous, dangerous or toxic by any office, agency,
department, commission, board, bureau, or instrumentality of the United
States or of the State or locality in which the same is located having
or exercising jurisdiction over such waste, substance or material.
"HYBRID PREFERRED SECURITIES" means any preferred securities
issued by a Hybrid Preferred Securities Subsidiary, where such
preferred securities have the following characteristics:
(i) such Hybrid Preferred Securities Subsidiary
lends substantially all of the proceeds from the issuance of
such preferred securities to the Borrower or a wholly-owned
direct or indirect Subsidiary of the Borrower in exchange for
Junior Subordinated Debt issued by the Borrower or such
wholly-owned direct or indirect Subsidiary, respectively;
12
(ii) such preferred securities contain terms
providing for the deferral of interest payments corresponding
to provisions providing for the deferral of interest payments
on the Junior Subordinated Debt; and
(iii) the Borrower or a wholly-owned direct or
indirect Subsidiary of the Borrower (as the case may be) makes
periodic interest payments on the Junior Subordinated Debt,
which interest payments are in turn used by the Hybrid
Preferred Securities Subsidiary to make corresponding payments
to the holders of the preferred securities.
"HYBRID PREFERRED SECURITIES SUBSIDIARY" means any Delaware
business trust (or similar entity) (i) all of the common equity
interest of which is owned (either directly or indirectly through one
or more wholly-owned Subsidiaries of the Borrower or Consumers) at all
times by the Borrower or a wholly-owned direct or indirect Subsidiary
of the Borrower, (ii) that has been formed for the purpose of issuing
Hybrid Preferred Securities and (iii) substantially all of the assets
of which consist at all times solely of Junior Subordinated Debt issued
by the Borrower or a wholly-owned direct or indirect Subsidiary of the
Borrower (as the case may be) and payments made from time to time on
such Junior Subordinated Debt.
"INDEMNIFIED PERSON" is defined in Section 10.04(b).
"INDENTURE" means that certain Indenture, dated as of
September 15, 1992, between the Borrower and the Trustee, as
supplemented by the First Supplemental Indenture, dated as of October
1, 1992, the Second Supplemental Indenture, dated as of October 1,
1992, the Third Supplemental Indenture, dated as of May 6, 1997, the
Fourth Supplemental Indenture, dated as of September 26, 1997, the
Fifth Supplemental Indenture, dated as of November 4, 1997, the Sixth
Supplemental Indenture, dated as of January 13, 1998, the Seventh
Supplemental Indenture, dated as of January 25, 1999, the Eighth
Supplemental Indenture, dated as of February 3, 1999, the Ninth
Supplemental Indenture, dated as of June 22, 1999, the Tenth
Supplemental Indenture, dated as of October 12, 2000, the Eleventh
Supplemental Indenture, dated as of March 29, 2001, and the Twelfth
Supplemental Indenture, dated as of July 2, 2001, as said Indenture may
be further amended or otherwise modified from time to time in
accordance with its terms.
"INITIAL AMENDMENT AND RESTATEMENT" is defined in the first
recital hereto.
"INITIAL AMENDMENT AND RESTATEMENT REVOLVING LOANS" is defined
in the first recital hereto.
"INITIAL FUNDING DATE" mean the initial date the Loans are
made hereunder.
"INTERCREDITOR AGREEMENT" means that certain Intercreditor and
Lien Subordination Agreement, dated as of January 8, 2003, by and among
Citicorp USA, Inc., as senior collateral agent, American Home Assurance
Company, individually and as junior collateral agent, and St. Paul Fire
and Marine Insurance Company, individually, a copy of which is attached
hereto as Exhibit M, as amended, restated, supplemented or otherwise
modified from time to time.
13
"INTEREST PERIOD" is defined in Section 3.03.
"JUNIOR SUBORDINATED DEBT" means any unsecured Debt of the
Borrower or a Subsidiary of the Borrower (i) issued in exchange for the
proceeds of Hybrid Preferred Securities and (ii) subordinated to the
rights of the Lenders hereunder and under the other Loan Documents
pursuant to terms of subordination substantially similar to those set
forth in Exhibit G, or pursuant to other terms and conditions
satisfactory to the Required Lenders.
"LENDER ASSIGNMENT" is defined in Section 10.07(e).
"LENDERS" means the Banks listed on the signature pages
hereof, together with their successors and assigns.
"LIBO RATE" means, with respect to any Eurodollar Borrowing
for any Interest Period, the greater of (i) 2.00% per annum and (ii)
the rate appearing on Page 3750 of the Telerate Service (or on any
successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to
those currently provided on such page of such Service, as determined by
the Administrative Agent from time to time for purposes of providing
quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period, as the
rate for dollar deposits with a maturity comparable to such Interest
Period. In the event that such rate is not available at such time for
any reason, then the "LIBO RATE" with respect to such Eurodollar
Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest
Period are offered by the principal London office of the Administrative
Agent in immediately available funds in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"LIEN" is defined in Section 7.02(a).
"LOAN" means a loan by a Lender to the Borrower, and refers to
an ABR Loan or a Eurodollar Rate Loan (each of which shall be a "TYPE"
of Loan). All Loans by a Lender of the same Type having the same
Interest Period and made or Converted on the same day shall be deemed
to be a single Loan by such Lender until repaid or next Converted.
"LOAN DOCUMENTS" means this Agreement, any Promissory Notes,
the Fee Letter, the Guaranty, the Pledge Agreements, and all other
agreements, instruments and documents now or hereafter executed and/or
delivered pursuant hereto or thereto.
"LOAN PARTY" is defined in Section 5.01(a)(i).
"MATERIAL ADVERSE CHANGE" means any event, development or
circumstance that has had or could reasonably be expected to have a
material adverse effect on (a) the business, assets, property,
financial condition, results of operations or prospects of the Borrower
and its Subsidiaries, considered as a whole, (b) the Borrower's and the
14
Guarantors' ability, taken as a whole, to perform their obligations
under this Agreement or any other Loan Document to which it is or will
be a party or (c) the validity or enforceability of any Loan Document
or the rights or remedies of any Agent or the Lenders thereunder;
provided that the occurrence of any Restatement Event shall not
constitute a Material Adverse Change.
"MEASUREMENT QUARTER" is defined in Section 7.01(i).
"MOODY'S" means Moody's Investors Service, Inc. or any
successor thereto.
"MS&T" means CMS Marketing, Services and Trading Company, a
Michigan corporation, all of whose capital stock is on the Closing Date
owned by Enterprises.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NET PROCEEDS" means, with respect to any sale, assignment or
other disposition of (but not the lease or license of) any property, or
with respect to any sale or issuance of securities or incurrence of
Debt, by any Person, gross cash proceeds received by such Person or any
Subsidiary of such Person from such sale, assignment, disposition,
issuance or incurrence (including cash received as consideration for
the assumption or incurrence of liabilities incurred in connection with
or in anticipation of such transaction) after (i) provision for all
income or other taxes measured by or resulting from such transaction,
(ii) payment of all customary underwriting commissions, auditing and
legal fees, printing costs, rating agency fees and other customary and
reasonable fees and expenses incurred by such Person in connection with
such transaction, (iii) all amounts used to repay Debt (and any premium
or penalty thereon) secured by a Lien on any asset disposed of in such
sale, assignment or other disposition or which is or may be required
(by the express terms of the instrument governing such Debt or by
applicable law) to be repaid in connection with such sale, assignment,
or other disposition, and (iv) deduction of appropriate amounts to be
provided by such Person or a Subsidiary of such Person as a reserve, in
accordance with GAAP consistently applied, against any liabilities
associated with the assets sold, transferred or disposed of in such
transaction and retained by such Person or a Subsidiary of such Person
after such transaction, provided that "Net Proceeds" shall include on a
dollar-for-dollar basis all amounts remaining in such reserve after
such liability shall have been satisfied in full or terminated;
provided, however, that notwithstanding the foregoing, "Net Proceeds"
shall exclude (a) any amounts received or deemed to be received by the
Borrower for the purchase of the Borrower's capital stock in connection
with the Borrower's dividend reinvestment program and (b) amounts
received by the Borrower or any Subsidiary of the Borrower pursuant to
any transaction with the Borrower or any Subsidiary of the Borrower
otherwise permitted hereunder.
"NET WORTH" means, with respect to any Person, the excess of
such Person's total assets over its total liabilities, total assets and
total liabilities each to be determined in accordance with GAAP
consistently applied, excluding, however, from the determination of
total assets (i) goodwill, organizational expenses, research and
development expenses, trademarks, trade names, copyrights, patents,
patent applications, licenses and rights in
15
any thereof, and other similar intangibles, (ii) cash held in a
sinking, escrow or other analogous fund established for the purpose of
redemption, retirement or prepayment of capital stock or Debt, and
(iii) any items not included in clauses (i) or (ii) above, that are
treated as intangibles in conformity with GAAP.
"NOTICE OF BORROWING" is defined in Section 3.01(a).
"NOTICE OF CONVERSION" is defined in Section 3.02.
"NOTICE TO CONVERT" is defined in Section 2.01(d).
"OBLIGATIONS" means all unpaid principal of and accrued and
unpaid interest on the Loans, all accrued and unpaid fees and all
expenses, reimbursements, indemnities and other obligations of the
Borrower and other Loan Parties to any of the Agents, the Arranger, the
Lenders or any other indemnified party arising under the Loan
Documents.
"OECD" means the Organization for Economic Cooperation and
Development.
"OFF-BALANCE SHEET LIABILITY" of a Person shall mean any of
the following obligations not appearing on such Person's consolidated
balance sheet: (i) all lease obligations, leveraged leases, sale and
leasebacks and other similar lease arrangements of such Person, (ii)
any liability under any so called "synthetic lease" or "tax ownership
operating lease" transaction entered into by such Person, and (iii) any
obligation arising with respect to any other transaction if and to the
extent that such obligation is the functional equivalent of borrowing
but that does not constitute a liability on the consolidated balance
sheet of such Person.
"OWNERSHIP INTEREST" of the Borrower in any Consolidated
Subsidiary means, at any date of determination, the percentage
determined by dividing (i) the aggregate amount of Project Finance
Equity in such Consolidated Subsidiary owned or controlled, directly or
indirectly, by the Borrower and any other Consolidated Subsidiary on
such date, by (ii) the aggregate amount of Project Finance Equity in
such Consolidated Subsidiary owned or controlled, directly or
indirectly, by all Persons (including the Borrower and the Consolidated
Subsidiaries) on such date. Notwithstanding anything to the contrary
set forth above, if the "Ownership Interest," calculated as set forth
above, is 50% or less, such percentage shall be deemed to equal 0%.
"PANHANDLE" means Panhandle Eastern Pipe Line Company, a
Delaware corporation, all of whose capital stock is on the Closing Date
owned indirectly by Enterprises.
"PARTICIPANT" is defined in Section 10.07(b).
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor entity) established under ERISA.
"PERCENTAGE" means, for any Lender on any date of
determination (a) prior to the Commitment Termination Date, the
percentage obtained by dividing the aggregate
16
outstanding principal amount of such Lender's Loans (other than
Facility A Revolving Loans) on such day plus such Lender's Facility A
Revolving Commitment on such day by the total of the Lenders' Loans
(other than Facility A Revolving Loans) plus Facility A Revolving
Commitments on such date, and multiplying the quotient so obtained by
100%, and (b) from and after the Commitment Termination Date, the
percentage obtained by dividing the aggregate outstanding principal
amount of such Lender's Loans on such day by the total of the Lenders'
Loans on such date, and multiplying the quotient so obtained by 100%.
"PERMITTED INVESTMENTS" means each of the following so long as
no such Permitted Investment shall have a final maturity later than six
months from the date of investment therein:
(i) direct obligations of the United States, or
of any agency thereof, or obligations guaranteed as to
principal and interest by the United States or any agency
thereof;
(ii) certificates of deposit or bankers'
acceptances issued, or time deposits held, or investment
contracts guaranteed, by any Lender, any nationally-recognized
securities dealer or any other commercial bank, trust company,
savings and loan association or savings bank organized under
the laws of the United States, or any State thereof, or of any
other country which is a member of the OECD, or a political
subdivision of any such country, and in each case having
outstanding unsecured indebtedness that (on the date of
acquisition thereof) is rated AA- or better by S&P or Aa3 or
better by Moody's (or an equivalent rating by another
nationally-recognized credit rating agency of similar standing
if neither of such corporations is then in the business of
rating unsecured bank indebtedness);
(iii) obligations with any Lender, any other bank
or trust company described in clause (ii), above, or any
nationally-recognized securities dealer, in respect of the
repurchase of obligations of the type described in clause (i),
above, provided that such repurchase obligations shall be
fully secured by obligations of the type described in said
clause (i) and the possession of such obligations shall be
transferred to, and segregated from other obligations owned
by, such Lender, such other bank or trust company or such
securities dealer;
(iv) commercial paper rated (on the date of
acquisition thereof) A-1 or P-1 or better by S&P or Moody's,
respectively (or an equivalent rating by another
nationally-recognized credit rating agency of similar standing
if neither of such corporations is then in the business of
rating commercial paper);
(v) any eurodollar certificate of deposit issued
by any Lender or any other commercial bank, trust company,
savings and loan association or savings bank organized under
the laws of the United States, or any State thereof, or of any
country which is a member of the OECD, or a political
subdivision of any such country, and in each case having
outstanding unsecured indebtedness that (on the
17
date of acquisition thereof) is rated AA- or better by S&P or
Aa3 or better by Moody's (or an equivalent rating by another
nationally-recognized credit rating agency of similar standing
if neither of such corporations is then in the business of
rating unsecured bank indebtedness); and
(vi) interests in any money market mutual fund
which at the date of investment in such fund has the highest
fund rating by each of Moody's and S&P which has issued a
rating for such fund (which, for S&P, shall mean a rating of
AAAm or AAAmg).
"PERSON" means an individual, partnership, corporation
(including a business trust), joint stock company, limited liability
company, trust, unincorporated association, joint venture or other
entity, or a government or any political subdivision or agency thereof.
"PLAN" means, with respect to any Person, an "employee benefit
plan" as defined in Section 3(3) of ERISA (other than a Multiemployer
Plan) maintained for employees of such Person or any ERISA Affiliate of
such Person that is subject to Title IV of ERISA and has "unfunded
benefit liabilities" as determined under Section 4001(a)(18) of ERISA.
"PLAN TERMINATION EVENT" means, (i) with respect to any Plan,
a "reportable event" within the meaning of Section 4043 of ERISA and
the regulations issued thereunder (other than a "reportable event" not
subject to the provision for 30-day notice to the PBGC under such
regulations or a "reportable event" for which the provision for the
30-day notice to the PBGC under such regulations has been waived), or
(ii) the withdrawal by the Borrower or any of its ERISA Affiliates from
a Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA resulting in liability to the
Borrower or any of its ERISA Affiliates under Section 4063 or 4064 of
ERISA, or (iii) the filing of a notice of intent to terminate a Plan or
the termination of a Plan under Section 4041 of ERISA, or (iv) the
institution of proceedings to terminate a Plan by the PBGC, or (v) any
other event or condition which is reasonably likely to constitute
grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan.
"PLATFORM" is defined in Section 10.15
"PLEDGE AGREEMENTS" means each of (i) that certain Amended and
Restated Pledge and Security Agreement, dated as of March 30, 2003, by
and between the Borrower and the Collateral Agent, in substantially the
form of Exhibit J attached hereto, pursuant to which the Borrower shall
grant a security interest in the capital stock of Consumers and
Enterprises and a security interest in accounts receivable and notes
owed by Enterprises or any Subsidiary of Enterprises to the Borrower,
and (ii) that certain Pledge and Security Agreement, dated as of July
12, 2002, by and among the Grantors and the Collateral Agent in
substantially the form of Exhibit K hereto, pursuant to which such
Grantors shall grant a security interest in the capital stock (or
comparable interest) of each of the Subsidiaries of the Borrower
identified as owned by it on Schedule II
18
hereto and a security interest in accounts receivable and notes owed by
the Borrower or Enterprises or any Subsidiary of Enterprises to such
Grantor, in each case as the same may be amended, restated,
supplemented or otherwise modified from time to time.
"PRIMARY WEB PORTAL" is defined in Section 10.15.
"PRIME RATE" means the rate of interest per annum publicly
announced from time to time by Citibank as its base rate in effect at
its principal office in New York City; each change in the Prime Rate
shall be effective from and including the date such change is publicly
announced as being effective.
"PRO FORMA DIVIDEND AMOUNT" means, from and after any date of
any Consumers Dividend Restriction, the sum of (a) the aggregate amount
which Consumers could have paid to the Borrower during the four
calendar quarters immediately preceding such date had such Consumers
Dividend Restriction been in effect during such quarters plus (b) cash
dividends received by the Borrower from any other Subsidiary during
such quarters.
"PROJECT FINANCE DEBT" means Debt of any Person that is
non-recourse to such Person (unless such Person is a special-purpose
entity) and any Affiliate of such Person, other than with respect to
the interest of the holder of such Debt in the collateral, if any,
securing such Debt.
"PROJECT FINANCE EQUITY" means, at any date of determination,
consolidated equity of the common, preference and preferred
stockholders of the Borrower and the Consolidated Subsidiaries relating
to any obligor with respect to Project Finance Debt.
"PROMISSORY NOTE" means any promissory note of the Borrower
payable to the order of a Lender (and, if requested, its registered
assigns) issued pursuant to Section 3.01(c); and "PROMISSORY NOTES"
means any or all of the foregoing.
"RECIPIENT" is defined in Section 10.08.
"REGISTER" is defined in Section 10.07(h).
"RELATED PARTIES" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers,
employees, agents and advisors of such Person and such Person's
Affiliates.
"REQUIRED LENDERS" means, on any date of determination,
Lenders that, collectively, on such date hold more than 50% of the then
aggregate unpaid principal amount of the Loans owing to Lenders. Any
determination of those Lenders constituting the Required Lenders shall
be made by the Administrative Agent and shall be conclusive and binding
on all parties absent manifest error.
"RESTATEMENT" means the restatement of the financial
statements of the Borrower or its Subsidiaries for any fiscal quarter
of 2001, as well as any adjustment of previously announced quarterly
results, but only if made to reflect the restatement of such quarters.
19
"RESTATEMENT EVENT" means (i) the Restatement, (ii) any
lawsuit or other action previously or hereafter brought against the
Borrower, any of its Subsidiaries or any of their Affiliates or any
present or former officer or director of the Borrower, any of its
Subsidiaries or any of their Affiliates involving or arising out of the
Restatement, and any settlement thereof, or other development with
respect thereto, or (iii) the occurrence of any default or event of
default under any indenture, instrument or other agreement or contract,
or the exercise of any remedy in respect thereof, that arises directly
or indirectly as a result of any of the matters described in any of the
foregoing clauses (i) or (ii) or this clause (iii); provided, however,
that, for purposes of the definition of "MATERIAL ADVERSE CHANGE", (a)
the foregoing clause (ii) shall be inapplicable if such lawsuit or
other action, settlement (in an amount in the aggregate together with
all other settlements of such lawsuits or actions) or other development
described in such clause (ii) could reasonably be expected, in each
case, to result in liability to such Person in excess of $6,000,000 and
(b) the foregoing clause (iii) shall be inapplicable if any such event
described in such clause (iii) would constitute an Event of Default
under Section 8.01(e).
"RESTRICTED SUBSIDIARY" means (i) Enterprises and (ii) any
other Subsidiary of the Borrower (other than Consumers and its
Subsidiaries) that, on a consolidated basis with any of its
Subsidiaries as of any date of determination, accounts for more than
10% of the consolidated assets of the Borrower and its Consolidated
Subsidiaries.
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw Hill Companies, Inc., or any successor thereto.
"SECURITIZED BONDS" means any nonrecourse bonds or similar
asset-backed securities issued by a special-purpose subsidiary of
Consumers which are payable solely from specialized charges authorized
by the utility commission of the relevant state in connection with the
recovery of regulatory assets or other qualified costs.
"6.75% SENIOR NOTES" means the Borrower's 6.75% Senior Notes
due January 2004, the aggregate outstanding principal amount of which
was equal to $287,025,000 as of February 28, 2003.
"SOLVENT", when used with respect to any Person, means that at
the time of determination:
(i) the fair market value of its assets is in excess
of the total amount of its liabilities (including, without
limitation, net contingent liabilities); and
(ii) it is then able and expects to be able to pay
its debts (including, without limitation, contingent debts and
other commitments) as they mature; and
(iii) it has capital sufficient to carry on its
business as conducted and as proposed to be conducted.
For purposes of this definition, the amount of contingent liabilities at any
time shall be computed as the amount that, in light of all the facts and
circumstances known to such Person at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
20
"STATUTORY RESERVE RATE" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator
of which is the number one minus the aggregate of the maximum reserve
percentages (including any marginal, special, emergency or supplemental
reserves) expressed as a decimal established by the Board to which the
Administrative Agent is subject for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of the
Board). Such reserve percentages shall include those imposed pursuant
to such Regulation D. Eurodollar Rate Loans shall be deemed to
constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or
offsets that may be available from time to time to any Lender under
such Regulation D or any comparable regulation. The Statutory Reserve
Rate shall be adjusted automatically on and as of the effective date of
any change in any reserve percentage.
"SUBSIDIARY" means, with respect to any Person, any
corporation or unincorporated entity of which more than 50% of the
outstanding capital stock (or comparable interest) having ordinary
voting power (irrespective of whether at the time capital stock (or
comparable interest) of any other class or classes of such corporation
or entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by said Person
(whether directly or through one or more other Subsidiaries). In the
case of an unincorporated entity, a Person shall be deemed to have more
than 50% of interests having ordinary voting power only if such
Person's vote in respect of such interests comprises more than 50% of
the total voting power of all such interests in the unincorporated
entity.
"SUPPORT OBLIGATIONS" means, for any Person, without
duplication, any financial obligation, contingent or otherwise, of such
Person guaranteeing or otherwise supporting any Debt or other
obligation of any other Person in any manner, whether directly or
indirectly, and including any obligation of such Person, direct or
indirect (including, but not limited to, letters of credit and surety
bonds in connection therewith), (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Debt or to purchase
(or to advance or supply funds for the purchase of) any security for
the payment of such Debt, (ii) to purchase property, securities or
services for the purpose of assuring the owner of such Debt of the
payment of such Debt, (iii) to maintain working capital, equity
capital, available cash or other financial statement condition of the
primary obligor so as to enable the primary obligor to pay such Debt,
(iv) to provide equity capital under or in respect of equity
subscription arrangements (to the extent that such obligation to
provide equity capital does not otherwise constitute Debt), or (v) to
perform, or arrange for the performance of, any non-monetary
obligations or non-funded debt payment obligations of the primary
obligor.
"TAX SHARING AGREEMENT" means the Amended and Restated
Agreement for the Allocation of Income Tax Liabilities and Benefits,
dated as of January 1, 1994, by and among the Borrower, each of the
members of the Consolidated Group (as defined therein), and each of the
corporations that become members of the Consolidated Group.
"TRUSTEE" has the meaning assigned to that term in the
Indenture.
21
"TYPE" has the meaning assigned to such term (i) in the
definition of "Loan" when used in such context and (ii) in the
definition of "Borrowing" when used in such context.
SECTION 1.02. COMPUTATION OF TIME PERIODS; CONSTRUCTION.
(a) Unless otherwise indicated, each reference in this
Agreement to a specific time of day is a reference to New York City time. In the
computation of periods of time under this Agreement, any period of a specified
number of days or months shall be computed by including the first day or month
occurring during such period and excluding the last such day or month. In the
case of a period of time "from" a specified date "to" or "until" a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each means "to but excluding".
(b) The definitions of terms herein shall apply equally
to the singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes", and "including" shall be deemed
to be followed by the phrase "without limitation". The word "will" shall be
construed to have the same meaning and effect as the word "shall". Unless the
context requires otherwise (i) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (ii) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (iii) the words "herein", "hereof" and "hereunder", and words of
similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, (iv) all references herein to
Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement and (v)
the words "asset" and "property" shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights.
SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 6.01(e) ("GAAP"), it being
understood that such financial statements do not reflect the Restatement. If any
changes in generally accepted accounting principles are hereafter required or
permitted and are adopted by the Borrower or any of its Subsidiaries, or the
Borrower or any of its Subsidiaries shall change its application of generally
accepted accounting principles with respect to any Off-Balance Sheet
Liabilities, in each case, with the agreement of its independent certified
public accountants, and such changes result in a change in the method of
calculation of any of the financial covenants, tests, restrictions or standards
herein or in the related definitions or terms used therein ("ACCOUNTING
CHANGES"), the parties hereto agree, at the Borrower's request, to enter into
negotiations, in good faith, in order to amend such provisions in a credit
neutral manner so as to reflect equitably such changes with the desired result
that the criteria for evaluating the Borrower's and its Subsidiaries' financial
condition shall be the same after such changes as if such changes had not been
made; provided, however, until such provisions are amended in a manner
reasonably satisfactory to the Agents, the Arranger and the Required
22
Lenders, no Accounting Change shall be given effect in such calculations. In the
event such amendment is entered into, all references in this Agreement to GAAP
shall mean generally accepted accounting principles as of the date of such
amendment. Notwithstanding the foregoing, all financial statements to be
delivered by the Borrower pursuant to Section 7.03 shall be prepared in
accordance with generally accepted accounting principles in effect at such time.
ARTICLE II
COMMITMENTS, LOANS, FEES, PREPAYMENTS AND OUTSTANDINGS
SECTION 2.01. RE-EVIDENCING OF "LOANS" UNDER THE INITIAL AMENDMENT AND
RESTATEMENT.
(a) Subject to the terms and conditions set forth in this
Agreement, on the Initial Funding Date, outstanding loans under the Initial
Amendment and Restatement (other than the Initial Amendment and Restatement
Revolving Loans) in an amount equal to each Lender's Facility A Commitment
(exclusive of each Lender's Facility A Revolving Commitment) shall be
re-evidenced hereunder as term loans, in Dollars, to the Borrower from such
Lender in an amount equal to such Lender's Facility A Commitment (exclusive of
each Lender's Facility A Revolving Commitment) (each individually, a "Facility A
Loan" and, collectively, the "Facility A Loans").
(b) Subject to the terms and conditions set forth in this
Agreement, on the Initial Funding Date, outstanding loans under the Initial
Amendment and Restatement (other than the Initial Amendment and Restatement
Revolving Loans) in an amount equal to each Lender's Facility B Commitment shall
be re-evidenced hereunder as term loans, in Dollars, to the Borrower from such
Lender in an amount equal to such Lender's Facility B Commitment (each
individually, a "Facility B Loan" and, collectively, the "Facility B Loans").
(c) Each Lender severally agrees, on the terms and
conditions hereinafter set forth to make Facility A Revolving Loans to the
Borrower during the period from the Initial Funding Date until the Commitment
Termination Date in an aggregate outstanding amount not to exceed on any day
such Lender's Available Facility A Revolving Commitment (after giving effect to
all Extensions of Credit to be made on such day and the application of the
proceeds thereof). Within the limits hereinafter set forth, the Borrower may
request Extensions of Credit hereunder, prepay Facility A Revolving Loans, and
use the resulting increase in the Available Facility A Revolving Commitments for
further Extensions of Credit in accordance with the terms hereof.
(d) (x) At the Borrower's option prior to the date all or
a portion of the secondary syndication of the Commitments shall be effective,
upon written notice (a "Notice to Convert") to the Administrative Agent (who
shall promptly notify each of the Lenders), or (y) automatically, if not
converted prior to such date, on the later of (A) the 21st day after the Initial
Funding Date and (B) the date all or a portion of the secondary syndication of
the Commitments shall be effective (such date of conversion under clauses (x) or
(y) being the "Conversion Date"), the then outstanding aggregate principal
amount of the Loans hereunder shall be converted to a term loan. Any Notice to
Convert shall expressly state the applicable Conversion Date and shall be
irrevocable once given. The Borrower shall be deemed to have represented and
warranted
23
that the conditions contained in Section 5.03 have been satisfied as of the date
of any Notice to Convert. Upon delivery of such Notice to Convert (or if no such
Notice to Convert is given, upon the automatic Conversion Date described above),
(i) the Borrower's option to borrow and reborrow Facility A Revolving Loans
shall terminate, (ii) the aggregate of the Lenders' Facility A Revolving
Commitments shall be reduced to zero, and (iii) the outstanding principal
balance of all Facility A Revolving Loans hereunder shall be due and payable on
the Facility A Termination Date. All references in this Agreement to Facility A
Loans shall include such Facility A Revolving Loans as converted hereunder.
SECTION 2.02. FEES.
(a) The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a commitment fee equal to the product of
(i) the average daily amount of such Lender's Available Facility A Revolving
Commitment from the Initial Funding Date, in the case of each Bank, and from the
effective date specified in the Lender Assignment pursuant to which it became a
Lender, in the case of each other Lender, until the Commitment Termination Date
multiplied by (ii) the Commitment Fee Margin in effect as of the date upon which
such fee is payable. Such fees shall be payable quarterly in arrears on the last
day of each March, June, September and December, commencing the first such date
to occur following the Initial Funding Date, and on the Commitment Termination
Date.
(b) In addition to the fees provided for in subsection
(a) above, the Borrower shall pay to the Administrative Agent, for the account
of CUSA and the other Persons entitled thereto, such other fees as are provided
for in that certain letter agreement, dated March 30, 2003 among the Borrower,
the Agents, the Arranger (the "FEE LETTER"), in the amounts and at the times
specified therein.
SECTION 2.03. MANDATORY PREPAYMENTS.
(a) The Borrower may (and shall provide notice thereof to
the Administrative Agent not later than 10:00 a.m. (New York City time) on the
date of termination or reduction, and the Administrative Agent shall promptly
distribute copies thereof to the Lenders) terminate in whole or reduce ratably
in part the unused portions of the Facility A Revolving Commitments; provided
that any such partial reduction shall be in the aggregate amount of $5,000,000
or an integral multiple of $1,000,000 in excess thereof.
(b) Upon the occurrence of a Change of Control the
Commitments shall be reduced to zero and the principal amount outstanding
hereunder, all interest thereon and all other amounts payable under this
Agreement and the other Loan Documents shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower.
(c) From and after the date that all of the obligations
under the Enterprises 2003 Credit Agreement shall have been paid in full in cash
and the Enterprises 2003 Credit Agreement shall have been terminated, the
Borrower shall make the following mandatory prepayments:
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(i) Promptly and in any event within 3 Business Days
after the Borrower's or any of its Subsidiaries' receipt of any Net
Proceeds from the sale or issuance of equity securities, the Borrower
shall make or cause to be made a mandatory prepayment of the
Obligations in an amount equal to one hundred percent (100%) of such
Net Proceeds;
(ii) Promptly and in any event within 3 Business Days
after the Borrower's or any of its Subsidiaries' receipt of any Net
Proceeds from the incurrence of Debt For Borrowed Money, other than
Debt incurred by Consumers or any Subsidiary of Consumers, the Borrower
shall make or cause to be made a mandatory prepayment of the
Obligations in an amount equal to one hundred percent (100%) of such
Net Proceeds; and
(iii) Promptly and in any event within 3 Business Days
after the Borrower's or any of its Subsidiaries' receipt of any Net
Proceeds from the sale, assignment or other disposition of (but not the
lease or license of) any property, including, without limitation, any
sale of capital stock or other equity interest in any of the Borrower's
direct or indirect Subsidiaries, in an amount, when combined with the
Net Proceeds of all other such transactions since the Closing Date that
have not been applied to the prepayment of the Obligations in
accordance with this clause (iii), in excess of $10,000,000, the
Borrower shall make or cause to be made a mandatory prepayment of the
Obligations in an amount equal to one hundred percent (100%) of such
aggregate Net Proceeds, provided that such amount shall exclude Net
Proceeds arising from (A) any sale, assignment or other disposition of
property by Consumers or any Subsidiary of Consumers (other than the
capital stock of Consumers), (B) the sale of all or substantially all
of the electrical power book of MS&T and (C) any sale or other
disposition by the Borrower or any of its Subsidiaries in the ordinary
course of business consistent with past practice, provided, further
that any Designated Prepayment under this clause (iii) shall be made
without regard to whether the obligations under the Enterprises 2003
Credit Agreement shall have been paid in full in cash and terminated if
an "Event of Default" under (and as defined in) the AIG Pledge
Agreement arising from the non-compliance with the terms of Section 4.5
of the AIG Pledge Agreement has occurred and is continuing, or would
result from the transaction giving rise to such Designated Prepayment.
Nothing in this Section 2.03(c) shall be construed to constitute the Lenders'
consent to any transaction referenced in clauses (i), (ii) and (iii) above which
is not expressly permitted by Article VII. The Borrower shall give the
Administrative Agent prior written notice or telephonic notice promptly
confirmed in writing (each of which the Administrative Agent shall promptly
transmit to each Lender), when a Designated Prepayment will be made (which date
of prepayment shall be no later than the date on which such Designated
Prepayment becomes due and payable pursuant to this Section 2.03(c)). Designated
Prepayments shall be allocated and applied first to the outstanding Facility A
Loans (and amounts applied thereunder being deemed to be applied first to
Facility A Revolving Loans (and shall permanently reduce on a ratable basis the
Facility A Revolving Commitments) or any Facility A Loans following the
Conversion Date that re-evidence such Facility A Revolving Loans, and thereafter
all other Facility A Loans) and then to the outstanding Facility B Loans. So
long as any Facility B Loans shall be outstanding, any Lender with a Facility A
Loan may, after the repayment of the Facility A Revolving Loans and termination
of the Facility A Revolving Commitments, or any Facility A Loans following the
Conversion Date that re-evidence such Facility A Revolving Loans, decline any
Designated
25
Prepayment, in which case the amount declined will be applied pro rata and
ratably to prepayment of the Facility B Loans. Any Lender with a Facility B Loan
may decline any Designated Prepayment, in which case the amount declined shall
be paid as the Borrower so designates. All Designated Prepayments shall be
applied first to repay outstanding ABR Loans and then to repay outstanding
Eurodollar Rate Loans with those Eurodollar Rate Loans which have earlier
expiring Interest Periods being repaid prior to those which have later expiring
Interest Periods.
SECTION 2.04. COMPUTATIONS OF OUTSTANDINGS. Whenever reference is made
in this Agreement to the principal amount outstanding on any date under this
Agreement, such reference shall refer to the aggregate principal amount of all
Loans outstanding on such date under this Agreement after giving effect to all
Extensions of Credit to be made on such date and the application of the proceeds
thereof. At no time shall the outstanding principal amount of the Facility A
Revolving Loans exceed the aggregate amount of the Facility A Revolving
Commitment hereunder. References to the unused portion of the Facility A
Revolving Commitments shall refer to the excess, if any, of the Facility A
Revolving Commitments hereunder over the outstanding principal amount of the
Facility A Revolving Loans; and references to the unused portion of any Lender's
Facility A Revolving Commitment shall refer to such Lender's Percentage of the
unused Facility A Revolving Commitments.
ARTICLE III
LOANS
(a) LOANS. The Borrower may request a Borrowing (other
than a Conversion) by delivering a notice (a "NOTICE OF BORROWING") to the
Administrative Agent no later than 12:00 noon (New York City time) on the third
Business Day or, in the case of ABR Loans, on the first Business Day, prior to
the date of the proposed Borrowing. The Administrative Agent shall give each
Lender prompt notice of each Notice of Borrowing. Each Notice of Borrowing shall
be in substantially the form of Exhibit A and shall specify the requested (i)
date of such Borrowing, (ii) Type of Loans to be made in connection with such
Borrowing, (iii) Interest Period, if any, for such Facility A Revolving Loans
and (iv) amount of such Borrowing. Each proposed Borrowing shall conform to the
requirements of Sections 3.03 and 3.04.
(b) Each Lender shall, before 12:00 noon (New York City
time) on the date of such Borrowing, make available for the account of its
Applicable Lending Office to the Administrative Agent at the Administrative
Agent's offices at 2 Penns Way, Suite 200, New Castle, DE 19270, in same day
funds, such Lender's Percentage of such Borrowing. After the Administrative
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article V, the Administrative Agent will make such funds available
to the Borrower at the Administrative Agent's aforesaid address. Notwithstanding
the foregoing, unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's Percentage of such
Borrowing, the Administrative Agent may assume that such Lender has made such
Percentage available to the Administrative Agent on the date of such Borrowing
in accordance with the first sentence of this subsection (b), and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount.
26
(c) Any Lender may request that Loans made by it be
evidenced by a Promissory Note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a Promissory Note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such Promissory Note and interest thereon shall at all times
(including after assignment pursuant to Section 10.07) be represented by one or
more Promissory Notes in such form payable to the order of the payee named
therein (or, if such Promissory Note is a registered note, to such payee and its
registered assigns).
SECTION 3.02. CONVERSION OF LOANS. The Borrower may from time to time
Convert any Loan (or portion thereof) of any Type to one or more Loans of the
same or any other Type by delivering a notice of such Conversion (a "NOTICE OF
CONVERSION") to the Administrative Agent no later than 12:00 noon (New York City
time) on (x) the third Business Day prior to the date of any proposed Conversion
into a Eurodollar Rate Loan and (y) the first Business Day prior to the date of
any proposed Conversion into an ABR Loan. The Administrative Agent shall give
each Lender prompt notice of each Notice of Conversion. Each Notice of
Conversion shall be in substantially the form of Exhibit B and shall specify (i)
the requested date of such Conversion, (ii) the Type of, and Interest Period, if
any, applicable to, the Loans (or portions thereof) proposed to be Converted,
(iii) the requested Type of Loans to which such Loans (or portions thereof) are
proposed to be Converted, (iv) the requested initial Interest Period, if any, to
be applicable to the Loans resulting from such Conversion and (v) the aggregate
amount of Loans (or portions thereof) proposed to be Converted. Each proposed
Conversion shall be subject to the provisions of Sections 3.03 and 3.04.
SECTION 3.03. INTEREST PERIODS. The period between the date of each
Eurodollar Rate Loan and the date of payment in full of such Loan shall be
divided into successive periods of months ("INTEREST PERIODS") for purposes of
computing interest applicable thereto. The initial Interest Period for each such
Loan shall begin on the day such Loan is made, and each subsequent Interest
Period shall begin on the last day of the immediately preceding Interest Period
for such Loan. The duration of each Interest Period shall be 1, 2, 3, or 6
months, as the Borrower may, in accordance with Section 3.01 or 3.02, select;
provided, however, that:
(i) the Borrower may not select any Interest Period for a
Eurodollar Rate Loan that is (a) a Facility A Loan that ends after the
Facility A Maturity Date or (b) a Facility B Loan that ends after the
Facility B Maturity Date;
(ii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall occur on the next succeeding Business Day,
provided that if such extension would cause the last day of such
Interest Period to occur in the next following calendar month, the last
day of such Interest Period shall occur on the next preceding Business
Day; and
(iii) any Interest Period that commences on the last
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such
Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period.
27
SECTION 3.04. OTHER TERMS RELATING TO THE MAKING AND CONVERSION OF
LOANS.
(a) Notwithstanding anything in Section 3.01 or 3.02 to
the contrary:
(i) each Borrowing shall be in an aggregate amount not
less than $5,000,000, or an integral multiple of $1,000,000 in excess
thereof (or such lesser amount as shall be equal to the total amount of
the Available Facility A Commitments on such date, after giving effect
to all other Extensions of Credit to be made on such date), and shall
consist of Loans of the same Type, having the same Interest Period and
made or Converted on the same day by the Lenders ratably according to
their respective Percentages;
(ii) at no time shall the number of Borrowings comprising
Eurodollar Rate Loans outstanding hereunder be greater than ten (10);
(iii) no Eurodollar Rate Loan may be Converted on a date
other than the last day of the Interest Period applicable to such Loan
unless the corresponding amounts, if any, payable to the Lenders
pursuant to Section 4.04(b) are paid contemporaneously with such
Conversion;
(iv) if the Borrower shall either fail to give a timely
Notice of Conversion pursuant to Section 3.02 in respect of any Loans
or fail, in any Notice of Conversion that has been timely given, to
select the duration of any Interest Period for Loans to be Converted
into Eurodollar Rate Loans in accordance with Section 3.03, such Loans
shall, on the last day of the then existing Interest Period therefor,
automatically Convert into, or remain as, as the case may be, ABR
Loans; and
(v) if, on the date of any proposed Conversion, any Event
of Default or Default shall have occurred and be continuing, all Loans
then outstanding shall, on such date, automatically Convert into, or
remain as, as the case may be, ABR Loans.
(b) If any Lender shall notify the Administrative Agent
that the introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or that any central bank or other governmental
authority asserts that it is unlawful, for such Lender or its Applicable Lending
Office to perform its obligations hereunder to make, or to fund or maintain,
Eurodollar Rate Loans hereunder, (i) the obligation of such Lender to make, or
to Convert Loans into, Eurodollar Rate Loans for such Borrowing or any
subsequent Borrowing from such Lender shall be forthwith suspended until the
earlier to occur of the date upon which (A) such Lender shall cease to be a
party hereto and (B) it is no longer unlawful for such Lender to make, fund or
maintain Eurodollar Rate Loans, and (ii) if the maintenance of Eurodollar Rate
Loans then outstanding through the last day of the Interest Period therefor
would cause such Lender to be in violation of such law, regulation or assertion,
the Borrower shall either prepay or Convert all Eurodollar Rate Loans from such
Lender within five days after such notice. Promptly upon becoming aware that the
circumstances that caused such Lender to deliver such notice no longer exist,
such Lender shall deliver notice thereof to the Administrative Agent (but the
failure to do so shall impose no liability upon such Lender). Promptly upon
receipt of such notice from such Lender (or upon such Lender's assigning all of
its Commitment, Loans, participation and other
28
rights and obligations hereunder pursuant to Section 10.07), the Administrative
Agent shall deliver notice thereof to the Borrower and the Lenders and such
suspension shall terminate.
(c) If the Required Lenders shall, at least one Business
Day before the date of any requested Borrowing, notify the Administrative Agent
that the Adjusted LIBO Rate for Eurodollar Rate Loans to be made in connection
with such Borrowing will not adequately reflect the cost to such Required
Lenders of making, funding or maintaining their respective Eurodollar Rate Loans
for such Borrowing, or that they are unable to acquire funding in a reasonable
manner so as to make available Eurodollar Rate Loans in the amount and for the
Interest Period requested, or if the Administrative Agent shall determine that
adequate and reasonable means do not exist to be able to determine the Adjusted
LIBO Rate, then the right of the Borrower to select Eurodollar Rate Loans for
such Borrowing and any subsequent Borrowing shall be suspended until the
Administrative Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist, and each Loan to be made
or Converted in connection with such Borrowing shall be an ABR Loan.
(d) If any Lender shall have delivered a notice to the
Administrative Agent described in Section 3.04(b), and if and so long as such
Lender shall not have withdrawn such notice in accordance with said Section
3.04(b), the Borrower or the Administrative Agent may demand that such Lender
assign in accordance with Section 10.07, to one or more banks or other financial
institutions designated by the Borrower or the Administrative Agent (each a
"Prospective Lender"), all (but not less than all) of such Lender's Commitment,
Loans, participation and other rights and obligations hereunder; provided that
any such demand by the Borrower during the continuance of an Event of Default or
Default shall be ineffective without the consent of the Required Lenders. If,
within 30 days following any such demand by the Administrative Agent or the
Borrower, any such Prospective Lender so designated shall fail to consummate
such assignment on terms reasonably satisfactory to such Lender, or the Borrower
and the Administrative Agent shall have failed to designate any such Prospective
Lender, then such demand by the Borrower or the Administrative Agent shall
become ineffective, it being understood for purposes of this provision that such
assignment shall be conclusively deemed to be on terms reasonably satisfactory
to such Lender, and such Lender shall be compelled to consummate such assignment
forthwith, if such Prospective Lender (i) shall agree to such assignment in
substantially the form of the Lender Assignment attached hereto as Exhibit F and
(ii) shall tender payment to such Lender in an amount equal to the full
outstanding dollar amount accrued in favor of such Lender hereunder (as computed
in accordance with the records of the Administrative Agent), including, without
limitation, all accrued interest and fees and, to the extent not paid by the
Borrower, any payments required pursuant to Section 4.04(b).
(e) Each Notice of Borrowing and Notice of Conversion
shall be irrevocable and binding on the Borrower. In the case of any Borrowing
which the related Notice of Borrowing or Notice of Conversion specifies is to be
comprised of Eurodollar Rate Loans, the Borrower shall indemnify each Lender
against any loss, cost or expense incurred by such Lender as a result of any
failure to fulfill, on or before the date specified in such Notice of Borrowing
or Notice of Conversion for such Borrowing, the applicable conditions (if any)
set forth in this Article III (other than failure pursuant to the provisions of
Section 3.04(b) or (c) hereof) or in Article V, including any such loss
(including loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender
29
to fund the Loan to be made by such Lender when such Loan, as a result of such
failure, is not made on such date.
SECTION 3.05. REPAYMENT OF LOANS; INTEREST
(a) Principal. The Borrower shall repay the outstanding
principal amount of the Facility A Loans on the Facility A Maturity Date (or
such earlier date as may be required pursuant to Section 2.03 or 8.02) and shall
repay the outstanding principal amount of the Facility B Loans on the Facility B
Maturity Date (or such earlier date as may be required pursuant to Section 2.03
or 8.02). No installment of any Loan (other than Facility A Revolving Loans
prior to the Conversion Date) may be reborrowed once repaid.
(b) Interest. The Borrower shall pay interest on the
unpaid principal amount of each Loan owing to each Lender from the date of such
Loan until such principal amount shall be paid in full, at the Applicable Rate
for such Loan (except as otherwise provided in this subsection (b)), payable as
follows:
(i) ABR Loans. If such Loan is an ABR Loan, interest
thereon shall be payable quarterly in arrears on the last day of each
March, June, September and December, on the date of any Conversion of
such ABR Loan and on the date such ABR Loan shall become due and
payable or shall otherwise be paid in full; provided that any amount of
principal that is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which
such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the Default Rate.
(ii) Eurodollar Rate Loans. If such Loan is a Eurodollar
Rate Loan, interest thereon shall be payable on the last day of such
Interest Period and, if the Interest Period for such Loan has a
duration of more than three months, on that day of each third month
during such Interest Period that corresponds to the first day of such
Interest Period (or, if any such month does not have a corresponding
day, then on the last day of such month); provided that any amount of
principal that is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which
such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the Default Rate.
ARTICLE IV
PAYMENTS, COMPUTATIONS AND YIELD PROTECTION
SECTION 4.01. PAYMENTS AND COMPUTATIONS.
(a) The Borrower shall make each payment hereunder and
under the other Loan Documents not later than 2:00 p.m. (New York City time) on
the day when due in Dollars to the Administrative Agent at its offices at 2
Penns Way, Suite 200, New Castle, DE 19270, in same day funds; any payment
received after 3:00 p.m. (New York City time) shall be deemed to have been
received at the start of business on the next succeeding Business Day, unless
the Administrative Agent shall have received from, or on behalf of, the Borrower
a Federal Reserve reference number with respect to such payment before 4:00 p.m.
(New York City time). The
30
Administrative Agent will promptly thereafter cause to be distributed like funds
relating to the payment of principal, interest, fees or other amounts payable to
the Lenders, to the respective Lenders to which the same are payable, for the
account of their respective Applicable Lending Offices, in each case to be
applied in accordance with the terms of this Agreement. If and to the extent
that any distribution of any payment from the Borrower required to be made to
any Lender pursuant to the preceding sentence shall not be made in full by the
Administrative Agent on the date such payment was received by the Administrative
Agent, the Administrative Agent shall pay to such Lender, upon demand, interest
on the unpaid amount of such distribution, at a rate per annum equal to the
Federal Funds Effective Rate, from the date of such payment by the Borrower to
the Administrative Agent to the date of payment in full by the Administrative
Agent to such Lender of such unpaid amount. Upon the Administrative Agent's
acceptance of a Lender Assignment and recording of the information contained
therein in the Register pursuant to Section 10.07, from and after the effective
date specified in such Lender Assignment, the Administrative Agent shall make
all payments hereunder and under any Promissory Notes in respect of the interest
assigned thereby to the Lender assignee thereunder, and the parties to such
Lender Assignment shall make all appropriate adjustments in such payments for
periods prior to such effective date directly between themselves.
(b) The Borrower hereby authorizes the Administrative
Agent and each Lender, if and to the extent payment owed to the Administrative
Agent or such Lender, as the case may be, is not made when due hereunder (or, in
the case of a Lender, under any Promissory Note held by such Lender), to charge
from time to time against any or all of the Borrower's accounts with the
Administrative Agent or such Lender, as the case may be, any amount so due.
(c) All computations of interest based on the Alternate
Base Rate (when the Alternate Base Rate is based on the Prime Rate) shall be
made by the Administrative Agent on the basis of a year of 365 or 366 days, as
the case may be. All other computations of interest and fees hereunder
(including computations of interest based on the Adjusted LIBO Rate and the
Federal Funds Effective Rate) shall be made by the Administrative Agent on the
basis of a year of 360 days. In each such case, such computation shall be made
for the actual number of days (including the first day but excluding the last
day) occurring in the period for which such interest or fees are payable. Each
such determination by the Administrative Agent or a Lender shall be conclusive
and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under any other
Loan Document shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest
and fees hereunder; provided, however, that if such extension would cause
payment of interest on or principal of Eurodollar Rate Loans to be made in the
next following calendar month, such payment shall be made on the next preceding
Business Day and such reduction of time shall in such case be included in the
computation of payment of interest hereunder.
(e) Unless the Administrative Agent shall have received
notice from the Borrower prior to the date on which any payment is due to the
Lenders hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date, and the
31
Administrative Agent may, in reliance upon such assumption, cause to be
distributed to each Lender on such due date an amount equal to the amount then
due such Lender. If and to the extent the Borrower shall not have so made such
payment in full to the Administrative Agent, such Lender shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Lender,
together with interest thereon, for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to the
Administrative Agent, at the Federal Funds Effective Rate.
(f) Any amount payable by the Borrower hereunder or under
any of the Promissory Notes that is not paid when due (whether at stated
maturity, by acceleration or otherwise) shall (to the fullest extent permitted
by law) bear interest, from the date when due until paid in full, at a rate per
annum equal at all times to the Default Rate, payable on demand.
(g) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
interest and fees then due hereunder, such funds shall be applied, subject to
Section 4.07, (i) first, toward payment of interest and fees then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
interest and fees then due to such parties, and (ii) second, toward payment of
principal then due hereunder, ratably among the parties entitled thereto.
SECTION 4.02. INTEREST RATE DETERMINATION. The Administrative Agent
shall give prompt notice to the Borrower and the Lenders of the applicable
interest rate determined by the Administrative Agent for purposes of Section
3.05(b)(i) or (ii).
SECTION 4.03. PREPAYMENTS. The Borrower shall have no right to prepay
any principal amount of any Loans other than as follows:
(a) The Borrower may (and shall provide notice thereof to
the Administrative Agent not later than 10:00 a.m. (New York City time) on the
date of prepayment, and the Administrative Agent shall promptly distribute
copies thereof to the Lenders), and if such notice is given, the Borrower shall,
prepay the outstanding principal amounts of Loans made as part of the same
Borrowing, in whole or ratably in part, together with (i) accrued interest to
the date of such prepayment on the principal amount prepaid and (ii) in the case
of Eurodollar Rate Loans, any amount payable to the Lenders pursuant to Section
4.04(b); provided, however, that (a) each partial prepayment shall be in an
aggregate principal amount of not less than $5,000,000 or an integral multiple
of $1,000,000 in excess thereof and (b) the Borrower shall not prepay any
Facility B Loans unless and until all Facility A Loans have been prepaid in full
in cash.
(b) On the date of any termination or optional or
mandatory reduction of the Facility A Revolving Commitments pursuant to Section
2.03, the Borrower shall pay or prepay the principal outstanding on the Facility
A Revolving Loans in full in cash in an amount equal to the excess of (i) the
sum of the aggregate principal amount of the Facility A Revolving Loans
outstanding (after giving effect to all Extensions of Credit to be made on such
date and the application of the proceeds thereof) over (ii) the aggregate amount
of the Facility A Revolving Commitments (following such termination or
reduction, if any), together with (x) accrued interest to the date of such
prepayment on the principal amount repaid and (y) in the case of prepayments of
Eurodollar Rate Loans, any amount payable to the Lenders pursuant to Section
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4.04(b). Any payments and prepayments required by this subsection (b) shall be
applied to outstanding ABR Loans up to the full amount thereof before they are
applied to outstanding Eurodollar Rate Loans.
SECTION 4.04. YIELD PROTECTION.
(a) Increased Costs. If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation after the Closing Date, or (ii) the compliance with any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) issued or made after the Closing Date, there shall be
reasonably incurred any increase in the cost to any Lender of agreeing to make
or making, funding or maintaining Eurodollar Rate Loans, then the Borrower shall
from time to time, upon demand by such Lender (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of such
Lender additional amounts sufficient to compensate such Lender for such
increased cost. A certificate as to the amount of such increased cost and giving
a reasonable explanation thereof, submitted to the Borrower and the
Administrative Agent by such Lender shall constitute such demand and shall be
conclusive and binding for all purposes, absent manifest error.
(b) Breakage. If, due to any prepayment pursuant to
Section 4.03, an acceleration of maturity of the Loans pursuant to Section 8.02,
or any other reason, any Lender receives payments of principal of any Eurodollar
Rate Loan other than on the last day of the Interest Period relating to such
Loan or if the Borrower shall Convert any Eurodollar Rate Loans on any day other
than the last day of the Interest Period therefor, or if the Borrower shall fail
to prepay a Eurodollar Rate Loan on the date specified in a notice of
prepayment, the Borrower shall, promptly after demand by such Lender (with a
copy of such demand to the Administrative Agent), pay to the Administrative
Agent for the account of such Lender any amounts required to compensate such
Lender for additional losses, costs, or expenses (including anticipated lost
profits) that such Lender may reasonably incur as a result of such payment,
Conversion or failure to prepay, including any loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such Lender to fund or maintain such Loan. For purposes of this subsection (b),
a certificate setting forth the amount of such additional losses, costs, or
expenses and giving a reasonable explanation thereof, submitted to the Borrower
and the Administrative Agent by such Lender, shall constitute such demand and
shall be conclusive and binding for all purposes, absent manifest error.
(c) Capital. If any Lender determines that (i) compliance
with any law or regulation or any guideline or request from any central bank or
other governmental authority (whether or not having the force of law) affects or
would affect the amount of capital required or expected to be maintained by such
Lender, whether directly, or indirectly as a result of commitments of any
corporation controlling such Lender (but without duplication), and (ii) the
amount of such capital is increased by or based upon (A) the existence of such
Lender's commitment to lend hereunder, or (B) the issuance or maintenance of any
Loan and (C) other similar such commitments, then, upon demand by such Lender,
the Borrower shall immediately pay to the Administrative Agent for the account
of such Lender from time to time as specified by such Lender additional amounts
sufficient to compensate such Lender in the light of such circumstances, to the
extent that such Lender reasonably determines such increase in capital to
33
be allocable to the transactions contemplated hereby. A certificate as to such
amounts and giving a reasonable explanation thereof (to the extent permitted by
law), submitted to the Borrower and the Administrative Agent by such Lender,
shall be conclusive and binding for all purposes, absent manifest error.
(d) Notices. Each Lender hereby agrees to use its best
efforts to notify the Borrower of the occurrence of any event referred to in
subsection (a), (b) or (c) of this Section 4.04 promptly after becoming aware of
the occurrence thereof. The failure of any Lender to provide such notice or to
make demand for payment under said subsection shall not constitute a waiver of
such Lender's rights hereunder; provided that, notwithstanding any provision to
the contrary contained in this Section 4.04, the Borrower shall not be required
to reimburse any Lender for any amounts or costs incurred under subsection (a),
(b) or (c) above, more than 90 days prior to the date that such Lender notifies
the Borrower in writing thereof, in each case unless, and to the extent that,
any such amounts or costs so incurred shall relate to the retroactive
application of any event notified to the Borrower which entitles such Lender to
such compensation. If any Lender shall subsequently determine that any amount
demanded and collected under this Section 4.04 was done so in error, such Lender
will promptly return such amount to the Borrower.
(e) Survival of Obligations. Subject to subsection (d)
above, the Borrower's obligations under this Section 4.04 shall survive the
repayment of all other amounts owing to the Lenders and the Agents under the
Loan Documents and the termination of the Commitments. If and to the extent that
the obligations of the Borrower under this Section 4.04 are unenforceable for
any reason, the Borrower agrees to make the maximum contribution to the payment
and satisfaction thereof which is permissible under applicable law.
SECTION 4.05. SHARING OF PAYMENTS, ETC. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Loans owing to it (other than pursuant
to Section 4.04 or Section 4.06) in excess of its ratable share of payments
obtained by all the Lenders on account of the Loans of such Lenders, such Lender
shall forthwith purchase from the other Lenders such participation in the Loans
owing to them as shall be necessary to cause such purchasing Lender to share the
excess payment ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share (according to the
proportion of (i) the amount of such Lender's required repayment to (ii) the
total amount so recovered from the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 4.05 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
Notwithstanding the foregoing, if any Lender shall obtain any such excess
payment involuntarily, such Lender may, in lieu of purchasing participations
from the other Lenders in accordance with this Section 4.05, on the date of
receipt of such excess payment, return such excess payment to the Administrative
Agent for distribution in accordance with Section 4.01(a).
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SECTION 4.06. TAXES.
(a) All payments by the Borrower hereunder and under the
other Loan Documents shall be made in accordance with Section 4.01, free and
clear of and without deduction for all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Lender and each Agent, taxes imposed on its
overall net income, and franchise taxes imposed on it by the jurisdiction under
the laws of which such Lender or Agent (as the case may be) is organized or any
political subdivision thereof and, in the case of each Lender, taxes imposed on
its overall net income, and franchise taxes imposed on it by the jurisdiction of
such Lender's Applicable Lending Office or any political subdivision thereof
(all such non-excluded taxes, levies, imposts, deductions, charges, withholdings
and liabilities being hereinafter referred to as "TAXES"). If the Borrower shall
be required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any other Loan Document to any Lender or Agent, (i) the sum
payable shall be increased as may be necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 4.06) such Lender or Agent (as the case may be) receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Borrower shall make such deductions and (iii) the Borrower shall pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder or under
any other Loan Document or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement or any other Loan Document
(hereinafter referred to as "OTHER TAXES").
(c) The Borrower will indemnify each Lender and Agent for
the full amount of Taxes and Other Taxes (including any Taxes and any Other
Taxes imposed by any jurisdiction on amounts payable under this Section 4.06)
paid by such Lender or Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
This indemnification shall be made within thirty (30) days from the date such
Lender or Agent (as the case may be) makes written demand therefor; provided,
that such Lender or Agent (as the case may be) shall not be entitled to demand
payment under this Section 4.06 for an amount if such demand is not made within
one year following the date upon which such Lender or Agent (as the case may be)
shall have been required to pay such amount.
(d) Within thirty (30) days after the date of any payment
of Taxes, the Borrower will furnish to the Administrative Agent, at its address
referred to in Section 10.02, the original or a certified copy of a receipt
evidencing payment thereof.
(e) Each Bank represents and warrants that either (i) it
is organized under the laws of a jurisdiction within the United States or (ii)
it has delivered to the Borrower or the Administrative Agent duly completed
copies of such form or forms prescribed by the United States Internal Revenue
Service indicating that such Bank is entitled to receive payments without
deduction or withholding of any United States federal income taxes, as permitted
by the Internal
35
Revenue Code of 1986, as amended. Each other Lender agrees that, on or prior to
the date upon which it shall become a party hereto, and upon the reasonable
request from time to time of the Borrower or the Administrative Agent, such
Lender will deliver to the Borrower and the Administrative Agent (to the extent
that it is not prohibited by law from doing so) either (A) a statement that it
is organized under the laws of a jurisdiction within the United States or (B)
duly completed copies of such form or forms as may from time to time be
prescribed by the United States Internal Revenue Service, indicating that such
Lender is entitled to receive payments without deduction or withholding of any
United States federal income taxes, as permitted by the Internal Revenue Code of
1986, as amended. Each Bank that has delivered, and each other Lender that
hereafter delivers, to the Borrower and the Administrative Agent the form or
forms referred to in the two preceding sentences further undertakes to deliver
to the Borrower and the Administrative Agent, to the extent that it is not
prohibited by law from doing so, further copies of such form or forms, or
successor applicable form or forms, as the case may be, as and when any previous
form filed by it hereunder shall expire or shall become incomplete or inaccurate
in any respect. Each Lender represents and warrants that each such form supplied
by it to the Administrative Agent and the Borrower pursuant to this subsection
(e), and not superseded by another form supplied by it, is or will be, as the
case may be, complete and accurate.
SECTION 4.07. APPORTIONMENT OF PAYMENTS.
(a) Subject to the provisions of Section 2.03 and Section
4.07(b), all payments of principal and interest in respect of outstanding Loans,
all payments of fees and all other payments in respect of any other Obligations
hereunder, shall be allocated among such of the Lenders as are entitled thereto,
ratably or otherwise as expressly provided herein. Except as provided in Section
4.07(b) with respect to payments and proceeds of Collateral received after the
occurrence of an Event of Default, all such payments and any other amounts
received by the Administrative Agent from or for the benefit of the Borrower
shall be applied
(i) first, to pay principal of and interest on any
portion of the Loans which the Administrative Agent may have advanced
on behalf of any Lender other than CUSA for which the Administrative
Agent has not then been reimbursed by such Lender or the Borrower,
(ii) second, to pay interest on the Facility A Loans and
the interest on the Facility B Loans, and then the principal of the
Facility A Loans and the principal of the Facility B Loans, in each
case, then due and payable (in the order described hereinbelow),
(iii) third, to pay all other Obligations of any Loan Party
under any Loan Document then due and payable, ratably, and
(iv) fourth, as the Borrower so designates.
All amounts applied in respect of Facility A Loans shall be deemed to be applied
first to Facility A Revolving Loans (and shall permanently reduce on a ratable
basis the Facility A Revolving Commitment of each Lender) or any Facility A
Loans following the Conversion Date that re-evidence such Facility A Revolving
Loans, and thereafter all other Facility A Loans. All such
36
principal and interest payments in respect of the Loans shall be applied first
to repay outstanding ABR Loans and then to repay outstanding Eurodollar Rate
Loans with those Eurodollar Rate Loans which have earlier expiring Interest
Periods being repaid prior to those which have later expiring Interest Periods
(b) During the continuance of an Event of Default and
after declaration thereof by written notice from the Administrative Agent to the
Borrower, the Administrative Agent shall apply all payments in respect of any
Loans, and the Collateral Agent shall deliver all proceeds of Collateral to the
Administrative Agent for application, in the following order:
(i) first, to pay principal of and interest on any
portion of the Loans which the Administrative Agent may have advanced
on behalf of any Lender other than CUSA for which the Administrative
Agent has not then been reimbursed by such Lender or the Borrower;
(ii) second, to pay any fees, expense reimbursements or
indemnities then due to the Agents under any of the Loan Documents;
(iii) third, to pay any fees, expense reimbursements or
indemnities then due to the Lenders under any of the Loan Documents;
(iv) fourth, to pay interest due in respect of the
Facility A Loans and the interest in respect of the Facility B Loans,
in each case, ratably, in accordance with the Lenders' respective
Percentages;
(v) fifth, to the payment or prepayment of principal
outstanding on all Facility A Loans and then on all Facility B Loans;
(vi) sixth, to the ratable payment of all other
Obligations of the Loan Parties then outstanding under the Loan
Documents.
Notwithstanding the foregoing, if the obligations under the Enterprises 2003
Credit Agreement shall not have been paid in full, the Collateral Agent shall
apply the proceeds of any voluntary sale of Collateral (other than Collateral in
respect of which the Collateral Agent and/or the Administrative Agent shall have
a prior security interest on behalf of the Lenders hereunder) as contemplated by
the Enterprises 2003 Credit Agreement unless an "Event of Default" under (and as
defined in) the AIG Pledge Agreement arising from the non-compliance with the
terms of Section 4.5 of the AIG Pledge Agreement has occurred and is continuing,
or would result from the transaction giving rise to such proceeds. The order of
priority set forth in this Section 4.07(b) and the related provisions of this
Agreement are set forth solely to determine the rights and priorities of the
Agents and the Lenders as among themselves.
SECTION 4.08. Proceeds of Collateral. During the continuance of an
Event of Default and after declaration thereof by written notice from the
Administrative Agent to the Borrower, the Borrower shall cause all proceeds of
Collateral (other than Collateral in respect of which the Collateral Agent
and/or the Administrative Agent shall have a prior security interest on behalf
of the Lenders hereunder) to be deposited pursuant to arrangements for the
collection of such amounts established by the Borrower and the Administrative
Agent (or the Collateral Agent, as
37
applicable) for application pursuant to Section 4.07 or, unless an "Event of
Default" under (and as defined in) the AIG Pledge Agreement arising from the
non-compliance with the terms of Section 4.5 of the AIG Pledge Agreement has
occurred and is continuing, or would result from the transaction giving rise to
such proceeds, as otherwise required under the Enterprises 2003 Credit Agreement
so long as such agreements shall be in effect. All collections of proceeds of
Collateral which are received directly by the Borrower or any Subsidiary of the
Borrower shall be deemed to have been received by the Borrower or such
Subsidiary of the Borrower as the Collateral Agent's trustee and, during the
continuance of an Event of Default and after declaration thereof by written
notice from the Administrative Agent to the Borrower, upon the Borrower's or
such Subsidiary's receipt thereof, the Borrower shall immediately transfer or
cause to be transferred all such amounts to the Administrative Agent for
application pursuant to Section 4.07 or, unless an "Event of Default" under (and
as defined in) the AIG Pledge Agreement arising from the non-compliance with the
terms of Section 4.5 of the AIG Pledge Agreement has occurred and is continuing,
or would result from the transaction giving rise to such proceeds, as otherwise
required under the Enterprises 2003 Credit Agreement so long as such agreements
shall be in effect. All other proceeds of Collateral received by the Collateral
Agent and/or the Administrative Agent, whether through direct payment or
otherwise, will be deemed received by such Agent, will be the sole property of
such Agent, and will be held by such Agent, for the benefit of the Lenders for
application pursuant to Section 4.07 or, unless an "Event of Default" under (and
as defined in) the AIG Pledge Agreement arising from the noncompliance with the
terms of Section 4.5 of the AIG Pledge Agreement has occurred and is continuing,
or would result from the transaction giving rise to such proceeds, as otherwise
required under the Enterprises 2003 Credit Agreement so long as such agreements
shall be in effect.
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS
AGREEMENT. The effectiveness of this Agreement is subject to the fulfillment of
the following conditions precedent:
(a) The Administrative Agent shall have received, on or
before the Closing Date, the following, in form and substance satisfactory to
each Lender (except where otherwise specified below) and (except for any
Promissory Notes) in sufficient copies for each Lender:
(i) Certified copies of the resolutions of the Board of
Directors, or of the Executive Committee of the Board of Directors (or
persons performing similar functions), of the Borrower, each Guarantor
and each other Grantor (each a "LOAN PARTY") authorizing each such Loan
Party to enter into each Loan Document to which it is, or is to be, a
party, and of all documents evidencing other necessary corporate or
other action and Governmental Approvals, if any, with respect to each
such Loan Document.
(ii) A certificate of the Secretary or an Assistant
Secretary of each Loan Party certifying the names, true signatures and
incumbency of (A) the officers of such Loan Party authorized to sign
the Loan Documents to which it is, or is to be, a party, and the other
documents to be delivered hereunder and thereunder and (B) the
representatives of
38
such Loan Party authorized to sign notices to be provided under the
Loan Documents to which it is, or is to be, a party, which
representatives shall be acceptable to the Administrative Agent.
(iii) Copies of the Certificate of Incorporation and
by-laws (or comparable constitutive documents) of each Loan Party,
together with all amendments thereto, certified by the Secretary or an
Assistant Secretary of each such Loan Party.
(iv) Good Standing Certificates (or other similar
certificate) for each of the Loan Parties, issued by the Secretary of
State of the jurisdiction of organization of each such Loan Party as of
a recent date.
(v) The Guaranty, duly executed by each Guarantor.
(vi) The Pledge Agreements, duly executed by the Borrower
and each Grantor, as applicable.
(vii) A certified copy of Schedule I hereto, in form and
substance reasonably satisfactory to the Administrative Agent setting
forth:
(A) all Project Finance Debt of the Consolidated
Subsidiaries, together with the Borrower's Ownership Interest
in each such Consolidated Subsidiary, as of February 28, 2003;
and
(B) debt (as such term is construed in
accordance with GAAP) of the Loan Parties as of February 28,
2003.
(viii) A certificate, executed by a duly authorized officer
of the Borrower, (a) confirming that attached thereto is a true,
correct and complete copy of the Enterprises 2003 Credit Agreement, as
in effect on the Closing Date and (b) certifying that as of December
31, 2002 the Borrower was in compliance with the requirements of
Section 4.4 of the AIG Pledge Agreement (which certificate shall set
forth in reasonable detail the calculations upon which the Borrower
determined such compliance).
(ix) Favorable opinions of:
(A) Belinda Foxworth, Esq., Deputy General
Counsel of the Borrower and counsel for the other Loan
Parties, in substantially the form of Exhibit C and as to such
other matters as the Required Lenders, through the
Administrative Agent, may reasonably request; and
(B) Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel to the Loan Parties in substantially the form
of Exhibit D and as to such other matters as the
Administrative Agent may reasonably request.
(x) Duly executed copies of a Reaffirmation in the form
of Attachment A attached hereto from each of the Borrower's
Subsidiaries identified thereon.
39
(b) The following statements shall be true and the
Administrative Agent shall have received a certificate of a duly authorized
officer of the Borrower, dated the Closing Date and in sufficient copies for
each Lender stating that:
(i) the representations and warranties set forth in
Section 6.01 of this Agreement are true and correct on and as of the
Closing Date as though made on and as of such date,
(ii) no event has occurred and is continuing that
constitutes a Default or an Event of Default, and
(iii) all Governmental Approvals necessary in connection
with the Loan Documents and the transactions contemplated thereby have
been obtained and are in full force and effect, and all third party
approvals necessary or advisable in connection with the Loan Documents
and the transactions contemplated thereby have been obtained and are in
full force and effect, other than filings necessary to create or
perfect security interests in the Collateral or as may be required
under applicable energy, antitrust or securities laws in connection
with the exercise of remedies with respect to certain Collateral.
(c) The Administrative Agent shall have received evidence
satisfactory to it that all financing statements relating to the Collateral have
been completed for filing or recording and/or filed, and all certificates
representing capital stock or other ownership interests included in the
Collateral have been delivered to the Collateral Agent (with duly executed stock
powers).
SECTION 5.02. CONDITIONS PRECEDENT TO EACH EXTENSION OF CREDIT. The
obligation of each Lender to make an Extension of Credit (including the initial
Extension of Credit, but excluding the Conversion of a Eurodollar Rate Loan into
an ABR Loan) shall be subject to the further conditions precedent that, on the
date of such Extension of Credit and after giving effect thereto:
(a) The following statements shall be true (and each of
the giving of the applicable notice or request with respect thereto and the
making of such Extension of Credit without prior correction by the Borrower
shall (to the extent that such correction has been previously consented to by
the Lenders) constitute a representation and warranty by the Borrower that, on
the date of such Extension of Credit, such statements are true):
(i) the representations and warranties contained in
Section 6.01 of this Agreement (other than those contained in
subsections (e)(iii) and (f) thereof) are correct on and as of the date
of such Extension of Credit, before and after giving effect to such
Extension of Credit and to the application of the proceeds thereof, as
though made on and as of such date; and
(ii) no Default or Event of Default has occurred and is
continuing, or would result from such Extension of Credit or the
application of the proceeds thereof.
(b) The Administrative Agent shall have received such
other approvals, opinions and documents as any Lender, through the
Administrative Agent, may reasonably
40
request as to the legality, validity, binding effect or enforceability of the
Loan Documents or the business, assets, property, financial condition, results
of operations or prospects of the Borrower and its Consolidated Subsidiaries.
SECTION 5.03. CONDITIONS PRECEDENT TO CERTAIN EXTENSIONS OF CREDIT. The
obligation of each Lender to make an Extension of Credit (including the initial
Extension of Credit) that would (after giving effect to all Extensions of Credit
on such date and the application of proceeds thereof) increase the principal
amount outstanding hereunder, shall be subject to the further conditions
precedent that, on the date of such Extension of Credit and after giving effect
thereto:
(a) the following statements shall be true (and each of
the giving of the applicable notice or request with respect thereto and the
making of such Extension of Credit without prior correction by the Borrower
shall (to the extent that such correction has been previously consented to by
the Lenders) constitute a representation and warranty by the Borrower that, on
the date of such Extension of Credit, such statements are true):
(i) the representations and warranties contained in
subsections (e)(iii) and (f) of Section 6.01 of this Agreement are
correct on and as of the date of such Extension of Credit, before and
after giving effect to such Extension of Credit and to the application
of the proceeds thereof, as though made on and as of such date; and
(ii) no Default or Event of Default has occurred and is
continuing, or would result from such Extension of Credit or the
application of the proceeds thereof; and
(b) the Administrative Agent shall have received such
other approvals, opinions and documents as any Lender, through the
Administrative Agent, may reasonably request.
SECTION 5.04. RELIANCE ON CERTIFICATES. The Lenders and each Agent
shall be entitled to rely conclusively upon the certificates delivered from time
to time by officers of the Borrower as to the names, incumbency, authority and
signatures of the respective persons named therein until such time as the
Administrative Agent may receive a replacement certificate, in form acceptable
to the Administrative Agent, from an officer of such Person identified to the
Administrative Agent as having authority to deliver such certificate, setting
forth the names and true signatures of the officers and other representatives of
such Person thereafter authorized to act on behalf of such Person.
SECTION 5.05. CONDITION PRECEDENT TO THE INITIAL EXTENSION OF CREDIT.
The obligation of each Lender to make its initial Extension of Credit is subject
to the fulfillment of the following conditions precedent:
(a) The Borrower shall have paid all fees under or
referenced in Section 2.02(b) and all expenses referenced in Section 10.04(a),
in each case to the extent then due and payable.
(b) The Administrative Agent shall have received, on or
before the day of the initial Extension of Credit, in form and substance
satisfactory to it with sufficient copies for each Lender:
41
(i) A certificate, executed by the chief executive
officer and the chief financial officer of the Borrower and Consumers,
as applicable, in favor of the Agents and the Lenders with respect to
the financial statements described in Section 6.01(e)(i) and (ii)
certifying that such financial statements have been prepared in
accordance with GAAP (except for changes resulting from any Restatement
Event) and are true and correct as of the date of such certificate;
(ii) Copies of the financial statements of the Borrower
and Consumers described in Section 6.01(e)(i) and (ii); and
(iii) Copies of the Borrower's Annual Report on Form 10-K
for the fiscal years ended December 31, 2001 and December 31, 2002.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants as follows:
(a) Each of the Borrower, Consumers and each of the
Restricted Subsidiaries is duly organized, validly existing and in good standing
under the laws of the state of its organization and is duly qualified to do
business in, and is in good standing in, all other jurisdictions where the
nature of its business or the nature of property owned or used by it makes such
qualification necessary.
(b) The execution, delivery and performance by each Loan
Party of each Loan Document to which it is or will be a party (i) are within
such Loan Party's powers, (ii) have been duly authorized by all necessary
corporate or other organizational action or proceedings and (iii) do not and
will not (A) require any consent or approval of the stockholders (or other
applicable holder of equity) of such Loan Party (other than such consents and
approvals which have been obtained and are in full force and effect), (B)
violate any provision of the charter or by-laws (or other comparable
constitutive documents) of such Loan Party or of law, (C) violate any legal
restriction binding on or affecting such Loan Party, (D) result in a breach of,
or constitute a default under, any indenture or loan or credit agreement or any
other agreement, lease or instrument to which such Loan Party is a party or by
which it or its properties may be bound or affected, or (E) result in or require
the creation of any Lien (other than pursuant to the Loan Documents and pursuant
to the "Loan Documents" as defined in the Enterprises 2003 Credit Agreement)
upon or with respect to any of its respective properties.
(c) No Governmental Approval is required, other than
filings necessary to create or perfect security interests in the Collateral or
as may be required under applicable energy, antitrust or securities laws in
connection with the exercise of remedies with respect to certain Collateral.
(d) Each Loan Document executed on the Closing Date is,
and each other Loan Document to which any Loan Party will be a party when
executed and delivered hereunder will (i) where applicable, create valid and,
upon filing of the financing statements delivered on the Closing Date and
described in Section 5.01(c), perfected Liens in the Collateral covered
42
thereby securing the payment of all of the Loans purported to be secured
thereby, which Liens (x) with respect to all Collateral subject to a Lien under
the AIG Pledge Agreement shall be first perfected Liens and (y) with respect to
all other Collateral shall be pari-passu with any Liens thereon securing the
Borrower's guaranty of Enterprises' obligations under the Enterprises 2003
Credit Agreement, and (ii) be, legal, valid and binding obligations of such Loan
Party enforceable against such Loan Party in accordance with their respective
terms; subject to the qualification, however, that the enforcement of the rights
and remedies herein and therein is subject to bankruptcy and other similar laws
of general application affecting rights and remedies of creditors and the
application of general principles of equity (regardless of whether considered in
a proceeding in equity or at law).
(e) (i) The consolidated balance sheets of the Borrower
and its Consolidated Subsidiaries as at December 31, 2001 and December 31, 2002,
and the related consolidated statements of income, retained earnings and cash
flows of the Borrower and its Consolidated Subsidiaries for the fiscal years
then ended, included in the Borrower's Annual Report on Form 10-K for the fiscal
years ended December 31, 2001 and December 31, 2002, in each case as such
financial statements are proposed to be restated in connection with the
Restatement, copies of each of which have been furnished to each Lender, fairly
present the financial condition of the Borrower and its Consolidated
Subsidiaries as at such dates and the results of operations of the Borrower and
its Consolidated Subsidiaries for the periods ended on such dates (it being
understood that such financial statements do not give effect to any Restatement
Event), all in accordance with generally accepted accounting principles
consistently applied (except for changes resulting from any Restatement Event);
(ii) the consolidated balance sheets of Consumers and its consolidated
Subsidiaries as at December 31, 2001 and December 31, 2002, and the related
consolidated statements of income, retained earnings and cash flows of Consumers
and its consolidated Subsidiaries for the fiscal years then ended, included in
the Borrower's Annual Report on Form 10-K for the fiscal years ended December
31, 2001 and December 31, 2002, in each case as such financial statements are
proposed to be restated in connection with the Restatement, copies of each of
which have been furnished to each Lender, fairly present the financial condition
of Consumers and its consolidated Subsidiaries as at such dates and the results
of operations of Consumers and its consolidated Subsidiaries for the periods
ended on such dates (it being understood that such financial statements do not
give effect to any Restatement Event), all in accordance with generally accepted
accounting principles consistently applied (except for changes resulting from
any Restatement Event); (iii) since December 31, 2002, except as disclosed in
the Borrower's Annual Report on Form 10-K for the fiscal year ended December 31,
2002, there has been no Material Adverse Change; and (iv) except as a result of
any Restatement Event, no Loan Party has any material liabilities or obligations
except as reflected in the foregoing financial statements and in Schedule I, as
evidenced by the Loan Documents and as may be incurred, in accordance with the
terms of this Agreement, in the ordinary course of business (as presently
conducted) following the Closing Date.
(f) Except (i) as disclosed in the Borrower's Annual
Report on Form 10-K for the fiscal year ended December 31, 2002, and (ii) such
other similar actions, suits and proceedings predicated on the occurrence of the
same events giving rise to any actions, suits and proceedings described in the
Annual Report filed with the Securities and Exchange Commission set forth in
clause (i) above (all such matters in clauses (i) and (ii) being the "Disclosed
Matters") and (iii) any Restatement Event, there are no pending or threatened
actions, suits or
43
proceedings against or, to the knowledge of the Borrower, affecting the Borrower
or any of its Subsidiaries or the properties of the Borrower or any of its
Subsidiaries before any court, governmental agency or arbitrator, that would, if
adversely determined, reasonably be expected to materially adversely affect the
financial condition, properties, business or operations of the Borrower and its
Subsidiaries, considered as a whole, or affect the legality, validity or
enforceability of this Agreement or any other Loan Document. There have been no
adverse developments with respect to the Disclosed Matters that have had or
could reasonably be expected to result in a Material Adverse Change.
(g) All insurance required by Section 7.01(b) is in full
force and effect.
(h) No Plan Termination Event has occurred nor is
reasonably expected to occur with respect to any Plan of the Borrower or any of
its ERISA Affiliates which would result in a material liability to the Borrower,
except as disclosed and consented to by the Required Lenders in writing from
time to time. Except as disclosed in the Borrower's Annual Report on Form 10-K
for the period ended December 31, 2002, since the date of the most recent
Schedule B (Actuarial Information) to the annual report of the Borrower (Form
5500 Series), if any, there has been no material adverse change in the funding
status of the Plans referred therein and no "prohibited transaction" has
occurred with respect thereto which is reasonably expected to result in a
material liability to the Borrower. Neither the Borrower nor any of its ERISA
Affiliates has incurred nor reasonably expects to incur any material withdrawal
liability under ERISA to any Multiemployer Plan, except as disclosed and
consented to by the Required Lenders in writing from time to time.
(i) No fire, explosion, accident, strike, lockout or
other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of
the public enemy or other casualty (except for any such circumstance, if any,
which is covered by insurance which coverage has been confirmed and not disputed
by the relevant insurer) affecting the properties, business or operations of the
Borrower, Consumers or any Restricted Subsidiary has occurred that could
reasonably be expected to have a material adverse effect on the business,
assets, property, financial condition, results of operations or prospects of (A)
the Borrower and its Subsidiaries, considered as a whole, or (B) Consumers and
its Subsidiaries, considered as a whole.
(j) The Borrower and its Subsidiaries have filed all tax
returns (Federal, state and local) required to be filed and paid all taxes shown
thereon to be due, including interest and penalties, or, to the extent the
Borrower or any of its Subsidiaries is contesting in good faith an assertion of
liability based on such returns, has provided adequate reserves for payment
thereof in accordance with GAAP.
(k) No extraordinary judicial, regulatory or other legal
constraints exist which limit or restrict Consumers' ability to declare or pay
cash dividends with respect to its capital stock, other than pursuant to the
Consumers Credit Facility.
(l) The Borrower owns not less than 80% of the
outstanding shares of common stock of Enterprises.
44
(m) The Borrower owns not less than 80% of the
outstanding shares of common stock of Consumers.
(n) The Consolidated 2002-2007 Projections of Consumers,
Enterprises and the Borrower (the "PROJECTIONS") are based upon assumptions that
the Borrower believed were reasonable at the time the Projections were
delivered, and all other financial information delivered by the Borrower to the
Administrative Agent and the Banks on and after March 30, 2003 is true and
correct in all material respects as at the dates and for the periods indicated
therein (it being understood that such Projections and financial information do
not give effect to any Restatement Event).
(o) No Loan Party is engaged in the business of extending
credit for the purpose of buying or carrying margin stock (within the meaning of
Regulation U issued by the Board), and no proceeds of any Loan will be used to
buy or carry any margin stock or to extend credit to others for the purpose of
buying or carrying any margin stock.
(p) No Loan Party is an investment company (within the
meaning of the Investment Company Act of 1940, as amended).
(q) No proceeds of any Extension of Credit will be used
to acquire any security in any transaction without the approval of the board of
directors of the Person issuing such security if (i) the acquisition of such
security would cause the Borrower to own, directly or indirectly, 5.0% or more
of any outstanding class of securities issued by such Person, or (ii) such
security is being acquired in connection with a tender offer.
(r) Following application of the proceeds of each
Extension of Credit, not more than 25 percent of the value of the assets of the
Borrower and its Subsidiaries on a consolidated basis will be margin stock
(within the meaning of Regulation U issued by the Board).
(s) No Loan Party is a registered "holding company" or a
"subsidiary" or an "affiliate" of a registered "holding company," as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended, 15
USC 79 et seq.
(t) The Borrower has not withheld any fact from the
Administrative Agent or the Lenders in regard to the occurrence of any Material
Adverse Change.
(u) After giving effect to the Loans to be made on the
Initial Funding Date or such other date as Loans requested hereunder are made,
and the disbursement of the proceeds of such Loans pursuant to the Borrower's
instructions, the Borrower and its Subsidiaries, taken as a whole, are Solvent.
(v) Schedule I sets forth as of February 28, 2003 (i) all
Project Finance Debt of the Consolidated Subsidiaries, and (ii) debt (as such
term is construed in accordance with GAAP) of the Loan Parties, and, as of the
Closing Date, there are no defaults in the payment of principal or interest on
any such Debt and no payments thereunder have been deferred or extended beyond
their stated maturity (except as disclosed on such Schedule).
45
ARTICLE VII
COVENANTS OF THE BORROWER
SECTION 7.01. AFFIRMATIVE COVENANTS. So long as any Loan or any other
amount payable hereunder or under any Promissory Note shall remain unpaid, or
any Lender shall have any Commitment:
(a) Payment of Taxes, Etc. The Borrower shall pay and
discharge, and each of its Subsidiaries shall pay and discharge, before the same
shall become delinquent, all taxes, assessments and governmental charges,
royalties or levies imposed upon it or upon its property except, in the case of
taxes, to the extent the Borrower or any Subsidiary, as the case may be, is
contesting the same in good faith and by appropriate proceedings and has set
aside adequate reserves for the payment thereof in accordance with GAAP.
(b) Maintenance of Insurance. The Borrower shall
maintain, and each of its Restricted Subsidiaries and Consumers shall maintain,
insurance covering the Borrower, each of its Restricted Subsidiaries, Consumers
and their respective properties in effect at all times in such amounts and
covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general geographical area
in which the Borrower, its Restricted Subsidiaries and Consumers operates,
either with reputable insurance companies or, in whole or in part, by
establishing reserves of one or more insurance funds, either alone or with other
corporations or associations.
(c) Preservation of Existence, Etc. Except as otherwise
permitted by Section 7.02, the Borrower shall preserve and maintain, and each of
its Restricted Subsidiaries and Consumers shall preserve and maintain, its
corporate or limited liability company existence, material rights (statutory and
otherwise) and franchises, and take such other action as may be necessary or
advisable to preserve and maintain its right to conduct its business in the
states where it shall be conducting its business.
(d) Compliance with Laws, Etc. The Borrower shall comply,
and each of its Restricted Subsidiaries and Consumers shall comply, in all
material respects with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, including any such laws,
rules, regulations and orders relating to zoning, environmental protection, use
and disposal of Hazardous Substances, land use, construction and building
restrictions, and employee safety and health matters relating to business
operations.
(e) Inspection Rights. Subject to the requirements of
laws or regulations applicable to the Borrower or its Subsidiaries, as the case
may be, and in effect at the time, at any time and from time to time upon
reasonable notice, the Borrower shall permit (i) each Agent and its agents and
representatives to examine and make copies of and abstracts from the records and
books of account of, and the properties of, the Borrower or any of its
Subsidiaries and (ii) each Agent, each of the Lenders, and their respective
agents and representatives to discuss the affairs, finances and accounts of the
Borrower and its Subsidiaries with the Borrower and its Subsidiaries and their
respective officers, directors and accountants. Each such visitation and
inspection described in the preceding sentence by or on behalf of any Lender
shall, unless
46
occurring at a time when a Default or Event of Default shall be continuing, be
at such Lender's expense; all other such inspections and visitations shall be at
the Borrower's expense.
(f) Keeping of Books. From and after December 31, 2002,
the Borrower shall keep, and each of its Subsidiaries shall keep, proper records
and books of account, in which full and correct entries shall be made of all
financial transactions of the Borrower and its Subsidiaries and the assets and
business of the Borrower and its Subsidiaries, in accordance with GAAP (except
as related to the Restatement).
(g) Maintenance of Properties, Etc. The Borrower shall
maintain, and each of its Restricted Subsidiaries shall maintain, in substantial
conformity with all laws and material contractual obligations, good and
marketable title to all of its properties which are used or useful in the
conduct of its business; provided, however, that the foregoing shall not
restrict the sale of any asset of the Borrower or any Restricted Subsidiary to
the extent not prohibited by Section 7.02(i). In addition, the Borrower shall
preserve, maintain, develop, and operate, and each of its Subsidiaries shall
preserve, maintain, develop and operate, in substantial conformity with all laws
and material contractual obligations, all of its material properties which are
used or useful in the conduct of its business in good working order and
condition, ordinary wear and tear excepted.
(h) Use of Proceeds. The Borrower shall use all
Extensions of Credit for general corporate purposes (subject to the terms and
conditions of this Agreement).
(i) Consolidated Leverage Ratio. The Borrower shall
maintain, as of the last day of each fiscal quarter (in each case, the
"MEASUREMENT QUARTER"), a maximum ratio of (i) Consolidated Debt for the
immediately preceding four-fiscal-quarter period ending on the last day of such
Measurement Quarter (calculated exclusive of Panhandle and its Subsidiaries), to
(ii) Consolidated EBITDA for such period (calculated exclusive of Panhandle and
its Subsidiaries), of not more than 7.00 to 1.00, commencing with the period
ending June 30, 2003.
(j) Cash Dividend Coverage Ratio. The Borrower shall
maintain, as of the last day of each Measurement Quarter, a minimum ratio of (i)
the sum of (A) Cash Dividend Income for the four-fiscal-quarter period ending on
such day, plus (B) 25% of the amount of Equity Distributions received by the
Borrower during such period but in no event in excess of $10,000,000 to (ii) an
amount equal to (A) interest expense (excluding all arrangement, underwriting
and other similar fees payable in connection with this Agreement and the
Enterprises 2003 Credit Agreement) accrued by the Borrower in respect of all
Debt during such period, minus (B) cash interest income received by the Borrower
and its Subsidiaries from Persons other than the Borrower or any of its
Subsidiaries, minus (C) all amounts received by the Borrower from its
Subsidiaries and Affiliates during such period constituting reimbursement of
interest expense and commitment, guaranty and letter of credit charges of the
Borrower to such Subsidiary or Affiliate, of not less than 1.20 to 1.00,
commencing with the Measurement Quarter ending on June 30, 2003; provided, that
the Borrower shall be deemed not to be in breach of the foregoing covenant if,
during the Measurement Quarter, it has permanently reduced the principal amount
outstanding under this Agreement and the Promissory Notes, such that the amount
determined pursuant to clause (ii) above, when recalculated on a pro forma basis
assuming that the amount of such reduced principal amount outstanding under such
agreements and promissory
47
notes were in effect at all times during such four-fiscal-quarter period, would
result in the Borrower being in compliance with such ratio.
(k) Further Assurances. The Borrower shall promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or that any Lender through the Administrative
Agent may reasonably request in order to give effect to the transactions
contemplated by this Agreement and the other Loan Documents. In addition, the
Borrower will use all reasonable efforts to duly obtain or make Governmental
Approvals required from time to time on or prior to such date as the same may
become legally required.
(l) Subsidiary Guarantees. The Borrower will (i) with
respect to each Person that becomes a Restricted Subsidiary after the Closing
Date (other than (a) any Subsidiary of the Borrower organized under the laws of
a jurisdiction located other than in the United States (each a "FOREIGN
SUBSIDIARY") if the execution of the Guaranty by such Subsidiary would result in
any materially adverse tax consequences to the Borrower, (b) Panhandle and its
Subsidiaries, and (c) MS&T), subject to any limitations under contractual
restrictions as in effect as of the Closing Date or applicable law with respect
to each Foreign Subsidiary, cause each such Restricted Subsidiary to execute the
Guaranty pursuant to which it agrees to be bound by the terms and provisions of
the Guaranty, and (ii) cause such Persons identified in clause (i) above to
deliver resolutions, opinions of counsel and such other constitutive
documentation as the Administrative Agent may reasonably request, all in form
and substance reasonably satisfactory to the Administrative Agent.
(m) Compliance with Fee Letter. The Borrower and
Enterprises shall comply with its obligations under the Fee Letter.
(n) Payment of Declared Dividend. The Borrower shall
cause each of its direct Subsidiaries to pay all dividends within 30 days after
declaration thereof.
(o) Securities Demand. Unless (x) the "Loans" and
"Commitments" under (and as defined in) the Enterprises 2003 Credit Agreement
and Loans and Commitments hereunder shall have been permanently reduced in an
aggregate principal amount of $550,000,000 or more on or before January 2, 2004,
or (y) the Borrower's reset put securities due July 1, 2003 shall have been
reissued or remarketed pursuant to the terms thereof or refinanced, then, upon
notice from the Administrative Agent (at the direction of the Required Lenders)
(a "SECURITIES DEMAND"), to the extent permitted under each of the Borrower's
indentures (and each supplement issued thereunder), the Borrower will cause the
issuance and sale of debt and/or equity securities ("SECURITIES") the proceeds
of which shall be used to repay the 6.75% Senior Notes on their maturity date
upon such terms and conditions specified in the Securities Demand; provided that
(i) the interest rate (whether floating or fixed) shall be determined by
Administrative Agent in light of the then prevailing market conditions for
comparable securities, (ii) the Administrative Agent in their reasonable
discretion and after consultation with the Borrower, shall determine whether the
Securities shall be issued through a public offering or a private placement;
(iii) the Securities will be issued pursuant to an indenture or indentures,
which shall contain such terms, conditions, and covenants as are typical and
customary for similar financings and are reasonably satisfactory in all respects
to the Administrative Agent; and (iv) all other arrangements with respect to the
Securities shall be
48
reasonably satisfactory in all respects to the Administrative Agent in light of
the then prevailing market conditions.
SECTION 7.02. NEGATIVE COVENANTS. So long as any Loan or any other
amount payable hereunder or under any Promissory Note shall remain unpaid or any
Lender shall have any Commitment, the Borrower shall not, without the written
consent of the Required Lenders:
(a) Liens, Etc. (1) Create, incur, assume or suffer to
exist, or permit any of the Loan Parties to create, incur, assume or suffer to
exist, any lien, security interest, or other charge or encumbrance (including
the lien or retained security title of a conditional vendor) of any kind, or any
other type of arrangement intended or having the effect of conferring upon a
creditor a preferential interest upon or with respect to any of its properties
of any character (including capital stock and other ownership interests of the
Borrower's directly-owned Subsidiaries, intercompany obligations and accounts)
(any of the foregoing being referred to herein as a "LIEN"), whether now owned
or hereafter acquired, or (2) file, or permit any of the other Loan Parties to
file, under the Uniform Commercial Code of any jurisdiction a financing
statement which names the Borrower or any other Loan Party as debtor (other than
financing statements that do not evidence a Lien), or (3) sign, or permit any of
the other Loan Parties to sign, any security agreement authorizing any secured
party thereunder to file such financing statement, or (4) assign, or permit any
of the other Loan Parties to assign, accounts, excluding, however, from the
operation of the foregoing restrictions the Liens created under the Loan
Documents and the following:
(i) Liens for taxes, assessments or governmental charges
or levies to the extent not past due;
(ii) cash pledges or deposits to secure (A) obligations
under workmen's compensation laws or similar legislation, (B) public or
statutory obligations of the Borrower or any of the other Loan Parties,
(C) Support Obligations of the Borrower or any Loan Party, or (D)
obligations of Enterprises or MS&T in respect of hedging arrangements
and commodity purchases and sales (including any cash margins with
respect thereto); provided that with respect to clauses (C) and (D)
above the aggregate amount of cash pledges or deposits securing such
Support Obligations and such obligations of Enterprises or MS&T shall
not exceed $400,000,000 at any one time outstanding;
(iii) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's liens and other
similar Liens arising in the ordinary course of business securing
obligations which are not overdue or which have been fully bonded and
are being contested in good faith;
(iv) Liens securing the obligations under the Loan
Documents and under the "Loan Documents" as defined in the Enterprises
2003 Credit Agreement (and subordinated Liens securing the refinancing
of all or any portion of such obligations, which Liens shall be
subordinated on terms and conditions acceptable to the Administrative
Agent and the Collateral Agent);
49
(v) Liens securing Off-Balance Sheet Liabilities (and all
refinancings and recharacterizations thereof permitted under Section
7.02(b)(iv)) in an aggregate amount not to exceed $775,000,000;
(vi) purchase money Liens or purchase money security
interests upon or in property acquired or held by the Borrower or any
of the other Loan Parties in the ordinary course of business to secure
the purchase price of such property or to secure indebtedness incurred
solely for the purpose of financing the acquisition of any such
property to be subject to such Liens or security interests, or Liens or
security interests existing on any such property at the time of
acquisition, or extensions, renewals or replacements of any of the
foregoing for the same or a lesser amount, provided that no such Lien
or security interest shall extend to or cover any property other than
the property being acquired and no such extension, renewal or
replacement shall extend to or cover property not theretofore subject
to the Lien or security interest being extended, renewed or replaced,
and provided, further, that the aggregate principal amount of the Debt
at any one time outstanding secured by Liens permitted by this clause
(vi) shall not exceed $15,000,000;
(vii) Utility easements, building restrictions and such
other encumbrances or charges against real property as are of a nature
generally existing with respect to properties of a similar character
and which do not in any material way affect the marketability of the
same or interfere with the use thereof in the business of the Borrower
or any other Loan Party;
(viii) Liens existing on any capital asset of any Person at
the time such Person is merged or consolidated with or into, or
otherwise acquired by, the Borrower or any other Loan Party and not
created in contemplation of such event, provided that such Liens do not
encumber any other property or assets and such merger, consolidation or
acquisition is otherwise permitted under this Agreement;
(ix) Liens existing on any capital asset prior to the
acquisition thereof by the Borrower or any other Loan Party and not
created in contemplation thereof; provided that such Liens do not
encumber any other property or assets;
(x) Liens existing as of the Closing Date;
(xi) Liens securing Project Finance Debt otherwise
permitted under this Agreement;
(xii) Liens arising out of the refinancing, extension,
renewal or refunding of any Debt secured by any Lien permitted by any
of the foregoing clauses (v), (viii), (ix), (x) or (xi); provided that
(a) such Debt is not secured by any additional assets, and (b) the
amount of such Debt secured by any such Lien is otherwise permitted
under this Agreement;
(xiii) Liens on accounts receivable (other than intercompany
receivables) and other contract rights of MS&T and its Subsidiaries
arising on or after the Closing Date in favor of any Person (other than
an Affiliate of the Borrower or any of its Subsidiaries) that
facilitates the origination of such accounts receivable or other
contract rights;
50
(xiv) subordinated Liens granted pursuant to the terms of
the AIG Pledge Agreement, which Liens shall be subordinated pursuant to
the terms of the Intercreditor Agreement, to secure certain surety bond
obligations as described in the AIG Pledge Agreement; and
(xv) subordinated Liens arising out of the refinancing,
extension, renewal or refunding of the 6.75% Senior Notes, the
Borrower's reset put securities due July 1, 2003 and the Borrower's
general term notes due in 2003, which Liens shall be subordinated on
terms and conditions acceptable to the Administrative Agent and the
Collateral Agent.
(b) Enterprises Debt. Permit Enterprises or any
Subsidiary of Enterprises (other than Panhandle and its Subsidiaries) to create,
incur, assume or suffer to exist any debt (as such term is construed in
accordance with GAAP) other than:
(i) debt arising by reason of the endorsement of
negotiable instruments for deposit or collection or similar
transactions in the ordinary course of Enterprises' or its
Subsidiaries' business;
(ii) in the form of indemnities in respect of unfiled
mechanics' liens and Liens affecting Enterprises' or its Subsidiaries'
properties permitted under Section 7.02(a)(iii);
(iii) debt arising under (a) the Loan Documents and (b) the
"Loan Documents" as defined in the Enterprises 2003 Credit Agreement in
a principal amount equal to $441,000,000 minus any principal payments
(but with respect to principal payments of revolving loans prior to the
"Conversion Date" thereunder, only to the extent of any concurrent
reduction or termination of the "Commitments" as defined therein) made
from time to time thereunder;
(iv) debt constituting Off-Balance Sheet Liabilities
(including any recharacterization thereof as debt pursuant to any
changes in generally accepted accounting principles hereafter required
or permitted and which are adopted by the Borrower or any of its
Subsidiaries with the agreement of its independent certified public
accountants) to the extent permitted by Section 7.02(o), and any
extensions, renewals, refundings or replacements thereof, provided that
any such extension, renewal, refunding or replacement is in an
aggregate principal amount not greater than the principal amount of, is
an obligation of the same Person that is the obligor in respect of, and
has a weighted average life to maturity not less than the weighted
average life to maturity of, the debt so extended, renewed, refunded or
replaced;
(v) other debt of Enterprises and its Subsidiaries
outstanding on the Closing Date (including the debt of the Loan Parties
as of February 28, 2003 as set forth on Schedule I), and any
extensions, renewals, refundings or replacements thereof, provided that
any such extension, renewal, refunding or replacement is in an
aggregate principal amount not greater than the principal amount of, is
an obligation of the same Person that is the obligor in respect of, and
has a weighted average life to maturity not less than the weighted
average life to maturity of, the debt so extended, renewed, refunded or
replaced;
51
(vi) (a) unsecured, subordinated debt owed (i) to the
Borrower by Enterprises, (ii) to Enterprises or CMS Capital, L.L.C. (or
any successor by merger to CMS Capital, L.L.C.) and (iii) to any
Grantor by any Loan Party, and (b) unsecured debt owed to any
Subsidiary of Enterprises (other than a Grantor) by CMS Capital, L.L.C.
(or any successor by merger to CMS Capital, L.L.C.), and (c) unsecured
debt of any Foreign Subsidiary of Enterprises owed to another Foreign
Subsidiary of Enterprises provided that the proceeds of any repayment
of such debt are remitted to a Loan Party;
(vii) Project Finance Debt of any Loan Party or any of its
Subsidiaries incurred on or after the Closing Date, provided that the
Net Proceeds thereof shall be applied in accordance with Section
2.03(c) if required to be so applied; and
(viii) capital lease obligations and other Debt secured by
purchase money Liens to the extent such Liens shall be permitted under
Section 7.02(a)(vi).
(c) Lease Obligations. Create, incur, assume or suffer to
exist, or permit any of the other Loan Parties to create, incur, assume or
suffer to exist, any obligations as lessee for the rental or hire of real or
personal property of any kind under leases or agreements to lease (other than
leases which constitute Debt) having an original term of one year or more which
would cause the aggregate direct or contingent liabilities of the Borrower and
the other Loan Parties in respect of all such obligations payable in any period
of 12 consecutive calendar months to exceed $50,000,000.
(d) Investments in Other Persons. Make, or permit any of
the other Loan Parties to make, any loan or advance to any Person, or purchase
or otherwise acquire any capital stock, obligations or other securities of, make
any capital contribution to, or otherwise invest in, any Person, other than (i)
Permitted Investments, (ii) pursuant to the contractual or contingent
obligations of the Borrower or any other Loan Party as in effect as of the
Closing Date and in amounts not to exceed the estimated amounts as set forth on
Schedule I hereto (whether such obligation is conditioned upon a change in the
ratings of the securities issued by such Person or otherwise) and, in each case,
in an amount not to exceed such contractual or contingent obligation as in
effect on the Closing Date, (iii) investments, directly or indirectly, by any
Loan Party (x) in the capital of any Subsidiary of the Borrower that is a Loan
Party and (y) in assets contributed to such Loan Party, provided that if any
such assets constitute Collateral prior to such contribution, such assets shall
remain Collateral after giving effect to such contribution and prior to such
contribution the Borrower shall, and shall cause each applicable Subsidiary to,
execute and deliver to the Administrative Agent all agreements, instruments and
documents as may be necessary or reasonably requested by the Administrative
Agent to perfect its security interest in such Collateral, (iv) investments in
the capital stock or other ownership interests of any of the Borrower's
Subsidiaries arising from the conversion of intercompany indebtedness to equity,
(v) intercompany loans and advances to the extent the corresponding debt is
permitted under Section 7.02(b)(vi), (vi) investments constituting non-cash
consideration received in connection with the sale of any asset permitted under
Section 7.02(i), and (vii) additional loans, advances, purchases, contributions
and other investments in an amount not to exceed $340,000,000 in the aggregate
at any time; provided, however, that investments described in clauses (iv)
(solely with respect to investments made in any Subsidiary that is not a Loan
Party) and (vii) above shall not be permitted to be made at a time when either a
Default or an Event of Default shall be continuing
52
or would result therefrom; provided, further, that, notwithstanding the
foregoing, neither the Borrower nor any Loan Party shall make any loans or
advances to any of the Borrower's Subsidiaries other than, to the extent
otherwise permitted hereunder, Enterprises or any Subsidiary of Enterprises.
(e) Restricted Payments. Declare or pay, or permit any
other Loan Party to declare or pay, directly or indirectly, any dividend,
payment or other distribution of assets, properties, cash, rights, obligations
or securities on account of any share of any class of capital stock or other
ownership interests of the Borrower or any of the other Loan Parties (other than
(1) stock splits and dividends payable solely in nonconvertible equity
securities of the Borrower and (2) dividends and distributions made to the
Borrower or a Loan Party), or purchase, redeem, retire, or otherwise acquire for
value, or permit any of the other Loan Parties to purchase, redeem, retire, or
otherwise acquire for value, any shares of any class of capital stock or other
ownership interests of the Borrower or any of the other Loan Parties or any
warrants, rights, or options to acquire any such shares, now or hereafter
outstanding, or make, or permit any of the other Loan Parties to make, any
distribution of assets to any of its shareholders (other than distributions to
the Borrower or any other Loan Party) (any such dividend, payment, distribution,
purchase, redemption, retirement or acquisition being hereinafter referred to as
a "RESTRICTED PAYMENT") other than (i) pursuant to the terms of any class of
capital stock of the Borrower issued and outstanding (and as in effect on) the
Closing Date, any purchase or redemption of capital stock of the Borrower made
by exchange for, or out of the proceeds of the substantially concurrent sale of,
capital stock of the Borrower (other than Redeemable Stock or Exchangeable Stock
(as such terms are defined in the Indenture on the Closing Date)); and (ii)
payments made by the Borrower or any other Loan Party pursuant to the Tax
Sharing Agreement.
(f) Compliance with ERISA. (i) Permit to exist any
"accumulated funding deficiency" (as defined in Section 412(a) of the Internal
Revenue Code of 1986, as amended), (ii) terminate, or permit any ERISA Affiliate
to terminate, any Plan or withdraw from, or permit any ERISA Affiliate to
withdraw from, any Multiemployer Plan, so as to result in any material (in the
opinion of the Required Lenders) liability of the Borrower, any other Loan Party
or Consumers to such Plan, Multiemployer Plan or the PBGC, or (iii) permit to
exist any occurrence of any Reportable Event (as defined in Title IV of ERISA),
or any other event or condition, which presents a material (in the opinion of
the Required Lenders) risk of such a termination by the PBGC of any Plan or
withdrawal from any Multiemployer Plan so as to result in a material liability
to the Borrower, any other Loan Party or Consumers.
(g) Transactions with Affiliates. Enter into, or permit
any of its Subsidiaries to enter into, any transaction with any of its
Affiliates unless such transaction is on terms no less favorable to the Borrower
or such Subsidiary than if the transaction had been negotiated in good faith on
an arm's-length basis with a non-Affiliate; provided that (x) the purchase by,
or other transfer to, Trunkline Field Services Company of certain assets of CMS
Field Services, Inc. as described to the Administrative Agent and the Lenders
prior to the date hereof shall be permitted hereunder and (y) any transaction
permitted under Sections 7.02(b), 7.02(e) or 7.02(h) shall be permitted
hereunder.
(h) Mergers, Etc. Merge with or into or consolidate with
or into, or permit any of the other Loan Parties or Consumers to merge with or
into or consolidate with or into, any
53
other Person, except that (i) (x) any Loan Party may merge with or into any
other Loan Party, (y) any Subsidiary of a Loan Party that is not a Loan Party
may merge into such Loan Party or with or into any other Subsidiary of any Loan
Party, provided that (a) in any such merger with or into the Borrower, the
Borrower is the surviving corporation, (b) in any such merger into a Loan Party
under clause (y) above, the Loan Party is the survivor thereof, (c) no Default
or Event of Default shall be continuing or result therefrom and (d) such Loan
Party shall not be liable with respect to any Debt or allow its property to be
subject to any Lien which it could not become liable with respect to or allow
its property to become subject to under this Agreement or any other Loan
Document on the date of such transaction, and (ii) any Loan Party may merge with
or into any other Person, provided that (a) the Loan Party is the survivor
thereof, or, in the case of any Loan Party that is a corporation reconstituting
itself as limited liability company, such limited liability company shall be the
survivor thereof and shall be thereafter deemed to be a Loan Party hereunder,
(b) no Default or Event of Default shall be continuing or result therefrom, (c)
such Loan Party shall not be liable with respect to any Debt or allow its
property to be subject to any Lien which it could not become liable with respect
to or allow its property to become subject to under this Agreement or any other
Loan Document on the date of such transaction, and (d) immediately after giving
effect to such merger, the Net Worth of such Loan Party shall be equal to or
greater than the Net Worth of such Loan Party as of the last day of the fiscal
quarter immediately preceding the date of such merger.
(i) Sales, Etc., of Assets. Sell, lease, transfer,
assign, or otherwise dispose of all or any substantial part of its assets, or
permit any of the other Loan Parties (other than MS&T) to sell, lease, transfer,
or otherwise dispose of all or any substantial part of its assets, except (i) to
give effect to a transaction permitted by subsection (h) above or subsection (j)
below, and (ii) with respect to Enterprises or any of its Subsidiaries, as
permitted under the Enterprises 2003 Credit Agreement; provided, further, that
neither the Borrower nor any of the other Loan Parties (other than MS&T) shall
sell, assign, transfer, lease, convey or otherwise dispose of any property,
whether now owned or hereafter acquired, or any income or profits therefrom, or
enter into any agreement to do so, except:
(A) the sale of property for consideration not less than
the Fair Market Value thereof so long as (i) any non-cash consideration
resulting from such sale shall be pledged or assigned to the Collateral
Agent, for the benefit of the Lenders, pursuant to an instrument in
form and substance reasonably acceptable to the Collateral Agent, (ii)
cash consideration resulting from such sale shall be (x) in an amount
determined by the Borrower for any sale the consideration of which is
$10,000,000 or less, or, together with all other such sales under this
clause (x), $25,000,000 or less, (y) in the case of the sale of
substantially all or any portion of the capital stock and assets of CMS
Field Services, Inc. and its Subsidiaries, not less than 60% of the
aggregate consideration resulting from such sale, (z) for all other
sales, not less than 90% of the aggregate consideration resulting from
such sale, and (iii) the Borrower complies with the mandatory
prepayment provisions set forth in Section 2.03(c);
(B) the transfer of property from a Loan Party to any
other Loan Party;
(C) the transfer of property constituting an investment
otherwise permitted under Section 7.02(d);
54
(D) the sale of electricity and natural gas and other
property in the ordinary course of Borrower's and its Subsidiaries
respective businesses consistent with past practice;
(E) any transfer of an interest in receivables and
related security, accounts or notes receivable on a limited recourse
basis in connection with the incurrence of Off-Balance Sheet
Liabilities, provided that such transfer qualifies as a legal sale and
as a sale under GAAP and the incurrence of such Off-Balance Sheet
Liabilities is permitted under Section 7.02(o);
(F) the transfer of property constituting not more than
two percent (2%) of the ownership interests held by the Borrower and
its Subsidiaries as of the Closing Date in CMS International Ventures,
L.L.C. to CMS Energy Foundation and/or Consumers Foundation and/or any
other third-party 501(c)(3) charitable organization;
(G) the disposition of equipment if such equipment is
obsolete or no longer useful in the ordinary course of the Borrower's
or such Subsidiary's business;
(H) the sale of substantially all of the capital stock
and assets of Panhandle; provided that such sale shall be consummated
substantially in accordance with, and on terms not materially more
adverse to the interests of the Agents and the Lenders than the terms
and conditions set forth in, that certain Stock Purchase Agreement,
dated as of December 21, 2002, by and among CMS Gas Transmission
Company, AIG Highstar Capital, L.P., AIG Highstar II Funding Corp.,
Southern Union Company and Southern Union Panhandle Corp.
(j) Maintenance of Ownership of Subsidiaries. Sell,
transfer, assign or otherwise dispose of any shares of capital stock or other
ownership interests of any of the Loan Parties or Consumers (other than
preferred or preference stock of Consumers) or any warrants, rights or options
to acquire such capital stock or other ownership interests, or permit any other
Loan Party or Consumers to issue, sell, transfer, assign or otherwise dispose of
any shares of its capital stock (other than preferred or preference stock of
Consumers) or other ownership interests or the capital stock or other ownership
interests of any other Loan Party or any warrants, rights or options to acquire
such capital stock or other ownership interests, except (i) to give effect to a
transaction permitted by subsection (d), (h) or (i) above, and (ii) in
connection with the foreclosure of any Liens permitted under Section
7.02(a)(iv).
(k) Amendment of Tax Sharing Agreement. Directly or
indirectly, amend, modify, supplement, waive compliance with, seek a waiver
under, or assent to noncompliance with, any term, provision or condition of the
Tax Sharing Agreement if the effect of such amendment, modification, supplement,
waiver or assent is to (i) reduce materially any amounts otherwise payable to,
or increase materially any amounts otherwise owing or payable by, the Borrower
thereunder, or (ii) change materially the timing of any payments made by or to
the Borrower thereunder.
(l) Prepayments of Indebtedness. Make or agree to pay or
make, or permit any of the other Loan Parties to make or agree to pay or make,
directly or indirectly, any
55
payment or other distribution (whether in cash, securities or other property) of
or in respect of principal of or interest on any Debt, or any payment or other
distribution (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any Debt (other than the
obligations of the Loan Parties under the Loan Documents and under the "Loan
Documents" as defined in the Enterprises 2003 Credit Agreement), other than (i)
any payments on account of (a) any Debt when and as such payment was due
(including at the maturity thereof if the initial stated maturity thereof is on
or prior to the Facility A Maturity Date) pursuant to the mandatory payment
provisions applicable to such Debt at the time it was incurred (including,
without limitation, regularly scheduled payment dates for principal, interest,
fees and other amounts due thereon) or any extension thereof thereafter granted
by the holder of such Debt, (b) refinancings of Debt otherwise permitted under
this Agreement, (c) any Debt owed to the Borrower or any of its Subsidiaries,
(d) Debt secured by a Lien on assets subject to an asset sale permitted by
Section 7.02(i) and (e) the extinguishment of any intercompany Debt in
connection with a dividend or distributions permitted under Section 7.02(e),
(ii) payments constituting the exchange of the Borrower's common stock for the
Borrower's outstanding Debt (and any cash payments made in lieu of the issuance
of fractional shares) to the extent such exchange is permitted under the
Securities and Exchange Act of 1933, as amended and (iii) prepayments of (x) the
Borrower's reset put securities due July 1, 2003 and the Borrower's general term
notes due in 2003, (y) if the aggregate principal amount of the Loans shall be
less than $250,000,000, any securities with maturities on or after January 1,
2004 but prior to April 1, 2004, and (z) if the aggregate principal amount of
the Loans shall be less than $175,000,000, any securities with maturities on or
after January 1, 2004.
(m) Conduct of Business. Engage, or permit any Restricted
Subsidiary to engage, in any business other than (a) the business engaged in by
the Borrower and its Subsidiaries on the date hereof, and (b) any business or
activities which are substantially similar, related or incidental thereto.
(n) Organizational Documents. Amend, modify or otherwise
change, or permit any Restricted Subsidiary to amend, modify or otherwise change
any of the terms or provisions in any of their respective certificate of
incorporation and by-laws (or comparable constitutive documents) as in effect on
the Closing Date in any manner adverse to the interests of the Lenders.
(o) Off-Balance Sheet Liabilities. Create, incur, assume
or suffer to exist, or permit any Subsidiary (other than Consumers and its
Subsidiaries) to create, incur, assume or suffer to exist, Off-Balance Sheet
Liabilities (exclusive of lease obligations otherwise permitted under Section
7.02(c)) in the aggregate in excess of $775,000,000 at any time.
SECTION 7.03. REPORTING OBLIGATIONS. So long as any Loan or any other
amount payable hereunder or under any Promissory Note shall remain unpaid or any
Lender shall have any Commitment, the Borrower will, unless the Required Lenders
shall otherwise consent in writing, furnish to the Administrative Agent (with
sufficient copies for each Lender), the following:
56
(a) as soon as possible and in any event within five days
after the Borrower knows or should have reason to know of the occurrence of each
Default or Event of Default continuing on the date of such statement, a
statement of the chief financial officer or chief accounting officer of the
Borrower setting forth details of such Default or Event of Default and the
action that the Borrower proposes to take with respect thereto;
(b) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal year of the
Borrower, commencing with the fiscal quarter ending on March 31, 2003, a
consolidated balance sheet and consolidated statements of income and retained
earnings and of cash flows of the Borrower and its Subsidiaries as at the end of
such quarter and for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter (which requirement shall be deemed
satisfied by the delivery of the Borrower's quarterly report on Form 10-Q for
such quarter), all in reasonable detail and duly certified (subject to year-end
audit adjustments) by the chief financial officer or chief accounting officer of
the Borrower as having been prepared in accordance with GAAP, together with (A)
a schedule (substantially in the form of Exhibit E appropriately completed) of
(1) the computations used by the Borrower in determining compliance with the
covenants contained in Sections 7.01(i) and 7.01(j) and the ratio set forth in
Section 8.01(j), (2) all Project Finance Debt of the Consolidated Subsidiaries,
together with the Borrower's Ownership Interest in each such Consolidated
Subsidiary and (3) all Support Obligations of the Borrower of the types
described in clauses (iv) and (v) of the definition of Support Obligations
(whether or not each such Support Obligation or the primary obligation so
supported is fixed, conclusively determined or reasonably quantifiable) to the
extent such Support Obligations have not been previously disclosed as
"Consolidated Debt" pursuant to clause (1) above, and (B) a certificate of said
officer stating that no Default or Event of Default has occurred and is
continuing or, if a Default or Event of Default has occurred and is continuing,
a statement as to the nature thereof and the action that the Borrower proposes
to take with respect thereto;
(c) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower and its Subsidiaries,
commencing with the fiscal year ending on December 31, 2003, a copy of the
Annual Report on Form 10-K (or any successor form) for the Borrower and its
Subsidiaries for such year, including therein a consolidated balance sheet of
the Borrower and its Subsidiaries as of the end of such fiscal year and
consolidated statements of income and retained earnings and of cash flows of the
Borrower and its Subsidiaries for such fiscal year, accompanied by a report
thereon of a nationally-recognized independent public accounting firm, together
with (1) a schedule in form satisfactory to the Required Lenders of (A) the
computations used by such accounting firm in determining, as of the end of such
fiscal year, compliance with the covenants contained in Sections 7.01(i) and
7.01(j) and the ratio set forth in Section 8.01(j), (B) all Project Finance Debt
of the Consolidated Subsidiaries, together with the Borrower's Ownership
Interest in each such Consolidated Subsidiary and (C) all Support Obligations of
the Borrower of the types described in clauses (iv) and (v) of the definition of
Support Obligations (whether or not each such Support Obligation or the primary
obligation so supported is fixed, conclusively determined or reasonably
quantifiable) to the extent such Support Obligations have not been previously
disclosed as "Consolidated Debt" pursuant to clause (A) above, and (2) a
certificate of the chief financial officer or chief accounting officer of the
Borrower stating that no Default or Event of Default has occurred and
57
is continuing or, if a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action that the
Borrower proposes to take with respect thereto;
(d) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal year of the
Borrower, commencing with the fiscal quarter ending on March 31, 2003, a balance
sheet and statements of income and retained earnings and of cash flows of the
Borrower as at the end of such quarter and for the period commencing at the end
of the previous fiscal year and ending with the end of such quarter, all in
reasonable detail and duly certified (subject to year-end audit adjustments) by
the chief financial officer or chief accounting officer of the Borrower as
having been prepared in accordance with GAAP;
(e) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower, commencing with the fiscal
year ending on December 31, 2003, a balance sheet of the Borrower as at the end
of such fiscal year and statements of income and retained earnings and of cash
flows of the Borrower for such fiscal year, all in reasonable detail and duly
certified (subject to year end audit adjustments) by the chief financial officer
or chief accounting officer of the Borrower as having been prepared in
accordance with GAAP;
(f) as soon as possible and in any event (A) within 30
days after the Borrower knows or has reason to know that any Plan Termination
Event described in clause (i) of the definition of Plan Termination Event with
respect to any Plan of the Borrower or any ERISA Affiliate of the Borrower has
occurred and could reasonably be expected to result in a material liability to
the Borrower and (B) within 10 days after the Borrower knows or has reason to
know that any other Plan Termination Event with respect to any Plan of the
Borrower or any ERISA Affiliate of the Borrower has occurred and could
reasonably be expected to result in a material liability to the Borrower, a
statement of the chief financial officer or chief accounting officer of the
Borrower describing such Plan Termination Event and the action, if any, which
the Borrower proposes to take with respect thereto;
(g) except as may arise in connection with the sale of
Panhandle, promptly after receipt thereof by the Borrower or any of its ERISA
Affiliates from the PBGC copies of each notice received by the Borrower or any
such ERISA Affiliate of the PBGC's intention to terminate any Plan or to have a
trustee appointed to administer any Plan;
(h) except as may arise in connection with the sale of
Panhandle, promptly and in any event within 30 days after the filing thereof
with the Internal Revenue Service, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each Plan
(if any) to which the Borrower is a contributing employer;
(i) promptly after receipt thereof by the Borrower or any
of its ERISA Affiliates from a Multiemployer Plan sponsor, a copy of each notice
received by the Borrower or any of its ERISA Affiliates concerning the
imposition or amount of withdrawal liability in an aggregate principal amount of
at least $250,000 pursuant to Section 4202 of ERISA in respect of which the
Borrower is reasonably expected to be liable;
(j) promptly after the Borrower becomes aware of the
occurrence thereof, notice of all actions, suits, proceedings or other events of
the type described in Section 6.01(f);
58
(k) promptly after the sending or filing thereof, notice
to the Administrative Agent and each Lender of any sending or filing of all
proxy statements, financial statements and reports which the Borrower sends to
its public security holders (if any), all regular, periodic and special reports
which the Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or with any national
securities exchange, pursuant to the Exchange Act, and all final prospectuses
with respect to any securities issued or to be issued by the Borrower or any of
its Subsidiaries;
(l) as soon as possible and in any event within five days
after the occurrence of any material default under any material agreement to
which the Borrower or any of its Subsidiaries is a party, which default would
materially adversely affect the business, assets, property, financial condition,
results of operations or prospects of the Borrower and its Subsidiaries,
considered as a whole, any of which is continuing on the date of such
certificate, a certificate of the chief financial officer of the Borrower
setting forth the details of such material default and the action which the
Borrower or any such Subsidiary proposes to take with respect thereto; and
(m) promptly after requested, such other information
respecting the business, properties, condition or operations, financial or
otherwise, of the Borrower and its Subsidiaries as any Agent or the Required
Lenders may from time to time reasonably request in writing.
The Borrower shall be deemed to have fulfilled its obligations pursuant to
clauses (b), (c), (d), (e) and (k) above to the extent the Administrative Agent
(and the Lenders, if applicable) receives an electronic copy of the requisite
document or documents in a format reasonably acceptable to the Administrative
Agent, provided that (1) an executed, tangible copy of any report required
pursuant to clause (e) above is delivered to the Administrative Agent at the
time of any such electronic delivery, and (2) a tangible copy of each requisite
document delivered electronically is made available by the Borrower promptly
upon request by any Agent or Lender.
ARTICLE VIII
DEFAULTS
SECTION 8.01. EVENTS OF DEFAULT. If any of the following events (each
an "EVENT OF DEFAULT") shall occur and be continuing, the Administrative Agent
and the Lenders shall be entitled to exercise the remedies set forth in Section
8.02:
(a) The Borrower shall fail to pay (i) any principal of
any Loan when due or (ii) any interest thereon, fees or other amounts (other
than any principal of any Loan) payable hereunder within two Business Days after
such interest, fees or other amounts shall have become due; or
(b) Any representation or warranty made by or on behalf
of the Borrower in any Loan Document or certificate or other writing delivered
pursuant thereto shall prove to have been incorrect in any material respect when
made or deemed made; or
(c) The Borrower or any of its Subsidiaries shall fail to
perform or observe any term or covenant on its part to be performed or observed
contained in Section 7.01(c), (h),
59
(i), (j), (l), (n) or (o) or in Section 7.02 hereof (and the Borrower, each
Lender and each Agent hereby agrees that an Event of Default under this
subsection (c) shall be given effect as if the defaulting Subsidiary were a
party to this Agreement); or
(d) The Borrower or any of its Subsidiaries shall fail to
perform or observe any other term or covenant on its part to be performed or
observed contained in any Loan Document and any such failure shall remain
unremedied, after written notice thereof shall have been given to the Borrower
by the Administrative Agent, for a period of 10 Business Days (and the Borrower,
each Lender and each Agent hereby agrees that an Event of Default under this
subsection (d) shall be given effect as if the defaulting Subsidiary were a
party to this Agreement); or
(e) The Borrower, any Restricted Subsidiary or Consumers
shall fail to pay any of its Debt (including any interest or premium thereon but
excluding Debt incurred under this Agreement) (i) under the Enterprises 2003
Credit Agreement, or (ii) otherwise aggregating, in the case of the Borrower and
each Restricted Subsidiary, $6,000,000 or more or, in the case of Consumers,
$25,000,000 or more, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in any agreement or
instrument relating to such Debt; or any other default under any agreement or
instrument relating to any such Debt (including any "amortization event" or
event of like import in connection with any Off-Balance Sheet Liabilities), or
any other event, shall occur and shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect of such
default or event is (i) to accelerate, or to permit the acceleration of, the
maturity of such Debt; or any such Debt shall be declared to be due and payable,
or required to be prepaid (other than by a regularly scheduled required
prepayment) prior to the stated maturity thereof; unless in each such case the
obligee under or holder of such Debt shall have waived in writing such
circumstance so that such circumstance is no longer continuing, or (ii) with
respect to any such event occurring in connection with any Off-Balance Sheet
Liabilities aggregating $6,000,000 or more, to terminate the reinvestment of
collections or proceeds of receivables and related security under any agreements
or instruments related thereto (other than a termination resulting solely from
the request of the Borrower or its Subsidiaries); or
(f) (i) The Borrower, any Restricted Subsidiary or
Consumers shall generally not pay its debts as such debts become due, or shall
admit in writing its inability to pay its debts generally, or shall make an
assignment for the benefit of creditors; or (ii) any proceeding shall be
instituted by or against the Borrower, any Restricted Subsidiary or Consumers
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of its debts under any law relating to bankruptcy, insolvency, or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, or other similar official for it or
for any substantial part of its property and, in the case of a proceeding
instituted against the Borrower, either such proceeding shall remain undismissed
or unstayed for a period of 60 days or any of the actions sought in such
proceeding (including the entry of an order for relief against the Borrower, a
Restricted Subsidiary or Consumers or the appointment of a receiver, trustee,
custodian or other similar official for the Borrower, such Restricted Subsidiary
or Consumers or any of its property) shall occur; or (iii) the Borrower, any
Restricted Subsidiary or Consumers shall take
60
any corporate or other action to authorize any of the actions set forth above in
this subsection (f); or
(g) Any judgment or order for the payment of money in
excess of $6,000,000 shall be rendered against the Borrower, any Guarantor or
any of their respective properties and either (i) enforcement proceedings shall
have been commenced by any creditor upon such judgment or order or (ii) there
shall be any period of 30 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect; or
(h) Any material provision of any Loan Document, after
execution hereof or delivery thereof under Article V, shall for any reason other
than the express terms hereof or thereof cease to be valid and binding on any
party thereto; or any Loan Party shall so assert in writing; or any Guarantor
shall terminate or revoke any of its obligations under the applicable Guaranty;
or
(i) Any "Event of Default" shall occur under and as
defined in the AIG Pledge Agreement as in effect on January 8, 2003 (and without
giving effect to any amendment or other modification thereto); or
(j) There shall be imposed or enacted any Consumers
Dividend Restriction, the result of which is that the Dividend Coverage Ratio
shall be less than 1.15 to 1.0 at any time after the imposition of such
Consumers Dividend Restriction; or
(k) At any time, for any reason (except to the extent
permitted by the terms of the Loan Documents or due to any failure by the
Collateral Agent to take any action on its part to be performed under applicable
law in order to maintain the perfection or priority of any such Liens), (i) the
Liens intended to be created under any of the Loan Documents with respect to
Collateral having a Fair Market Value of $6,000,000 or more become, or the
Borrower or any such Subsidiary seeks to render such Liens, invalid or
unperfected, or (ii) Liens in favor of the Collateral Agent for the benefit of
the Lenders contemplated by the Loan Documents with respect to Collateral having
a Fair Market Value of $6,000,000 or more shall, at any time, for any reason, be
invalidated or otherwise cease to be in full force and effect, or such Liens
shall not have the priority contemplated by this Agreement or the Loan
Documents.
SECTION 8.02. REMEDIES. If any Event of Default has occurred and is
continuing, then the Administrative Agent or the Collateral Agent, as
applicable, shall at the request, or may with the consent, of the Required
Lenders, upon notice to the Borrower (i) declare the Commitments and the
obligation of each Lender to make or Convert Loans to be terminated, whereupon
the same shall forthwith terminate, (ii) declare the principal amount
outstanding hereunder, all interest thereon and all other amounts payable under
this Agreement and the other Loan Documents to be forthwith due and payable,
whereupon the principal amount outstanding hereunder, all such interest and all
such amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower, and (iii) exercise in respect of any and all collateral,
in addition to the other rights and remedies provided for herein or otherwise
available to the Administrative Agent, the Collateral Agent or the Lenders, all
the rights and remedies of a
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secured party on default under the Uniform Commercial Code in effect in the
State of New York and in effect in any other jurisdiction in which collateral is
located at that time; provided, however, that in the event of an actual or
deemed entry of an order for relief with respect to the Borrower or any
Guarantor under the Federal Bankruptcy Code, (A) the Commitments and the
obligation of each Lender to make or Convert Loans shall automatically be
terminated and (B) the principal amount outstanding hereunder, all such interest
and all such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
ARTICLE IX
THE AGENTS
SECTION 9.01. AUTHORIZATION AND ACTION.
(a) Each of the Lenders hereby irrevocably appoints each
Agent as its agent and authorizes each such Agent to take such actions on its
behalf and to exercise such powers as are delegated to such Agent by the terms
of the Loan Documents, together with such actions and powers as are reasonably
incidental thereto.
(b) Any Lender serving as an Agent hereunder shall have
the same rights and powers in its capacity as a Lender as any other Lender and
may exercise the same as though it were not an Agent, and such Lender and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with the Borrower or any of its Subsidiaries or other Affiliate
thereof as if it were not an Agent hereunder.
(c) No Agent shall have any duties or obligations except
those expressly set forth in the Loan Documents. Without limiting the generality
of the foregoing, (i) no Agent shall be subject to any fiduciary or other
implied duties, regardless of whether a Default or an Event of Default has
occurred and is continuing, (ii) no Agent shall have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated by the Loan Documents that such Agent
is required to exercise in writing by the Required Lenders (or such other number
or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 10.01), and (iii) except as expressly set forth in the Loan
Documents, no Agent shall have any duty to disclose, or shall be liable for the
failure to disclose, any information relating to the Borrower or any of its
Subsidiaries or Affiliates that is communicated to or obtained by the Lender
serving as such Agent or any of its Affiliates in any capacity. No Agent shall
be liable for any action taken or not taken by it with the consent or at the
request of the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section
10.01 or any other provision of this Agreement) or in the absence of its own
gross negligence or willful misconduct. Each Agent shall be deemed not to have
knowledge of any Default or Event of Default unless and until written notice
thereof is given to such Agent by the Borrower or a Lender (in which case such
Agent shall promptly give a copy of such written notice to the Lenders and the
other Agents). No Agent shall be responsible for or have any duty to ascertain
or inquire into (A) any statement, warranty or representation made in or in
connection with any Loan Document, (B) the contents of any certificate, report
or other document delivered thereunder or in connection therewith, (C) the
performance or observance of any of the covenants, agreements or other terms
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or conditions set forth in any Loan Document, (D) the validity, enforceability,
effectiveness or genuineness of any Loan Document or any other agreement,
instrument or document, or (E) the satisfaction of any condition set forth in
Article V or elsewhere in any Loan Document, other than to confirm receipt of
items expressly required to be delivered to such Agent.
(d) Each Agent shall be entitled to rely upon, and shall
not incur any liability for relying upon, any notice, request, certificate,
consent, statement, instrument, document or other writing believed by it to be
genuine and to have been signed or sent by the proper Person. Each Agent also
may rely upon any statement made to it orally or by telephone and believed by it
to be made by the proper Person, and shall not incur any liability for relying
thereon. Each Agent may consult with legal counsel (who may be counsel for the
Borrower), independent accountants and other experts selected by it, and shall
not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts.
(e) Each Agent may perform any and all its duties and
exercise its rights and powers by or through one or more sub-agents appointed by
such Agent. Each Agent and any such sub-agent may perform any and all its duties
and exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding subsections of this Section 9.01 shall
apply to any such sub-agent and to the Related Parties of each Agent and any
such sub-agent, and shall apply to their respective activities in connection
with the syndication of the credit facilities provided for herein as well as
activities as an Agent.
(f) Subject to the appointment and acceptance of a
successor Agent as provided in this subsection (f), any Agent may resign at any
time by notifying the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right, in consultation with the Borrower, to
appoint a successor. If no successor shall have been so appointed by the
Required Lenders and shall have accepted such appointment within 30 days after
the retiring Agent gives notice of its resignation, then the retiring Agent may,
on behalf of the Lenders, appoint a successor Agent which shall be a Lender with
an office in New York, New York, or an Affiliate of any such Lender. Upon the
acceptance of its appointment as an Agent hereunder by a successor, such
successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Agent shall be the same as those payable to its
predecessor unless otherwise agreed between the Borrower and such successor.
After an Agent's resignation hereunder, the provisions of this Article and
Section 10.04 shall continue in effect for the benefit of such retiring Agent,
its sub-agents and their respective Related Parties in respect of any actions
taken or omitted to be taken by any of them while it was acting as an Agent.
(g) Each Lender acknowledges that it has independently
and without reliance upon any Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon any Agent or
any other Lender and based on such documents and information as it shall from
time to time deem appropriate, continue to make its own decisions in taking or
not taking action under or based upon this Agreement, any other Loan Document or
any related agreement or any document furnished hereunder or thereunder. Each
Lender agrees (except as provided in Section
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10.05) that it will not take any legal action, nor institute any actions or
proceedings, against the Borrower or any other obligor hereunder or with respect
to any Collateral, without the prior written consent of the Required Lenders.
Without limiting the generality of the foregoing, no Lender may accelerate or
otherwise enforce its portion of the Loans, or unilaterally terminate its
Commitment except in accordance with Section 8.02.
SECTION 9.02. INDEMNIFICATION. The Lenders agree to indemnify each
Agent (to the extent not reimbursed by the Borrower), ratably according to the
respective Percentages of the Lenders, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against such Agent in any way relating to or
arising out of this Agreement or any action taken or omitted by such Agent under
this Agreement, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender agrees to
reimburse the Agents and the Arranger promptly upon demand for its ratable share
of any out-of-pocket expenses (including counsel fees) incurred by the Agents in
connection with the preparation, syndication, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement to the extent that the Agents
are entitled to reimbursement for such expenses pursuant to Section 10.04 but
are not reimbursed for such expenses by the Borrower.
SECTION 9.03. CONCERNING THE COLLATERAL AND THE LOAN DOCUMENTS.
(a) Each Lender authorizes and directs the Collateral
Agent to enter into the Loan Documents relating to the Collateral for the
benefit of the Lenders. Each Lender agrees that any action taken by any Agent or
the Required Lenders (or, where required by the express terms of this Agreement,
a greater proportion of the Lenders) in accordance with the provisions of this
Agreement or the other Loan Documents, and the exercise by any Agent or the
Required Lenders (or, where so required, such greater proportion) of the powers
set forth herein or therein, together with such other powers as are reasonably
incidental thereto, shall be authorized and binding upon all of the Lenders.
Without limiting the generality of the foregoing, the Collateral Agent shall
have the sole and exclusive right and authority to (i) act as the disbursing and
collecting agent for the Lenders with respect to all payments and collections
arising in connection with this Agreement and the Loan Documents relating to the
Collateral; (ii) execute and deliver each Loan Document relating to the
Collateral and accept delivery of each such agreement delivered by the Borrower
or any other Loan Party a party thereto; (iii) act as collateral agent for the
Lenders for purposes of the perfection of all Liens created by such agreements
and all other purposes stated therein; provided, however, the Collateral Agent
hereby appoints, authorizes and directs the other Agents and the Lenders to act
as collateral sub-agent for the Collateral Agent and the Lenders for purposes of
the perfection of all Liens with respect to any property of the Borrower or any
of its Subsidiaries at any time in the possession of such Lender, including,
without limitation, deposit accounts maintained with, and cash held by, such
Lender; (iv) manage, supervise and otherwise deal with the Collateral; (v) take
such action as is necessary or desirable to maintain the perfection and priority
of the Liens created or purported to be created by the Loan Documents; and (vi)
except as may be otherwise specifically restricted by
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the terms of this Agreement or any other Loan Document, exercise all remedies
given to the Collateral Agent or the Lenders with respect to the Collateral
under the Loan Documents relating thereto, applicable law or otherwise.
(b) The Administrative Agent and each Lender hereby
directs, in accordance with the terms of this Agreement, the Collateral Agent to
release any Lien held by the Collateral Agent for the benefit of the Lenders:
(i) against all of the Collateral, upon payment in full
of the Obligations of all of the Loan Parties under the Loan Documents
and termination of this Agreement;
(ii) against any part of the Collateral sold or disposed
of by the Borrower or any of its Subsidiaries, if such sale or
disposition is otherwise permitted under this Agreement, as certified
to the Collateral Agent by the Borrower, or is otherwise consented to
by the Required Lenders;
(iii) against any part of the Collateral consisting of a
promissory note, upon payment in full of the Debt evidenced thereby;
and/or
(iv) against any of the Collateral and any Grantor upon
the occurrence of any event described in Section 8.10 of the Pledge
Agreements.
The Administrative Agent and each Lender hereby directs the Collateral Agent to
execute and deliver or file such termination and partial release statements and
do such other things as are necessary to release Liens to be released pursuant
to this Section 9.03(b) promptly upon the effectiveness of any such release.
SECTION 9.04. RELEASE OF GUARANTORS. Upon (x) the liquidation or
dissolution of any Guarantor, or sale of all of the capital stock or other
ownership interests of any Guarantor, in each case which is permitted pursuant
to the terms of any Loan Document or consented to in writing by the Required
Lenders or all of the Lenders, as applicable, and upon at least five (5)
Business Days' prior written request by the Borrower or (y) the occurrence of
any event described in Section 11 of the Guaranty, the Collateral Agent shall
(and is hereby irrevocably authorized by the Lenders to) execute such documents
as may be necessary to evidence the release of the applicable Guarantor from its
obligations under the Guaranty; provided, however, that (i) the Collateral Agent
shall not be required to execute any such document on terms which, in the
Collateral Agent's opinion, would expose the Collateral Agent to liability or
create any obligation or entail any consequence other than the release of such
Guarantor without recourse or warranty, and (ii) such release shall not in any
manner discharge, affect or impair the Loans, any other Guarantor's obligations
under the Guaranty, or, if applicable, any obligations of the Borrower or any
Subsidiary in respect of the proceeds of any such sale retained by the Borrower
or any Subsidiary.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. AMENDMENTS, ETC. No amendment or waiver of any provision
of any Loan Document, nor consent to any departure by the Borrower therefrom,
shall in any event be
65
effective unless the same shall be in writing and signed by the Required
Lenders, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
no amendment, waiver or consent shall, unless in writing and signed by all the
Lenders, do any of the following: (i) waive, modify or eliminate any of the
conditions specified in Article V, (ii) increase the Commitments of the Lenders
that may be maintained hereunder, (iii) reduce the principal of, or interest on,
any Loan, any Applicable Margin, any Commitment Fee Margin or any fees or other
amounts payable hereunder (other than fees payable to the Administrative Agent
pursuant to Section 2.02(b)), (iv) postpone any date fixed for any payment of
principal of, or interest on, any Loan or any fees or other amounts payable
hereunder (other than fees payable to the Administrative Agent pursuant to
Section 2.02(b)) (except with respect to any modifications of the provisions
relating to amounts, timing or application of prepayments of Loans and other
Obligations which modification shall require only the approval of the Required
Lenders (other than the provisions relating to the amounts, timing or
application of prepayments of (a) the Facility A Loans which modifications shall
also require the approval of Lenders with Facility A Loans greater than or equal
to 66 2/3% of all of the Facility A Loans, and (b) the Facility B Loans which
modifications shall also require the approval of Lenders with Facility B Loans
greater than or equal to 66 2/3% of all of the Facility B Loans)), (v) change
the definition of "Required Lenders" contained in Section 1.01 or change any
other provision that specifies the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans or the number of Lenders which
shall be required for the Lenders or any of them to take any action hereunder,
(vi) amend, waive or modify Section 2.03(b) or this Section 10.01, (vii) release
the Collateral Agent's Lien on all of the Collateral or any portion of the
Collateral in excess of $50,000,000 (except as provided in Section 9.03(b)), or
(viii) extend the Commitment Termination Date, the Facility A Maturity Date or
the Facility B Maturity Date; and provided, further, that no amendment, waiver
or consent shall, unless in writing and signed by each Agent in addition to the
Lenders required above to take such action, affect the rights or duties of any
Agent under this Agreement or any other Loan Document. Any request from the
Borrower for any amendment, waiver or consent under this Section 10.01 shall be
addressed to the Administrative Agent.
SECTION 10.02. NOTICES, ETC. All notices and other communications
provided for hereunder and under the other Loan Documents shall be in writing
(including telegraphic, facsimile, telex or cable communication) and mailed,
telegraphed, telecopied, telexed, cabled or delivered, (i) if to the Borrower,
at its address at Fairlane Plaza South, 330 Town Center Drive, Suite 1100,
Dearborn, Michigan 48126, Attention: S. Kinnie Smith, Jr., General Counsel, with
a copy to Laura L. Mountcastle, Vice President, Investor Relations and
Treasurer, 330 Town Center Drive, Suite 1100, Dearborn, Michigan 48126; (ii) if
to any Bank, at the address set forth on its signature page hereto; (iii) if to
any Lender other than a Bank, at its Applicable Lending Office specified in the
Lender Assignment pursuant to which it became a Lender; (iv) if to the
Administrative Agent with respect to funding or payment of any amounts
hereunder, at its address at 2 Penns Way, Suite 200, New Castle, DE 19270, Attn:
Dawn Conover, Telephone No. (302) 894-6063, Telecopy No. (302) 894-6120; (v) if
to the Administrative Agent for any other reason or to the Collateral Agent, at
its address at 388 Greenwich Street, New York, New York 10003, Attn: Nick McKee,
Telephone No. (212) 816-8592, Telecopy No. (212) 816-8098; or, as to each party,
at such other address as shall be designated by such party in a written notice
to the other parties. All such notices and communications shall, when mailed,
telegraphed, telecopied, telexed or cabled, be effective five days after when
deposited in the mails, or when
66
delivered to the telegraph company, telecopied, confirmed by telex answerback or
delivered to the cable company, respectively, except that notices and
communications to any Agent pursuant to Article II, III, or IX shall not be
effective until received by such Agent.
SECTION 10.03. NO WAIVER OF REMEDIES. No failure on the part of the
Borrower, any Lender or any Agent to exercise, and no delay in exercising, any
right hereunder or under any other Loan Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 10.04. COSTS, EXPENSES AND INDEMNIFICATION.
(a) The Borrower agrees to (i) reimburse on demand all
reasonable costs and expenses of each Agent and the Arranger (including
reasonable fees and expenses of counsel to the Agents) in connection with (A)
the preparation, syndication, negotiation, execution and delivery of the Loan
Documents and (B) the care and custody of any and all collateral, and any
proposed modification, amendment, or consent relating to any Loan Document, and
(ii) to pay on demand all reasonable costs and expenses of each Agent and, on
and after the date upon which the principal amount outstanding hereunder becomes
or is declared to be due and payable pursuant to Section 8.02 or an Event of
Default specified in Section 8.01(a) shall have occurred and be continuing, each
Lender (including fees and expenses of counsel to the Agents, special Michigan
counsel to the Lenders and, from and after such date, counsel for each Lender
(including the allocated costs and expenses of in-house counsel)) in connection
with the workout, restructuring or enforcement (whether through negotiations,
legal proceedings or otherwise) of this Agreement, the other Loan Documents and
the other documents to be delivered hereunder.
(b) The Borrower shall indemnify each Agent, the
Arranger, each Lender, and each Related Party of any of the foregoing Persons
(each such Person being called an "INDEMNIFIED PERSON") against, and hold each
Indemnified Person harmless from, any and all losses, claims, damages,
liabilities and related expenses, including the reasonable fees, charges and
disbursements of any counsel for any Indemnified Person, incurred by or asserted
against any Indemnified Person arising out of, in connection with, or as a
result of (i) the execution or delivery of any Loan Document or any other
agreement or instrument contemplated hereby or thereby, the performance by the
parties to the Loan Documents of their respective obligations thereunder or the
consummation of the transactions contemplated hereby or thereby, (ii) any Loan
or other Extension of Credit or the use or proposed use of the proceeds
therefrom, (iii) any actual or alleged presence or release of any Hazardous
Substance on or from any property owned or operated by the Borrower or any of
its Subsidiaries, or any Environmental Liability related in any way to the
Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether based on contract, tort or any other theory and regardless of whether
any Indemnified Person is a party thereto; provided that such indemnity shall
not, as to any Indemnified Person, be available to the extent that such losses,
claims, damages, liabilities or related expenses are determined by a court of
competent jurisdiction by final and nonappealable judgment to have resulted from
the gross negligence or willful misconduct of such Indemnified Person.
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(c) The Borrower's other obligations under this Section
10.04 shall survive the repayment of all amounts owing to the Lenders and the
Agents under the Loan Documents and the termination of the Commitments. If and
to the extent that the obligations of the Borrower under this Section 10.04 are
unenforceable for any reason, the Borrower agrees to make the maximum
contribution to the payment and satisfaction thereof which is permissible under
applicable law.
SECTION 10.05. RIGHT OF SET-OFF.
(a) Upon (i) the occurrence and during the continuance of
any Event of Default and (ii) the making of the request or the granting of the
consent specified by Section 8.02 to authorize the Administrative Agent to
declare the principal amount outstanding hereunder to be due and payable
pursuant to the provisions of Section 8.02, each Lender is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Lender to or for the credit or the account of the Borrower, against any
and all of the obligations of the Borrower now or hereafter existing under this
Agreement and the Promissory Notes held by such Lender, irrespective of whether
or not such Lender shall have made any demand under this Agreement or such
Promissory Notes, as the case may be, and although such obligations may be
unmatured. Each Lender agrees to notify promptly the Borrower after any such
set-off and application made by such Lender, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of each Lender under this Section 10.05 are in addition to other rights
and remedies (including other rights of set-off) which such Lender may have.
(b) The Borrower agrees that it shall have no right of
off-set, deduction or counterclaim in respect of its obligations hereunder, and
that the obligations of the Lenders hereunder are several and not joint. Nothing
contained herein shall constitute a relinquishment or waiver of the Borrower's
rights to any independent claim that the Borrower may have against any Agent or
any Lender for such Agent's or such Lender's, as the case may be, gross
negligence or willful misconduct, but no Lender shall be liable for any such
conduct on the part of any Agent or any other Lender, and no Agent shall be
liable for any such conduct on the part of any Lender.
SECTION 10.06. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrower and the Agents and when the
Administrative Agent shall have been notified by each Bank that such Bank has
executed it and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agents and each Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lenders.
SECTION 10.07. ASSIGNMENTS AND PARTICIPATION.
(a) Any Lender may sell participations in all or a
portion of its rights and obligations under this Agreement pursuant to
subsection (b) below and any Lender may assign all or any part of its rights and
obligations under this Agreement pursuant to subsection (c) below.
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(b) Any Lender may sell participations to one or more
banks or other entities (each a "PARTICIPANT") in all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or a
portion of its Commitment and its outstanding Loan), provided that (i) such
Lender's obligations under this Agreement (including, without limitation, its
Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) such Lender shall remain the holder of the Loans of
such Lender for all purposes of this Agreement and (iv) the Borrower shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement. Each Lender shall retain
the sole right to approve, without the consent of any Participant, any
amendment, modification or waiver of any provision of the Loan Documents other
than any amendment, modification or waiver with respect to any Loan or
Commitment in which such Participant has an interest which would require consent
of all of the Lenders pursuant to the terms of Section 10.01 or of any other
Loan Document. The Borrower agrees that each Participant shall be deemed to have
the right of set-off provided in Section 10.05 in respect of its participating
interest in amounts owing under the Loan Documents to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
the Loan Documents, provided that each Lender shall retain the right of set-off
provided in Section 10.05 with respect to the amount of participating interests
sold to each Participant. The Lenders agree to share with each Participant, and
each Participant, by exercising the right of set-off provided in Section 10.05,
agrees to share with each Lender, any amount received pursuant to the exercise
of its right of set-off, such amounts to be shared in accordance with Section
10.05 as if each Participant were a Lender. The Borrower further agrees that
each Participant shall be entitled to the benefits of Sections 4.04 and 4.06 to
the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to Section 10.07(c); provided that (i) a Participant shall
not be entitled to receive any greater payment under Section 4.04 or 4.06 than
the Lender who sold the participating interest to such Participant would have
received had it retained such interest for its own account, unless the sale of
such interest to such Participant is made with the prior written consent of the
Borrower, and (ii) any Participant not incorporated under the laws of the United
States of America or any State thereof agrees to comply with the provisions of
Section 4.06 to the same extent as if it were a Lender.
(c) Any Lender may, in the ordinary course of its
business and in accordance with applicable law, with the consent of the
Administrative Agent (such consent not to be unreasonably withheld or delayed),
at any time assign to one or more financial institutions all or any part of its
rights and obligations under this Agreement, provided that the minimum principal
amount of any such assignment (other than assignments to a Federal Reserve Bank,
or to any other Lender or affiliate or Approved Fund of a Lender, or to any
direct or indirect contractual counterparties in swap agreements relating to the
Loans to the extent required in connection with the physical settlement of any
Lender's obligations pursuant thereto) shall be $1,000,000 (or such lesser
amount consented to by the Administrative Agent); provided that, unless such
Lender is assigning all of its rights and obligations hereunder, after giving
effect to such assignment the assigning Lender shall have Loans in the aggregate
of not less than $1,000,000 (unless otherwise consented to by the Administrative
Agent).
(d) Any Lender may, in connection with any sale or
participation or proposed sale or participation pursuant to this Section 10.07
disclose to the purchaser or Participant or
69
proposed purchaser or Participant any information relating to the Borrower
furnished to such Lender by or on behalf of the Borrower, provided that prior to
any such disclosure of non-public information, the purchaser or Participant or
proposed purchaser or Participant (which Participant is not an affiliate of a
Lender) shall agree to preserve the confidentiality of any confidential
information (except any such disclosure as may be required by law or regulatory
process) relating to the Borrower received by it from such Lender.
(e) Assignments under this Section 10.07 shall be made
pursuant to an agreement (a "LENDER ASSIGNMENT") substantially in the form of
Exhibit F hereto or in such other form as may be agreed to by the parties
thereto and shall not be effective until a $3,500 fee has been paid to the
Administrative Agent by the assignee, which fee shall cover the cost of
processing such assignment, provided, that such fee shall not be incurred in the
event of an assignment by any Lender of all or a portion of its rights under
this Agreement to (i) a Federal Reserve Bank or (ii) a Lender or an affiliate or
Approved Fund of the assigning Lender or (iii) to any direct or indirect
contractual counterparties in swap agreements relating to the Loans to the
extent required in connection with the physical settlement of any Lender's
obligations pursuant thereto.
(f) Notwithstanding anything to the contrary contained
herein, any Lender (a "GRANTING LENDER") may grant to a special purpose funding
vehicle (an "SPC"), identified as such in writing from time to time by the
Granting Lender to the Administrative Agent and the Borrower, the option to
provide to the Borrower all or any part of any Loan that such Granting Lender is
obligated to make to the Borrower pursuant to this Agreement; provided that (i)
nothing herein shall constitute a commitment by any SPC to make any Loan, (ii)
if an SPC elects not to exercise such option or otherwise fails to provide all
or any part of such Loan, the Granting Lender shall remain obligated to make
such Loan pursuant to the terms hereof, (iii) the Borrower shall not be required
to pay any amount under Section 4.06 that is greater than the amount which it
would have been required to pay had there been no grant to an SPC and (iv) any
SPC (or assignee of an SPC) will comply, if applicable, with the provisions
contained in Section 4.06. No grant by any Granting Lender to an SPC agreeing to
provide a Loan or the making of such Loan by such SPC shall operate to relieve
such Granting Lender of its liabilities and obligations hereunder, except to the
extent of the making of such Loan by such SPC. The making of a Loan by an SPC
hereunder shall utilize the Commitment of the Granting Lender to the same
extent, and as if, such Loan were made by such Granting Lender. Each party
hereto hereby agrees that no SPC shall be liable for any indemnity or similar
payment obligation under this Agreement (all liability for which shall remain
with the Granting Lender). In addition, each party hereto hereby agrees (which
agreement shall survive the termination of this Agreement) that any SPC may (i)
with notice to, but without the prior written consent of, the Borrower and the
Administrative Agent and without paying any processing fee therefor, assign all
or a portion of its interests in any Loans to the Granting Lender or to any
financial institutions (consented to by the Administrative Agent in its sole
discretion) providing liquidity and/or credit support to or for the account of
such SPC to support the funding or maintenance of Loans and (ii) disclose on a
confidential basis any non-public information relating to its Loans to any
rating agency, commercial paper dealer or provider of any surety, guarantee or
credit or liquidity enhancement to such SPC. This Section 10.07(f) may not be
amended without the written consent of any SPC that holds an option to provide
Loans. No recourse under any obligation, covenant, or agreement of the SPC
contained in this Agreement shall be had against any shareholder, officer, agent
or
70
director of the SPC as such, by the enforcement of any assessment or by any
proceeding, by virtue of any statute or otherwise; it being expressly agreed and
understood that this Agreement is a corporate obligation of the SPC and no
personal liability shall attach to or be incurred by any officer, agent or
member of the SPC as such, or any of them under or by reason of any of the
obligations, covenants or agreements of the SPC contained in this Agreement, or
implied therefrom, and that any and all personal liability for breaches by the
SPC of any such obligations, covenants or agreements, either at law or by
statute or constitution, of every such shareholder, officer, agent or director
is hereby expressly waived by all parties to this Agreement as a condition of
and consideration for the SPC entering into this Agreement; provided, however,
that the foregoing shall not relieve any such person or entity of any liability
they might otherwise have as a result of fraudulent actions or omissions taken
by them. All parties to this Agreement acknowledge and agree that the SPC shall
only be liable for any claims that each of them may have against the SPC only to
the extent of the SPC's assets. The provisions of this clause shall survive the
termination of this Agreement.
(g) Any Lender may at any time pledge or assign a
security interest in all or any portion of its rights under this Agreement to
secure obligations of such Lender, including without limitation any pledge or
assignment to secure obligations to a Federal Reserve Bank; provided that no
such pledge or assignment shall release such Lender from any of its obligations
hereunder or substitute any such pledgee or assignee for such Lender as a party
hereto.
(h) The Administrative Agent shall maintain at its
address referred to in Section 10.02 a copy of each Lender Assignment delivered
to and accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment of, and principal amount of the
Loans owing to, each Lender from time to time (the "REGISTER"). The entries in
the Register shall be conclusive and binding for all purposes, absent manifest
error, and the Borrower, the Agents and the Lenders may treat each Person whose
name is recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
SECTION 10.08. CONFIDENTIALITY. In connection with the negotiation and
administration of this Agreement and the other Loan Documents, the Borrower has
furnished and will from time to time furnish to the Agents and the Lenders
(each, a "RECIPIENT") written information which is identified to the Recipient
when delivered as confidential (such information, other than any such
information which (i) was publicly available, or otherwise known to the
Recipient, at the time of disclosure, (ii) subsequently becomes publicly
available other than through any act or omission by the Recipient or (iii)
otherwise subsequently becomes known to the Recipient other than through a
Person whom the Recipient knows to be acting in violation of his or its
obligations to the Borrower, being hereinafter referred to as "CONFIDENTIAL
INFORMATION"). The Recipient will not knowingly disclose any such Confidential
Information to any third party (other than to those persons who have a
confidential relationship with the Recipient), and will take all reasonable
steps to restrict access to such information in a manner designed to maintain
the confidential nature of such information, in each case until such time as the
same ceases to be Confidential Information or as the Borrower may otherwise
instruct. It is understood, however, that the foregoing will not restrict the
Recipient's ability to freely exchange such Confidential Information with its
Affiliates or with prospective Participants in or assignees of the Recipient's
71
position herein, but the Recipient's ability to so exchange Confidential
Information shall be conditioned upon any such Affiliate's or prospective
Participant's (as the case may be) entering into an agreement as to
confidentiality similar to this Section 10.08. It is further understood that the
foregoing will not prohibit the disclosure of any or all Confidential
Information if and to the extent that such disclosure may be required (1) by a
regulatory agency or otherwise in connection with an examination of the
Recipient's records by appropriate authorities, (2) pursuant to court order,
subpoena or other legal process or in connection with any proceeding, suit or
other action relating to any Loan Document or (3) otherwise, as required by law;
in the event of any required disclosure under clause (2) or (3), above, the
Recipient agrees to use reasonable efforts to inform the Borrower as promptly as
practicable to the extent not prohibited by law. Notwithstanding any other
provision of this Agreement, each party (and each Participant pursuant to
Section 10.07) (and each employee, representative or other agent of such party
(or Participant)) may disclose to any and all persons, without limitation of any
kind, the U.S. tax treatment and U.S. tax structure of the transactions
contemplated by the Loan Documents and all materials of any kind (including
opinions or other tax analyses) that are provided to such party relating to such
U.S. tax treatment and U.S. tax structure, other than any information for which
nondisclosure is reasonably necessary in order to comply with applicable
securities laws.
SECTION 10.09. Waiver of Jury Trial. THE BORROWER, THE AGENTS AND THE
LENDERS EACH HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT, OR ANY OTHER INSTRUMENT OR DOCUMENT DELIVERED HEREUNDER OR
THEREUNDER.
SECTION 10.10. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS
AGREEMENT AND THE PROMISSORY NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF
THE GENERAL OBLIGATIONS LAWS OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT
REGARD TO CONFLICTS OF LAW PRINCIPLES). THE BORROWER, THE LENDERS AND THE
AGENTS, EACH (I) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK STATE
COURT OR FEDERAL COURT SITTING IN NEW YORK CITY IN ANY ACTION ARISING OUT OF ANY
LOAN DOCUMENT, (II) AGREES THAT ALL CLAIMS IN SUCH ACTION MAY BE DECIDED IN SUCH
COURT, (III) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE
OF AN INCONVENIENT FORUM AND (IV) CONSENTS TO THE SERVICE OF PROCESS BY MAIL. A
FINAL JUDGMENT IN ANY SUCH ACTION SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN
OTHER JURISDICTIONS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE
LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR AFFECT ITS RIGHT TO BRING ANY
ACTION IN ANY OTHER COURT. THE BORROWER AGREES THAT THE AGENTS SHALL HAVE THE
RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN A COURT IN ANY LOCATION
TO ENABLE THE AGENTS AND THE LENDERS TO REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER
ENTERED IN FAVOR OF THE AGENTS OR ANY LENDER. THE BORROWER AGREES THAT IT WILL
NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY ANY AGENT
72
OR ANY LENDER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF ANY AGENT
OR ANY LENDER. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE
LOCATION OF THE COURT IN WHICH ANY AGENT OR ANY LENDER MAY COMMENCE A PROCEEDING
DESCRIBED IN THIS SECTION.
SECTION 10.11. RELATION OF THE PARTIES; NO BENEFICIARY. No term,
provision or requirement, whether express or implied, of any Loan Document, or
actions taken or to be taken by any party thereunder, shall be construed to
create a partnership, association, or joint venture between such parties or any
of them. No term or provision of the Loan Documents shall be construed to confer
a benefit upon, or grant a right or privilege to, any Person other than the
parties hereto. The Borrower hereby acknowledges that neither any Agent nor any
Lender has any fiduciary relationship with or fiduciary duty to the Borrower
arising out of or in connection with this Agreement or any of the other Loan
Documents, and the relationship between the Agents and the Lenders, on the one
hand, and the Borrower, on the other hand, in connection herewith or therewith
is solely that of debtor and creditor.
SECTION 10.12. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement.
SECTION 10.13. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made herein and in the certificates pursuant
hereto shall be considered to have been relied upon by the Agents and the
Lenders and shall survive the making by the Lenders of the Extensions of Credit
and the execution and delivery to the Lenders of any Promissory Notes evidencing
the Extensions of Credit and shall continue in full force and effect so long as
any Promissory Note or any amount due hereunder is outstanding and unpaid or any
Commitment of any Lender has not been terminated.
SECTION 10.14. LIMITATION OF LIABILITY: COMMUNICATIONS. WITH RESPECT TO
COMMUNICATIONS DELIVERED PURSUANT TO SECTION 10.15 OF THIS AGREEMENT, SUCH
COMMUNICATIONS AND THE PLATFORM ARE PROVIDED "AS IS" AND "AS AVAILABLE". THE
CITIGROUP PARTIES DO NOT WARRANT THE ACCURACY, ADEQUACY OR COMPLETENESS OF THE
COMMUNICATIONS OR THE PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR
OMISSIONS IN THE COMMUNICATIONS OR THE PLATFORM. NO WARRANTY OF ANY KIND,
EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD
PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE
CITIGROUP PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE PLATFORM. THE
BORROWER HEREBY ACKNOWLEDGES THAT ALTHOUGH THE PRIMARY WEB PORTAL IS SECURED
WITH A DUAL FIREWALL AND A USER IDENTIFICATION/PASSWORD AUTHORIZATION SYSTEM AND
THE PLATFORM IS SECURED THROUGH A SINGLE USER PER DEAL AUTHORIZATION METHOD
WHEREBY EACH USER MAY ACCESS
73
THE PLATFORM ONLY ON A DEAL-BY-DEAL BASIS, THE DISTRIBUTION OF MATERIAL THROUGH
AN ELECTRONIC MEDIUM IS NOT NECESSARILY SECURE AND THAT THERE ARE
CONFIDENTIALITY AND OTHER RISKS ASSOCIATED WITH SUCH DISTRIBUTION. THE
PROVISIONS OF THIS SECTION 10.14 SHALL SURVIVE THE MAKING OF ANY LOAN, THE
REPAYMENT THEREOF AND THE TERMINATION OF THIS AGREEMENT AND ANY LOAN DOCUMENT.
SECTION 10.15. PLATFORM AND PRIMARY WEB PORTAL.
(a) The Borrower shall use its commercially reasonable
best efforts to transmit to the Administrative Agent all information, documents
and other materials that it is obligated to furnish to the Administrative Agent
pursuant to this Agreement and the other Loan Documents, including, without
limitation, all notices, requests, financial statements, financial and other
reports, certificates and other information materials, but excluding any such
communication that (i) relates to a notice of borrowing or other extension of
credit or a conversion of an existing interest rate on any Loan or borrowing
(including, without limitation, any Notice of Conversion), (ii) relates to the
payment of any principal or other amount due hereunder prior to the scheduled
date therefor, (iii) provides notice of any Default or Event of Default
hereunder or (iv) is required to be delivered to satisfy any condition precedent
to the effectiveness of this Agreement and/or any extension of credit hereunder
(all such non-excluded communications being referred to herein collectively as
"COMMUNICATIONS"), in an electronic/soft medium in a format reasonably
acceptable to the Administrative Agent to oploanswebadmin@citigroup.com. In
addition, the Borrower shall continue to provide the Communications to the
Administrative Agent in the manner specified in this Agreement but only to the
extent requested by the Administrative Agent. Each Lender and the Borrower
further agree that the Administrative Agent may make the Communications
available to the Lenders by posting the Communications on "e-Disclosure" (the
"PLATFORM"), the Administrative Agent's internet delivery system that is part of
SSB Direct, Global Fixed Income's primary web portal (the "PRIMARY WEB PORTAL").
(b) The Administrative Agent agrees that the receipt of
the Communications by the Administrative Agent at its e-mail address set forth
in clause (a) above shall constitute effective delivery of the Communications to
the Administrative Agent for purposes of this Agreement and under the Loan
Documents. Each Lender agrees that notice to it at its e-mail address provided
in clause (a) above specifying that Communications have been posted to the
Platform shall constitute effective delivery of the Communications to such
Lender under this Agreement and under the Loan Documents.
(c) Nothing in this Agreement or any other Loan Document
shall prejudice the right of the Administrative Agent or any Lender to give any
notice or other communication pursuant hereto or to any other Loan Document in
any other manner specified herein or therein.
(d) The provisions of Section 10.15(a) and (b) shall
terminate on the date that neither CUSA nor any of the Citigroup Parties is the
Administrative Agent.
74
ARTICLE XI
NO NOVATION; REFERENCES TO THIS AGREEMENT IN LOAN DOCUMENTS
SECTION 11.01. NO NOVATION. It is the express intent of the parties
hereto that the Initial Amendment and Restatement and this Agreement (i) shall
re-evidence, in part, the Borrower's indebtedness under the Existing Credit
Agreements and the Initial Amendment and Restatement, respectively, (ii) is
entered into in substitution for, and not in payment of, the obligations of the
Borrower under the Existing Credit Agreements and the Initial Amendment and
Restatement, respectively, and (iii) is in no way intended to constitute a
novation of any of the Borrower's indebtedness which was evidenced by the
Existing Credit Agreements, the Initial Amendment and Restatement, or any of the
other Loan Documents.
SECTION 11.02. REFERENCES TO THIS AGREEMENT IN LOAN DOCUMENTS. Upon the
effectiveness of this Agreement, on and after the date hereof, each reference in
any other Loan Document (including any reference therein to "the Credit
Agreement," "thereunder," "thereof," "therein" or words of like import referring
thereto) shall mean and be a reference to this Agreement.
[Signature pages follow.]
75
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
CMS ENERGY CORPORATION
By: /s/ Laura L. Mountcastle
---------------------------------
Name: Laura L. Mountcastle
Title: Authorized Representative
Signature Pages to
Second Amended and Restated Credit Agreement
CITICORP USA, INC., as Administrative Agent
By: /s/ Dale R. Goncher
-----------------------------------------
Name: Dale R. Goncher
Title: DIRECTOR
CITIBANK, N.A., as a Lender
By: /s/Dale R. Goncher
-----------------------------------------
Name: Dale R. Goncher
Title: DIRECTOR
Signature Page to Second Amended and Restated Credit Agreement
COMMITMENT SCHEDULE
- ----------------------------------------------------
Facility A Facility B
LENDER Commitment Commitment
- ----------------------------------------------------
CITIBANK, N.A. $234,000,000 $175,000,000
- ----------------------------------------------------
Total Commitments: $234,000,000 $175,000,000
- ----------------------------------------------------
CMS ENERGY CORPORATION
SCHEDULE I
GAAP DEBT BREAKDOWN
AS OF FEBRUARY 28, 2003
BORROWER FACILITY CURRENT BALANCE
CMS ENERGY
$295.8MM Credit Agreement $ 123,819,866
$300MM Credit Agreement 133,800,000
General Term Notes
Series D 79,922,000
Series E 215,955,000
Series F 297,686,000
Sr. Unsecured Notes @ 7 5/8% 175,815,000
Convert. Sub. Debentures 172,500,000
Extend. Tenor Rate Adj. Sec. 180,000,000
Sr. Unsecured Notes @ 7.5% 408,845,000
Sr. Unsecured Notes @ 6.75% 287,025,000
Sr. Notes @ 8.9% 260,475,000
Sr. Notes @ 8 3/8% 150,000,000
Sr. Notes @ 9.875% 467,558,000
Premium Equity Participating Security Units 220,000,000
Sr. Notes @ 8.5% 300,375,000
CMS Methanol Company 14,000,000
PANHANDLE EASTERN PIPE LINE
Sr. Notes @ 6.125% 292,500,000
Sr. Notes @ 6.5% 158,980,000
Sr. Notes @ 7.0% 135,890,000
Sr. Notes @ 8.25% 60,000,000
Notes @ 7.785% 100,000,000
Debentures @ 7.2% 58,000,000
Debentures @ 7.95% 76,500,000
Citibank Bridge Loan 40,000,000
CMS ENTERPRISES
None
CMS GENERATION COMPANY
CMS Capital LLC 4,957,214
CMS GAS TRANSMISSION
CMS Capital LLC 11,394,197
Antrim Gas Term Loan with BOM 22,625,000
Jackson Pipeline RCF with Tor Dom 2,687,000
CMS ELECTRIC & GAS
None
CMS MARKETING SERVICES & TRADING
CMS Capital LLC 127,353,473
CMS INTERNATIONAL VENTURES LLC
None
DEARBORN INDUSTRIAL ENERGY LLC
None
CMS GENERATION MICHIGAN POWER LLC
None
DEARBORN INDUSTRIAL GENERATION
CMS Capital LLC 13,337,242
CMS FIELD SERVICES
The CIT Group 731,204
CMS GAS PROCESSING LLC
CMS Capital LLC 6,036,529
CMS NATURAL GAS GATHERING LLC
CMS Capital LLC 3,346,852
PANHANDLE PIPE LINE COMPANY
Trunkline Gas Company S-T 100,000,000
Trunkline Gas Company L-T 100,000,000
CMS CAPITAL LLC
CMS Enterprises Company 11,197,420
CMSG Filer City Operating Company 413,815
CMSG Honey Lake Company 462,258
CMS Jackson Pipeline Company 91,705
CMS Bay Area Pipeline Company 1,054,924
CMSG Graying Holdings Company 1,164,325
CMSG Operating Company 1,323,669
CMSG Mon Valley Company 11,563
CMS Saginaw Bay Lateral Company 276,140
CMS Antrim Gas LLC 1,370,523
CMSG Holdings Company 1,206,958
CMSG Altoona Company 182,228
CMSG Genesee Company 1,513,182
CMS Resource Development 2,855,881
CMSG Recycling Company 371,025
CMSG Lyonsdale Company 20,160
Mon Valley Energy 113
CMSG Chateaugay Company 35,096
CMS Grands Lacs LLC 1,400,457
HYDRA-CO Enterprises, Inc. 1,696,027
CMSG Operating Company II 1,055,368
HCE Appomattox, Inc. 341,816
HCE Jamaica Development, Inc. 5,780
HCO Jamaica, Inc. 164,957
CMS Electric & Gas Company 4,036,096
CMS Texon Company 632,042
CMS Marysville Gas Liquids Company 670,134
CMSG Stratton Company 72,258
CMS Field Services, Inc. 34,262,090
CMS Laverne Gas Processing, LLC 64,085
Panhandle Eastern Pipeline Company 308,744,037
Taweeelah A2 Operating Company 810,173
Dearborn Generation Operating, LLC 3,955,220
CMS Capital Financial Services, Inc. 602,157
CMSG Michigan Power, LLC 804,292
CMS Enterprises Data Mart 243,398
CMS MS&T Michigan, LLC 15,991,117
CMS Energy UK Limited 1,879,798
CMS MicroPower Systems, LLC 3,422,229
CMSG Investment Company I 808,707
CMS Business Development, LLC 3,266,068
CMS Enterprises Development, LLC 232,701
CMS International Ventures, LLC 3,436,843
CMS Enterprise Oil & Gas Company 108,856,818
CMSG Investment Company V 1,553,780
TOTAL GAAP DEBT $ 5,324,674,009
SCHEDULE II
Pledged Ownership Interests
GRANTOR PLEDGED SUBSIDIARIES
------- --------------------
CMS Energy Corporation CMS Enterprises Company (100%)
Consumers Energy Company (100%)
CMS Enterprises Company CMS Generation Co. (100%)
CMS Gas Transmission Company (100%)
CMS Capital, L.L.C. (100%)
CMS Marketing, Services and Trading Company (100%)
CMS International Ventures, L.L.C. (40.47%)
CMS International Ventures, L.L.C. CMS Electric & Gas, L.L.C. (100%)
CMS Generation Co. CMS International Ventures, L.L.C. (21.02%)
Dearborn Industrial Energy, L.L.C. (100%)
CMS Generation Michigan Power L.L.C. (100%)
Dearborn Industrial Energy, L.L.C. Dearborn Industrial Generation, L.L.C. (100%)
CMS Gas Transmission Company CMS International Ventures, L.L.C. (37.01%)
Panhandle Eastern Pipe Line Company (100%)
CMS Field Services, Inc. (100%)
CMS Field Services, Inc. CMS Gas Processing, L.L.C. (100%)
CMS Natural Gas Gathering, L.L.C. (100%)
CMS Field Services Holdings Company (100%)
ATTACHMENT A
REAFFIRMATION
Each of the undersigned hereby acknowledges receipt of a copy
of the foregoing Second Amended and Restated Credit Agreement dated as of March
30, 2003 by and among CMS ENERGY CORPORATION (the "Borrower"), the financial
institutions from time to time party thereto (the "Lenders"), and CITICORP USA,
INC., in its capacity as contractual representative (the "Administrative Agent")
(as amended, restated, supplemented or otherwise modified from time to time, the
"Credit Agreement"). Capitalized terms used in this Reaffirmation and not
defined herein shall have the meanings given to them in the Credit Agreement.
Without in any way establishing a course of dealing by any Agent or any Lender,
each of the undersigned reaffirms the guaranty pursuant to the Guaranty and the
grant of a security interest pursuant to the Pledge Agreement executed by it and
acknowledges and agrees that each such Loan Document executed by the undersigned
in connection with the Credit Agreement remains in full force and effect and is
hereby reaffirmed, ratified and confirmed. All references to the Credit
Agreement contained in the above-referenced documents shall be a reference to
the Credit Agreement as the same may from time to time hereafter be amended,
modified or restated.
Dated as of March 30, 2003
CMS ENTERPRISES COMPANY CMS GENERATION CO.
By:__________________________ By:__________________________
Its: Its:
CMS GAS TRANSMISSION CMS CAPITAL, L.L.C.
COMPANY
By:__________________________ By:__________________________
Its: Its:
CMS ELECTRIC & GAS, L.L.C. CMS INTERNATIONAL
(formerly known as CMS Electric and VENTURES, L.L.C.
Gas Company)
By:__________________________
By:__________________________ Its:
Its:
CMS MARKETING, SERVICES CMS FIELD SERVICES
AND TRADING COMPANY HOLDINGS COMPANY
By:__________________________
Its: By:__________________________
Its:
CMS GENERATION MICHIGAN DEARBORN INDUSTRIAL
POWER L.L.C. ENERGY, L.L.C.
By:__________________________ By:__________________________
Its: Its:
DEARBORN INDUSTRIAL CMS FIELD SERVICES, INC.
GENERATION, L.L.C.
By:__________________________ By:__________________________
Its: Its:
CMS GAS PROCESSING, L.L.C. CMS NATURAL GAS
GATHERING, L.L.C.
By:__________________________ By:__________________________
Its: Its:
EXHIBIT 4(i)
EXECUTION COPY
- --------------------------------------------------------------------------------
$441,000,000
CREDIT AGREEMENT
Dated as of March 30, 2003,
Among
CMS ENTERPRISES COMPANY
as Borrower
CMS ENERGY CORPORATION
as a Loan Party
THE BANKS NAMED HEREIN
As Banks
CITICORP USA, INC.
as Administrative Agent and as Collateral Agent
-------------------------
SALOMON SMITH BARNEY INC.,
as Sole Book Manager and Sole Lead Arranger
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms .................................................... 1
SECTION 1.02. Computation of Time Periods; Construction ................................ 21
SECTION 1.03. Accounting Terms ......................................................... 22
ARTICLE II
COMMITMENTS
SECTION 2.01. The Commitments; Conversion to Term Loan ................................. 22
SECTION 2.02. Fees ..................................................................... 23
SECTION 2.03. Reduction of the Commitments; Mandatory Prepayments ...................... 23
SECTION 2.04. Computations of Outstandings ............................................. 25
ARTICLE III
LOANS
SECTION 3.01. Loans .................................................................... 25
SECTION 3.02. Conversion of Loans ...................................................... 26
SECTION 3.03. Interest Periods ......................................................... 26
SECTION 3.04. Other Terms Relating to the Making and Conversion of Loans ............... 26
SECTION 3.05. Repayment of Loans; Interest ............................................. 28
ARTICLE IV
PAYMENTS, COMPUTATIONS AND YIELD PROTECTION
SECTION 4.01. Payments and Computations ................................................ 29
SECTION 4.02. Interest Rate Determination .............................................. 31
SECTION 4.03. Prepayments .............................................................. 31
SECTION 4.04. Yield Protection ......................................................... 31
SECTION 4.05. Sharing of Payments, Etc ................................................. 33
SECTION 4.06. Taxes .................................................................... 33
SECTION 4.07. Apportionment of Payments ................................................ 35
SECTION 4.08. Proceeds of Collateral ................................................... 36
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01. Conditions Precedent to the Effectiveness of this Agreement .............. 37
SECTION 5.02. Conditions Precedent to Each Extension of Credit ......................... 39
SECTION 5.03. Conditions Precedent to Certain Extensions of Credit ..................... 39
SECTION 5.04. Reliance on Certificates ................................................. 40
i
TABLE OF CONTENTS (CONT'D)
SECTION PAGE
SECTION 5.05. Condition Precedent to the Initial Extension of Credit ................... 40
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties of the Borrower ........................... 41
ARTICLE VII
COVENANTS OF THE BORROWER
SECTION 7.01. Affirmative Covenants .................................................... 44
SECTION 7.02. Negative Covenants ....................................................... 48
SECTION 7.03. Reporting Obligations .................................................... 55
ARTICLE VIII
DEFAULTS
SECTION 8.01. Events of Default ........................................................ 59
SECTION 8.02. Remedies ................................................................. 61
ARTICLE IX
THE AGENTS
SECTION 9.01. Authorization and Action ................................................. 61
SECTION 9.02. Indemnification .......................................................... 63
SECTION 9.03. Concerning the Collateral and the Loan Documents ......................... 64
SECTION 9.04. Release of Guarantors .................................................... 65
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc ......................................................... 65
SECTION 10.02. Notices, Etc ............................................................ 66
SECTION 10.03. No Waiver of Remedies ................................................... 66
SECTION 10.04. Costs, Expenses and Indemnification ..................................... 66
SECTION 10.05. Right of Set-off ........................................................ 67
SECTION 10.06. Binding Effect .......................................................... 68
SECTION 10.07. Assignments and Participation ........................................... 68
SECTION 10.08. Confidentiality ......................................................... 71
SECTION 10.09. Waiver of Jury Trial .................................................... 71
SECTION 10.10. GOVERNING LAW; SUBMISSION TO JURISDICTION ............................... 72
SECTION 10.11. Relation of the Parties; No Beneficiary ................................. 72
SECTION 10.12. Execution in Counterparts ............................................... 72
SECTION 10.13. Survival of Agreement ................................................... 73
SECTION 10.14. Limitation of Liability: Communications ................................. 73
SECTION 10.15. Platform and Primary Web Portal ......................................... 73
ii
Exhibits
- --------
EXHIBIT A - Form of Notice of Borrowing
EXHIBIT B - Form of Notice of Conversion
EXHIBIT C - Form of Opinion of Belinda Foxworth, Esq., counsel to the Borrower
EXHIBIT D - Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special
counsel to the Borrower
EXHIBIT E - Form of Compliance Schedule
EXHIBIT F - Form of Lender Assignment
EXHIBIT G - Terms of Subordination (Junior Subordinated Debt)
EXHIBIT H - Terms of Subordination (Guaranty of Hybrid Preferred Securities)
EXHIBIT I - Form of Guaranty (CMS Energy and Grantors)
EXHIBIT J - Form of Pledge and Security Agreement (CMS Energy)
EXHIBIT K - Form of Pledge and Security Agreement (Borrower and Grantors)
EXHIBIT L - AIG Pledge Agreement
EXHIBIT M - Intercreditor Agreement (CMS Energy Facility)
Schedules
- ---------
COMMITMENT
SCHEDULE
SCHEDULE I Certain Debt
SCHEDULE II Pledged Ownership Interests
iii
CREDIT AGREEMENT
Dated as of March 30, 2003
THIS CREDIT AGREEMENT (the "AGREEMENT") is made by and among:
(i) CMS Enterprises Company, a Michigan corporation (the
"BORROWER"),
(ii) CMS Energy Corporation, a Michigan corporation ("CMS ENERGY"),
as one of the Loan Parties (as hereinafter defined),
(iii) the banks (the "BANKS") listed on the signature pages hereof
and the other Lenders (as hereinafter defined) from time to
time party hereto, and
(iv) Citicorp USA, Inc.("CUSA"), as administrative agent (the
"ADMINISTRATIVE AGENT") for the Lenders hereunder and as
collateral agent (the "COLLATERAL AGENT") for the Lenders
hereunder.
PRELIMINARY STATEMENTS
The Borrower has requested the Banks to provide the credit facility
hereinafter described in the amount and on the terms and conditions set forth
herein. The Banks have so agreed on the terms and conditions set forth herein,
and the Agents have agreed to act as agents for the Lenders on such terms and
conditions.
The parties hereto acknowledge and agree that neither Consumers (as
hereinafter defined) nor any of its Subsidiaries (as hereinafter defined) will
be a party to, or will in any way be bound by any provision of, this Agreement
or any other Loan Document (as hereinafter defined), and that no Loan Document
will be enforceable against Consumers or any of its Subsidiaries or their
respective assets.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are
bearing interest at a rate determined by reference to the Alternate
Base Rate.
"ABR LOAN" means a Loan that bears interest as provided in
Section 3.05(b)(i).
1
"ADJUSTED LIBO RATE" means, for each Interest Period for each
Eurodollar Rate Loan made as part of the same Borrowing, an interest
rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%)
equal to (a) the LIBO Rate for such Interest Period multiplied by (b)
the Statutory Reserve Rate.
"ADMINISTRATIVE QUESTIONNAIRE" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"AFFILIATE" means, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to
all directors and officers of such Person), controlled by, or under
direct or indirect common control with such Person. A Person shall be
deemed to control another entity if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the
management and policies of such entity, whether through the ownership
of voting securities, by contract, or otherwise.
"AGENT" means, as the context may require, the Administrative
Agent or the Collateral Agent, and "AGENTS" means any or all of the
foregoing.
"AIG PLEDGE AGREEMENT" means that certain Pledge and Security
Agreement, dated as of January 8, 2003, by and among the Borrower and
the other grantors parties thereto in favor of American Home Assurance
Company, as collateral agent, a copy of which is attached hereto as
Exhibit L, as amended, restated, supplemented or otherwise modified
from time to time.
"ALTERNATE BASE RATE" means, for any day, a rate per annum
equal to the greater of (a) the Prime Rate in effect on such day, (b)
1/2 of one percent above the CD Rate, and (c) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Alternate Base Rate due to a change in the Prime Rate, the CD Rate or
the Federal Funds Effective Rate shall be effective from and including
the effective date of such change in the Prime Rate, CD Rate or the
Federal Funds Effective Rate, respectively.
"APPLICABLE LENDING OFFICE" means, with respect to each
Lender, at the address specified for such Lender on its signature page
to this Agreement or in the Lender Assignment pursuant to which it
became a Lender, as applicable, or at any office, branch, subsidiary or
affiliate of such Lender specified in a notice received by the
Administrative Agent and the Borrower from such Lender.
"APPLICABLE MARGIN" means, on any date of determination with
respect to any Loans, the per annum rate specified in the table below
for such Loans:
Applicable Margin
ABR Loans 4.50%
Eurodollar
Rate Loans 5.50%
2
"APPLICABLE RATE" means:
(i) in the case of each ABR Loan, a rate per
annum equal at all times to the sum of the Alternate Base Rate
in effect from time to time plus the Applicable Margin; and
(ii) in the case of each Eurodollar Rate Loan
comprising part of the same Borrowing, a rate per annum during
each Interest Period equal at all times to the sum of the
Adjusted LIBO Rate for such Interest Period plus the
Applicable Margin.
"APPROVED FUND" means, with respect to any Lender that is a
fund that invests in commercial loans, any other fund that invests in
commercial loans and is managed or advised by the same investment
advisor as such Lender or by an affiliate of such investment advisor.
"ARRANGER" means Salomon Smith Barney Inc..
"AVAILABLE COMMITMENT" means, for each Lender on any day, the
unused portion of such Lender's Commitment, computed after giving
effect to all Extensions of Credit or prepayments to be made on such
day and the application of proceeds therefrom. "AVAILABLE COMMITMENTS"
means the aggregate of the Lenders' Available Commitments.
"BOARD" means the Board of Governors of the Federal Reserve
System of the United States of America.
"BOND CASH COLLATERAL ACCOUNT" is defined in Section
5.01(c)(ii).
"BORROWING" means a borrowing consisting of Loans of the same
Type, having the same Interest Period and made or Converted on the same
day by the Lenders, ratably in accordance with their respective
Percentages. Any Borrowing consisting of Loans of a particular Type may
be referred to as being a Borrowing of such "TYPE". All Loans of the
same Type, having the same Interest Period and made or Converted on the
same day shall be deemed a single Borrowing hereunder until repaid or
next Converted.
"BUSINESS DAY" means a day of the year on which banks are not
required or authorized to close in New York City and Detroit, Michigan,
and, if the applicable Business Day relates to any Eurodollar Rate
Loan, on which dealings are carried on in the London interbank market.
"CASH DIVIDEND INCOME" means, for any period, the amount of
all cash dividends received by CMS Energy from its Subsidiaries during
such period that are paid out of the net income or loss (without giving
effect to: any extraordinary gains in excess of $25,000,000, the amount
of any write-off or write-down of assets, including, without
limitation, write-offs or write-downs related to the sale of assets,
impairment of assets and loss on contracts, in each case in accordance
with GAAP consistently applied, and up to $200,000,000 of other
non-cash write-offs) of such Subsidiaries during such period.
3
"CD RATE" means the latest three-week moving average of
secondary market morning offering rates in the United States for
three-month certificates of deposit of major United States money market
banks, such three-week moving average being determined weekly on each
Monday (or, if such day is not a Business Day, on the next succeeding
Business Day) for the three-week period ending on the previous Friday
by Citibank on the basis of such rates reported by certificate of
deposit dealers to and published by the Federal Reserve Bank of New
York or, if such publication shall be suspended or terminated, on the
basis of quotations for such rates received by Citibank from three New
York certificate of deposit dealers of recognized standing selected by
Citibank, in either case, adjusted to the nearest 1/16 of one percent
or, if there is no nearest 1/16 of one percent, to the next higher 1/16
of one percent.
"CHANGE OF CONTROL" means (a) any "person" or "group" within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act shall
become the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the then outstanding voting capital
stock of CMS Energy, or (b) the majority of the board of directors of
CMS Energy shall fail to consist of Continuing Directors, or (c) a
consolidation or merger of CMS Energy shall occur after which the
holders of the outstanding voting capital stock of CMS Energy
immediately prior thereto hold less than 50% of the outstanding voting
capital stock of the surviving entity, (d) more than 50% of the
outstanding voting capital stock of CMS Energy shall be transferred to
any entity of which CMS Energy owns less than 50% of the outstanding
voting capital stock, or (e) CMS Energy shall cease to own, directly or
indirectly, 80% of the then outstanding voting capital stock of the
Borrower.
"CITIBANK" means Citibank, N.A., a national banking
association.
"CITIGROUP PARTIES" means Citibank, CUSA, Salomon Smith Barney
Inc. and each of their respective Affiliates, and each of their
respective officers, directors, employees, agents, advisors, and
representatives.
"CLOSING DATE" means March 30, 2003.
"CMS ENERGY CREDIT AGREEMENT" means that certain $409,000,000
Second Amended and Restated Credit Agreement, dated as of March 30,
2003, by and among CMS Energy, the Banks and the Agents, as the same
may be amended, restated, supplemented or otherwise modified from time
to time.
"CMS ENERGY INTEREST EXPENSE" means at any date, the total
interest expense in respect of Debt of CMS Energy for the four calendar
quarters immediately preceding such date, including, without
duplication, (i) interest expense attributable to capital leases, (ii)
amortization of debt discount, (iii) capitalized interest, (iv) cash
and noncash payments, (v) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs under interest rate swap, "cap", "collar" or
other hedging agreements (including amortization of discount) and (vii)
interest expense in respect of obligations of Persons deemed to be Debt
of CMS Energy under clause (viii) of the definition of Debt, provided,
however that CMS Energy Interest
4
Expense shall exclude any costs otherwise included in interest expense
recognized on early retirement of debt.
"COLLATERAL" means all property and interests in property now
owned or hereafter acquired by any Loan Party upon which a Lien is
granted under any of the Loan Documents.
"COMMITMENT" means, for each Lender, the obligation of such
Lender to make Loans to the Borrower prior to the Commitment
Termination Date in an aggregate amount no greater than the amount set
forth opposite such Lender's name on the Commitment Schedule under the
heading "Commitment" or, if such Lender has entered into one or more
Lender Assignments, set forth for such Lender in the Register
maintained by the Administrative Agent pursuant to Section 10.07(c), in
each such case as such amount may be reduced from time to time pursuant
to Section 2.03. "COMMITMENTS" means the total of the Lenders'
Commitments hereunder. As of the Closing Date the aggregate of all of
the Lenders' Commitments equals $441,000,000.
"COMMITMENT FEE MARGIN" means a per annum rate equal to the
sum of the Adjusted LIBO Rate for such Interest Period plus 5.50%.
"COMMITMENT SCHEDULE" means the Schedule identifying each
Lender's Commitment as of the Closing Date attached hereto and
identified as such.
"COMMITMENT TERMINATION DATE" means the earlier of (i) the
Conversion Date, (ii) the date of delivery of any Notice to Convert,
and (iii) the date of termination or reduction in whole of the
Commitments pursuant to Section 2.03 or 8.02.
"COMMUNICATIONS" is defined in Section 10.15.
"CONFIDENTIAL INFORMATION" has the meaning assigned to that
term in Section 10.08.
"CONSOLIDATED DEBT" means, without duplication, as determined
on a consolidated basis in accordance with GAAP, at any date of
determination, the sum of the aggregate Debt of CMS Energy plus the
aggregate debt (as such term is construed in accordance with GAAP) of
the Consolidated Subsidiaries; provided, however, that:
(a) Consolidated Debt shall not include any Support
Obligation described in clause (iv) or (v) of the definition
thereof if such Support Obligation or the primary obligation
so supported is not fixed or conclusively determined or is not
otherwise reasonably quantifiable as of the date of
determination;
(b) Consolidated Debt shall not include (i) any
Junior Subordinated Debt owned by any Hybrid Preferred
Securities Subsidiary or (ii) any guaranty by CMS Energy of
payments with respect to any Hybrid Preferred Securities,
provided that such guaranty is subordinated to the rights of
the Lenders hereunder and under the other Loan Documents
pursuant to terms of subordination
5
substantially similar to those set forth in Exhibit H, or
pursuant to other terms and conditions satisfactory to the
Required Lenders;
(c) for purposes of this definition only, the
percentage of the Net Proceeds from any issuance of hybrid
debt/equity securities (other than Junior Subordinated Debt
and Hybrid Preferred Securities) by CMS Energy or any
Consolidated Subsidiary that shall be considered Consolidated
Debt shall be agreed by the Arranger and CMS Energy (and
consented to by the Required Lenders) and shall be based on,
among other things, the treatment (if any) given to such
hybrid securities by the rating agencies;
(d) with respect to any Support Obligations provided
by CMS Energy in connection with a purchase or sale by MS&T or
its Subsidiaries of natural gas, natural gas liquids, gas
condensates, electricity, oil, propane, coal, any other
commodity, weather derivatives or any derivative instrument
with respect to any commodity with any other Person (a
"COUNTERPARTY"), Consolidated Debt shall include only the
excess, if any, of (A) the aggregate amount of any Support
Obligations provided by CMS Energy in respect of MS&T's or any
of its Subsidiary's obligations under any such purchase or
sale transaction (a "COVERING TRANSACTION") entered into by
MS&T or any of its Subsidiaries in connection with such
purchase or sale over (B) the aggregate amount of (i) any
Support Obligations provided by the direct or indirect parent
company of such Counterparty (the "COUNTERPARTY GUARANTOR")
and (ii) any irrevocable letter of credit provided by any
financial institution for the account of such Counterparty or
Counterparty Guarantor, in each case for the benefit of MS&T
or any of its Subsidiaries in support of such Counterparty's
payment obligations to MS&T or such Subsidiary arising from
such purchase or sale, provided that (x) the senior,
unsecured, non-credit enhanced indebtedness of such
Counterparty Guarantor or such financial institution (as the
case may be) is rated BBB- (or its equivalent) or higher by
any two of S&P, Fitch and Moody's, provided that in the event
that such Counterparty Guarantor has no such rated
indebtedness, Dun & Bradstreet Inc. has rated such
Counterparty Guarantor at least investment grade, (y) no
default by such Counterparty Guarantor in respect of any such
Support Obligations provided by such Counterparty Guarantor
has occurred and is continuing and (z) such Counterparty
Guarantor is not CMS Energy or any Affiliate of CMS Energy or
any of its Subsidiaries;
(e) Consolidated Debt shall not include any Project
Finance Debt of CMS Energy or any Consolidated Subsidiary; and
(f) Consolidated Debt shall not include the principal
amount of any Securitized Bonds.
"CONSOLIDATED EBITDA" means, with reference to any period, the
pretax operating income of CMS Energy and its Subsidiaries ("PRETAX
OPERATING INCOME") for such period plus, to the extent deducted in
determining Pretax Operating Income (without duplication), (i)
depreciation, depletion and amortization, and (ii) any non-cash
6
write-offs and write-downs contained in CMS Energy's Pretax Operating
Income, including, without limitation, write-offs or write-downs
related to the sale of assets, impairment of assets and loss on
contracts, in each case in accordance with GAAP consistently applied,
all calculated for CMS Energy and its Subsidiaries on a consolidated
basis for such period; provided, however that Consolidated EBITDA shall
not include any operating income attributable to that portion of the
revenues of Consumers dedicated to the repayment of the Securitized
Bonds.
"CONSOLIDATED SUBSIDIARY" means any Subsidiary whose accounts
are or are required to be consolidated with the accounts of CMS Energy
in accordance with GAAP.
"CONSUMERS" means Consumers Energy Company, a Michigan
corporation, all of whose common stock is on the Closing Date owned by
CMS Energy.
"CONSUMERS CREDIT FACILITY" means, collectively, Consumer's
existing (i) $300,000,000 term loan facility, (ii) $150,000,000 term
loan B facility, (iii) $140,000,000 term loan facility and (iv)
$250,000,000 revolving loan facility, as in effect on the date hereof.
"CONSUMERS DIVIDEND RESTRICTION" means any restriction enacted
or imposed after October 1, 1992 upon the ability of Consumers to pay
cash dividends to CMS Energy in respect of Consumers' capital stock,
whether such restriction is imposed by statute, regulation, decisions
or rulings by the Michigan Public Service Commission or the Federal
Energy Regulatory Commission (or any successor agency or agencies),
final judgments of any court of competent jurisdiction, indentures,
agreements, contracts or restrictions to which Consumers is a party or
by which it is bound or otherwise; provided, that no restriction on
such dividends existing on October 1, 1992 shall be a Consumers
Dividend Restriction at any time.
"CONTINUING DIRECTOR" means, as of any date of determination,
any member of the board of directors of CMS Energy who (a) was a member
of such board of directors on the Closing Date, or (b) was nominated
for election or elected to such board of directors with the approval of
the Continuing Directors who were members of such board of directors at
the time of such nomination or election; provided that an individual
who is so elected or nominated in connection with a merger,
consolidation, acquisition or similar transaction shall not be a
Continuing Director unless such individual was a Continuing Director
prior thereto.
"CONVERSION", "CONVERT" or "CONVERTED" refers to a conversion
of Loans of one Type into Loans of another Type, or to the selection of
a new, or the renewal of the same, Interest Period for Loans, as the
case may be, pursuant to Section 3.02 or 3.03.
"CONVERSION DATE" is defined in Section 2.01(b).
"DEBT" means, for any Person, without duplication, any and all
indebtedness, liabilities and other monetary obligations of such Person
(whether for principal, interest, fees, costs, expenses or otherwise,
and whether contingent or otherwise) (i) for borrowed money or
evidenced by bonds, debentures, notes or other similar instruments,
(ii) to pay
7
the deferred purchase price of property or services (except trade
accounts payable arising in the ordinary course of business which are
not overdue), (iii) as lessee under leases which shall have been or
should be, in accordance with GAAP, recorded as capital leases, (iv)
under reimbursement or similar agreements with respect to letters of
credit issued thereunder (except reimbursement obligations and letters
of credit that are cash collateralized), (v) under any interest rate
swap, "cap", "collar" or other hedging agreements; provided, however,
for purposes of the calculation of Debt for this clause (v) only, the
actual amount of Debt of such Person shall be determined on a net basis
to the extent such agreements permit such amounts to be calculated on a
net basis, (vi) to pay rent or other amounts under leases entered into
in connection with sale and leaseback transactions involving assets of
such Person being sold in connection therewith, (vii) arising from any
accumulated funding deficiency (as defined in Section 412(a) of the
Internal Revenue Code of 1986, as amended) for a Plan, (viii) arising
in connection with any withdrawal liability under ERISA to any
Multiemployer Plan and (ix) arising from (A) direct or indirect
guaranties in respect of, and obligations to purchase or otherwise
acquire, or otherwise to warrant or hold harmless, pursuant to a
legally binding agreement, a creditor against loss in respect of, Debt
of others referred to in clauses (i) through (viii) above and (B) other
guaranty or similar financial obligations in respect of the performance
of others, including Support Obligations. Notwithstanding the
foregoing, solely for purposes of the calculation required under
Section 7.01(j)(ii), Debt shall not include any Junior Subordinated
Debt issued by CMS Energy and owned by any Hybrid Preferred Securities
Subsidiary.
"DEBT FOR BORROWED MONEY" means, for any Person, without
duplication, the sum of (i) Debt of such Person described in clause (i)
of the definition of "Debt", plus (ii) all obligations of such Person
with respect to receivables sold or otherwise discounted with recourse,
plus (iii) all Project Finance Debt entered into by such Person on or
after the Closing Date (other than Project Finance Debt incurred
substantially contemporaneously with the acquisition or construction of
the assets securing such Project Finance Debt), but shall exclude (a)
notes, bills and checks presented in the ordinary course of business by
such Person to banks for collection or deposit, (b) with respect to CMS
Energy and its Subsidiaries, all obligations of CMS Energy and its
Subsidiaries of the character referred to in this definition to the
extent owing to CMS Energy or any of its Subsidiaries, (c) with respect
to Panhandle and its Subsidiaries, refinancings of Debt of Panhandle
and its Subsidiaries existing as of the Closing Date, and Debt incurred
or collateral delivered on or after the Closing Date with respect to
any Support Obligations of Panhandle or its Subsidiaries existing as of
the Closing Date, and (d) refinancings of Debt existing as of the
Closing Date or incurred after the Closing Date in accordance with this
Agreement, as applicable, to the extent such refinancing Debt is
otherwise permitted under this Agreement.
"DEFAULT" means an event that, with the giving of notice or
lapse of time or both, would constitute an Event of Default.
"DEFAULT RATE" means a rate per annum equal at all times to
(i) in the case of any amount of principal of any Loan that is not paid
when due, 2% per annum above the Applicable Rate required to be paid on
such Loan immediately prior to the date on which
8
such amount became due, and (ii) in the case of any amount of interest,
fees or other amounts payable hereunder that is not paid when due, 2%
per annum above the Applicable Rate for an ABR Loan in effect from time
to time.
"DESIGNATED PREPAYMENT" means each mandatory prepayment
required by clauses (i), (ii), (iii) and (iv) of Section 2.03(c).
"DIVIDEND COVERAGE RATIO" means, at any date, the ratio of (i)
Pro Forma Dividend Amounts to (ii) CMS Energy Interest Expense.
"DOLLARS" and the sign "$ " each means lawful money of the
United States.
"ENTERPRISES SIGNIFICANT SUBSIDIARY" means CMS Generation Co.,
CMS Gas Transmission Company, Panhandle, any direct or indirect
subsidiary of Panhandle and any other direct subsidiary of the Borrower
having a net worth in excess of $50,000,000.
"ENVIRONMENTAL LAWS" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or
binding agreements issued, promulgated or entered into by any
governmental agency or authority, relating in any way to the
environment, preservation or reclamation of natural resources, the
management, release or threatened release of any Hazardous Substance or
to health and safety matters.
"ENVIRONMENTAL LIABILITY" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of CMS Energy or any of
its Subsidiaries directly or indirectly resulting from or based upon
(a) violation of any Environmental Law, (b) the generation, use,
handling, transportation, storage, treatment or disposal of any
Hazardous Substances, (c) exposure to any Hazardous Substances, (d) the
release or threatened release of any Hazardous Substances into the
environment or (e) any contract, agreement or other consensual
arrangement pursuant to which liability is assumed or imposed with
respect to any of the foregoing.
"EQUITY DISTRIBUTIONS" means, for any period, the aggregate
amount of cash received by CMS Energy from its Subsidiaries during such
period that are paid out of proceeds from the sale of common equity of
Subsidiaries of CMS Energy.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
"ERISA AFFILIATE" means, with respect to any Person, any trade
or business (whether or not incorporated) that is a member of a
commonly controlled trade or business under Sections 414(b), (c), (m)
and (o) of the Internal Revenue Code of 1986, as amended.
"EURODOLLAR", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing,
are bearing interest at a rate determined by reference to the Adjusted
LIBO Rate.
9
"EURODOLLAR RATE LOAN" means a Loan that bears interest as
provided in Section 3.05(b)(ii).
"EVENT OF DEFAULT" is defined in Section 8.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXISTING CREDIT AGREEMENTS" means, collectively, (i) that
certain $300,000,000 Amended and Restated Credit Agreement (the
"EXISTING 3-YEAR CREDIT AGREEMENT"), and (ii) that certain $295,800,000
Amended and Restated Credit Agreement (the "EXISTING 364-DAY CREDIT
AGREEMENT"), each dated as of July 12, 2002, among CMS Energy, the
lenders party thereto, Barclays Bank PLC, as administrative agent,
Citicorp USA, Inc, as collateral agent, Bank of America, N.A. and
JPMorgan Chase Bank, as co-syndication agents, and Citicorp USA, Inc.
and Union Bank of California, N.A., as documentation agents, as the
same may have been amended, restated, supplemented or otherwise
modified from time to time.
"EXTENSION OF CREDIT" means the making of a Borrowing
(including any Conversion).
"FAIR MARKET VALUE" means, with respect to any asset, the
value of the consideration obtainable in a sale of such asset in the
open market, assuming a sale by a willing seller to a willing purchaser
dealing at arm's length and arranged in an orderly manner over a
reasonable period of time, each having reasonable knowledge of the
nature and characteristics of such asset, neither being under any
compulsion to act, and, if in excess of $50,000,000, as determined in
good faith by the Board of Directors of CMS Energy.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of
1%) of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day that
is a Business Day, the average (rounded upwards, if necessary, to the
next 1/100 of 1%) of the quotations for such day for such transactions
received by the Administrative Agent from three Federal funds brokers
of recognized standing selected by it.
"FEE LETTER" is defined in Section 2.02(c).
"FITCH" means Fitch, Inc. or any successor thereto.
"FOREIGN LENDER" means any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is
located. For purposes of this definition, the United States of America,
each State thereof and the District of Columbia shall be deemed to
constitute a single jurisdiction.
"FOREIGN SUBSIDIARY" is defined in Section 7.01(l).
10
"GAAP" is defined in Section 1.03.
"GOVERNMENTAL APPROVAL" means any authorization, consent,
approval, license, permit, certificate, exemption of, or filing or
registration with, any governmental authority or other legal or
regulatory body, required in connection with (i) the execution,
delivery, or performance of any Loan Document by any Loan Party, (ii)
the grant and perfection of any Lien in favor of the Collateral Agent
contemplated by the Loan Documents, or (iii) the exercise by any Agent
(on behalf of the Lenders) of any right or remedy provided for under
the Loan Documents.
"GRANTOR(S)" means each Guarantor and each of the following
Subsidiaries of the Borrower: CMS Capital, L.L.C., a Michigan limited
liability company, CMS Electric & Gas, L.L.C. (formerly known as CMS
Electric and Gas Company), a Michigan limited liability company, MS&T,
CMS International Ventures, L.L.C., a Michigan limited liability
company, CMS Field Services, Inc., a Michigan corporation, Dearborn
Industrial Energy, L.L.C., a Michigan limited liability company,
Dearborn Industrial Generation, L.L.C., a Michigan limited liability
company, CMS Generation Michigan Power L.L.C., a Michigan limited
liability company, CMS Gas Processing, L.L.C., an Oklahoma limited
liability company, CMS Natural Gas Gathering, L.L.C., an Oklahoma
limited liability company and CMS Field Services Holdings Company, an
Oklahoma corporation; provided that it is understood that none of the
Grantors (other than CMS Energy) shall grant Liens to secure the
Obligations unless and until the Intercreditor Agreement (Enterprises
Facility) shall be effective.
"GUARANTOR" means CMS Energy, CMS Generation Co., a Michigan
corporation, CMS Gas Transmission Company, a Michigan corporation, and
each other Restricted Subsidiary (excluding Panhandle and its
Subsidiaries) that has delivered, or shall be obligated to deliver, a
guaranty under and pursuant to the terms of Section 7.01(l).
"GUARANTY" means that certain Guaranty (and any and all
supplements thereto) executed from time to time by each Guarantor in
favor of the Collateral Agent for the benefit of itself and the
Lenders, in substantially the form of Exhibit I attached hereto, as
amended, restated, supplemented or otherwise modified from time to
time.
"HAZARDOUS SUBSTANCE" means any waste, substance, or material
identified as hazardous, dangerous or toxic by any office, agency,
department, commission, board, bureau, or instrumentality of the United
States or of the State or locality in which the same is located having
or exercising jurisdiction over such waste, substance or material.
"HYBRID PREFERRED SECURITIES" means any preferred securities
issued by a Hybrid Preferred Securities Subsidiary, where such
preferred securities have the following characteristics:
(i) such Hybrid Preferred Securities Subsidiary lends
substantially all of the proceeds from the issuance of such
preferred securities to CMS Energy or a wholly-owned direct or
indirect Subsidiary of CMS Energy in exchange for
11
Junior Subordinated Debt issued by CMS Energy or such
wholly-owned direct or indirect Subsidiary, respectively;
(ii) such preferred securities contain terms
providing for the deferral of interest payments corresponding
to provisions providing for the deferral of interest payments
on the Junior Subordinated Debt; and
(iii) CMS Energy or a wholly-owned direct or indirect
Subsidiary of CMS Energy (as the case may be) makes periodic
interest payments on the Junior Subordinated Debt, which
interest payments are in turn used by the Hybrid Preferred
Securities Subsidiary to make corresponding payments to the
holders of the preferred securities.
"HYBRID PREFERRED SECURITIES SUBSIDIARY" means any Delaware
business trust (or similar entity) (i) all of the common equity
interest of which is owned (either directly or indirectly through one
or more wholly-owned Subsidiaries of CMS Energy or Consumers) at all
times by CMS Energy or a wholly-owned direct or indirect Subsidiary of
CMS Energy, (ii) that has been formed for the purpose of issuing Hybrid
Preferred Securities and (iii) substantially all of the assets of which
consist at all times solely of Junior Subordinated Debt issued by CMS
Energy or a wholly-owned direct or indirect Subsidiary of CMS Energy
(as the case may be) and payments made from time to time on such Junior
Subordinated Debt.
"INDEMNIFIED PERSON" is defined in Section 10.04(b).
"INDENTURE" means that certain Indenture, dated as of
September 15, 1992, between CMS Energy and the Trustee, as supplemented
by the First Supplemental Indenture, dated as of October 1, 1992, the
Second Supplemental Indenture, dated as of October 1, 1992, the Third
Supplemental Indenture, dated as of May 6, 1997, the Fourth
Supplemental Indenture, dated as of September 26, 1997, the Fifth
Supplemental Indenture, dated as of November 4, 1997, the Sixth
Supplemental Indenture, dated as of January 13, 1998, the Seventh
Supplemental Indenture, dated as of January 25, 1999, the Eighth
Supplemental Indenture, dated as of February 3, 1999, the Ninth
Supplemental Indenture, dated as of June 22, 1999, the Tenth
Supplemental Indenture, dated as of October 12, 2000, the Eleventh
Supplemental Indenture, dated as of March 29, 2001, and the Twelfth
Supplemental Indenture, dated as of July 2, 2001, as said Indenture may
be further amended or otherwise modified from time to time in
accordance with its terms.
"INITIAL FUNDING DATE" mean the initial date the Loans are
made hereunder.
"INTERCREDITOR AGREEMENT (CMS ENERGY FACILITY)" means that
certain Intercreditor and Lien Subordination Agreement, dated as of
January 8, 2003, by and among Citicorp USA, Inc., as senior collateral
agent, American Home Assurance Company, individually and as junior
collateral agent, and St. Paul Fire and Marine Insurance Company,
individually, a copy of which is attached hereto as Exhibit M, as
amended, restated, supplemented or otherwise modified from time to
time.
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"INTERCREDITOR AGREEMENT (ENTERPRISES FACILITY)" means an
intercreditor and lien subordination agreement by and among the
Collateral Agent and the other parties to the AIG Pledge Agreement in
respect of the subordination of the Collateral Agent's Liens on certain
assets of the Grantors to the prior Liens under the AIG Pledge
Agreement, in form and substance reasonably acceptable to the Agents,
as amended, restated, supplemented or otherwise modified from time to
time.
"INTEREST PERIOD" is defined in Section 3.03.
"JUNIOR SUBORDINATED DEBT" means any unsecured Debt of CMS
Energy or a Subsidiary of CMS Energy (i) issued in exchange for the
proceeds of Hybrid Preferred Securities and (ii) subordinated to the
rights of the Lenders hereunder and under the other Loan Documents
pursuant to terms of subordination substantially similar to those set
forth in Exhibit G, or pursuant to other terms and conditions
satisfactory to the Required Lenders.
"LENDER ASSIGNMENT" is defined in Section 10.07(e).
"LENDERS" means the Banks listed on the signature pages
hereof, together with their successors and assigns.
"LIBO RATE" means, with respect to any Eurodollar Borrowing
for any Interest Period, the greater of (i) 2.00% per annum and (ii)
the rate appearing on Page 3750 of the Telerate Service (or on any
successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to
those currently provided on such page of such Service, as determined by
the Administrative Agent from time to time for purposes of providing
quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period, as the
rate for dollar deposits with a maturity comparable to such Interest
Period. In the event that such rate is not available at such time for
any reason, then the "LIBO RATE" with respect to such Eurodollar
Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest
Period are offered by the principal London office of the Administrative
Agent in immediately available funds in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"LIEN" is defined in Section 7.02(a).
"LOAN" means a loan by a Lender to the Borrower, and refers to
an ABR Loan or a Eurodollar Rate Loan (each of which shall be a "TYPE"
of Loan). All Loans by a Lender of the same Type having the same
Interest Period and made or Converted on the same day shall be deemed
to be a single Loan by such Lender until repaid or next Converted.
"LOAN DOCUMENTS" means this Agreement, any Promissory Notes,
the Fee Letter, the Guaranty, the Pledge Agreements, any account
control agreement in respect of the
13
Bond Cash Collateral Account, and all other agreements, instruments and
documents now or hereafter executed and/or delivered pursuant hereto or
thereto.
"LOAN PARTY" is defined in Section 5.01(a)(i).
"MATERIAL ADVERSE CHANGE" means any event, development or
circumstance that has had or could reasonably be expected to have a
material adverse effect on (a) the business, assets, property,
financial condition, results of operations or prospects of CMS Energy
and its Subsidiaries, considered as a whole, (b) the Borrower's and the
Guarantors' ability, taken as a whole, to perform their obligations
under this Agreement or any other Loan Document to which it is or will
be a party or (c) the validity or enforceability of any Loan Document
or the rights or remedies of any Agent or the Lenders thereunder;
provided that the occurrence of any Restatement Event shall not
constitute a Material Adverse Change.
"MEASUREMENT QUARTER" is defined in Section 7.01(i).
"MOODY'S" means Moody's Investors Service, Inc. or any
successor thereto.
"MS&T" means CMS Marketing, Services and Trading Company, a
Michigan corporation, all of whose capital stock is on the Closing Date
owned by the Borrower.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NET PROCEEDS" means, with respect to any sale, assignment or
other disposition of (but not the lease or license of) any property, or
with respect to any sale or issuance of securities or incurrence of
Debt, by any Person, gross cash proceeds received by such Person or any
Subsidiary of such Person from such sale, assignment, disposition,
issuance or incurrence (including cash received as consideration for
the assumption or incurrence of liabilities incurred in connection with
or in anticipation of such transaction) after (i) provision for all
income or other taxes measured by or resulting from such transaction,
(ii) payment of all customary underwriting commissions, auditing and
legal fees, printing costs, rating agency fees and other customary and
reasonable fees and expenses incurred by such Person in connection with
such transaction, (iii) all amounts used to repay Debt (and any premium
or penalty thereon) secured by a Lien on any asset disposed of in such
sale, assignment or other disposition or which is or may be required
(by the express terms of the instrument governing such Debt or by
applicable law) to be repaid in connection with such sale, assignment,
or other disposition, and (iv) deduction of appropriate amounts to be
provided by such Person or a Subsidiary of such Person as a reserve, in
accordance with GAAP consistently applied, against any liabilities
associated with the assets sold, transferred or disposed of in such
transaction and retained by such Person or a Subsidiary of such Person
after such transaction, provided that "Net Proceeds" shall include on a
dollar-for-dollar basis all amounts remaining in such reserve after
such liability shall have been satisfied in full or terminated;
provided, however, that notwithstanding the foregoing, "Net Proceeds"
shall exclude (a) any amounts received or deemed to be received by CMS
Energy for the purchase of CMS Energy's capital stock
14
in connection with CMS Energy's dividend reinvestment program and (b)
amounts received by CMS Energy or any Subsidiary of CMS Energy pursuant
to any transaction with CMS Energy or any Subsidiary of CMS Energy
otherwise permitted hereunder.
"NET WORTH" means, with respect to any Person, the excess of
such Person's total assets over its total liabilities, total assets and
total liabilities each to be determined in accordance with GAAP
consistently applied, excluding, however, from the determination of
total assets (i) goodwill, organizational expenses, research and
development expenses, trademarks, trade names, copyrights, patents,
patent applications, licenses and rights in any thereof, and other
similar intangibles, (ii) cash held in a sinking, escrow or other
analogous fund established for the purpose of redemption, retirement or
prepayment of capital stock or Debt, and (iii) any items not included
in clauses (i) or (ii) above, that are treated as intangibles in
conformity with GAAP.
"NOTICE OF BORROWING" is defined in Section 3.01(a).
"NOTICE OF CONVERSION" is defined in Section 3.02.
"NOTICE TO CONVERT" is defined in Section 2.01(b).
"OBLIGATIONS" means all unpaid principal of and accrued and
unpaid interest on the Loans, all accrued and unpaid fees and all
expenses, reimbursements, indemnities and other obligations of the
Borrower and other Loan Parties to any of the Agents, the Arranger, the
Lenders or any other indemnified party arising under the Loan
Documents.
"OECD" means the Organization for Economic Cooperation and
Development.
"OFF-BALANCE SHEET LIABILITY" of a Person shall mean any of
the following obligations not appearing on such Person's consolidated
balance sheet: (i) all lease obligations, leveraged leases, sale and
leasebacks and other similar lease arrangements of such Person, (ii)
any liability under any so called "synthetic lease" or "tax ownership
operating lease" transaction entered into by such Person, and (iii) any
obligation arising with respect to any other transaction if and to the
extent that such obligation is the functional equivalent of borrowing
but that does not constitute a liability on the consolidated balance
sheet of such Person.
"OWNERSHIP INTEREST" of CMS Energy in any Consolidated
Subsidiary means, at any date of determination, the percentage
determined by dividing (i) the aggregate amount of Project Finance
Equity in such Consolidated Subsidiary owned or controlled, directly or
indirectly, by CMS Energy and any other Consolidated Subsidiary on such
date, by (ii) the aggregate amount of Project Finance Equity in such
Consolidated Subsidiary owned or controlled, directly or indirectly, by
all Persons (including CMS Energy and the Consolidated Subsidiaries) on
such date. Notwithstanding anything to the contrary set forth above, if
the "Ownership Interest," calculated as set forth above, is 50% or
less, such percentage shall be deemed to equal 0%.
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"PANHANDLE" means Panhandle Eastern Pipe Line Company, a
Delaware corporation, all of whose capital stock is on the Closing Date
owned indirectly by the Borrower.
"PARTICIPANT" is defined in Section 10.07(b).
"PBGC" means the Pension Benefit Guaranty Corporation (or
any successor entity) established under ERISA.
"PERCENTAGE" means, for any Lender on any date of
determination, (a) prior to the Commitment Termination Date, the
percentage obtained by dividing such Lender's Commitment on such day by
the total of the Lenders' Commitments on such date, and multiplying the
quotient so obtained by 100%, and (b) from and after the Commitment
Termination Date, the percentage obtained by dividing the aggregate
outstanding principal amount of such Lender's Loans on such day by the
total of the Lenders' Loans on such day, and multiplying the quotient
so obtained by 100%.
"PERMITTED INVESTMENTS" means each of the following so long as
no such Permitted Investment shall have a final maturity later than six
months from the date of investment therein:
(i) direct obligations of the United States, or of
any agency thereof, or obligations guaranteed as to principal
and interest by the United States or any agency thereof;
(ii) certificates of deposit or bankers' acceptances
issued, or time deposits held, or investment contracts
guaranteed, by any Lender, any nationally-recognized
securities dealer or any other commercial bank, trust company,
savings and loan association or savings bank organized under
the laws of the United States, or any State thereof, or of any
other country which is a member of the OECD, or a political
subdivision of any such country, and in each case having
outstanding unsecured indebtedness that (on the date of
acquisition thereof) is rated AA- or better by S&P or Aa3 or
better by Moody's (or an equivalent rating by another
nationally-recognized credit rating agency of similar standing
if neither of such corporations is then in the business of
rating unsecured bank indebtedness);
(iii) obligations with any Lender, any other bank or
trust company described in clause (ii), above, or any
nationally-recognized securities dealer, in respect of the
repurchase of obligations of the type described in clause (i),
above provided that such repurchase obligations shall be fully
secured by obligations of the type described in said clause
(i) and the possession of such obligations shall be
transferred to, and segregated from other obligations owned
by, such Lender, such other bank or trust company or such
securities dealer;
(iv) commercial paper rated (on the date of
acquisition thereof) A-1 or P-1 or better by S&P or Moody's,
respectively (or an equivalent rating by another
16
nationally-recognized credit rating agency of similar standing
if neither of such corporations is then in the business of
rating commercial paper);
(v) any eurodollar certificate of deposit issued by
any Lender or any other commercial bank, trust company,
savings and loan association or savings bank organized under
the laws of the United States, or any State thereof, or of any
country which is a member of the OECD, or a political
subdivision of any such country, and in each case having
outstanding unsecured indebtedness that (on the date of
acquisition thereof) is rated AA- or better by S&P or Aa3 or
better by Moody's (or an equivalent rating by another
nationally-recognized credit rating agency of similar standing
if neither of such corporations is then in the business of
rating unsecured bank indebtedness); and
(vi) interests in any money market mutual fund which
at the date of investment in such fund has the highest fund
rating by each of Moody's and S&P which has issued a rating
for such fund (which, for S&P, shall mean a rating of AAAm or
AAAmg).
"PERSON" means an individual, partnership, corporation
(including a business trust), joint stock company, limited liability
company, trust, unincorporated association, joint venture or other
entity, or a government or any political subdivision or agency thereof.
"PLAN" means, with respect to any Person, an "employee benefit
plan" as defined in Section 3(3) of ERISA (other than a Multiemployer
Plan) maintained for employees of such Person or any ERISA Affiliate of
such Person that is subject to Title IV of ERISA and has "unfunded
benefit liabilities" as determined under Section 4001(a)(18) of ERISA.
"PLAN TERMINATION EVENT" means, (i) with respect to any Plan,
a "reportable event" within the meaning of Section 4043 of ERISA and
the regulations issued thereunder (other than a "reportable event" not
subject to the provision for 30-day notice to the PBGC under such
regulations or a "reportable event" for which the provision for the
30-day notice to the PBGC under such regulations has been waived), or
(ii) the withdrawal by CMS Energy or any of its ERISA Affiliates from a
Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA resulting in liability to CMS
Energy or any of its ERISA Affiliates under Section 4063 or 4064 of
ERISA, or (iii) the filing of a notice of intent to terminate a Plan or
the termination of a Plan under Section 4041 of ERISA, or (iv) the
institution of proceedings to terminate a Plan by the PBGC, or (v) any
other event or condition which is reasonably likely to constitute
grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan.
"PLATFORM" is defined in Section 10.15
"PLEDGE AGREEMENTS" means each of (i) that certain Pledge and
Security Agreement, dated as of March 30, 2003, by and between CMS
Energy and the Collateral
17
Agent, in substantially the form of Exhibit J attached hereto, pursuant
to which CMS Energy shall grant a security interest in the capital
stock of Consumers and the Borrower and a security interest in accounts
receivable and notes owed by the Borrower or any Subsidiary of the
Borrower to CMS Energy, and (ii) that certain Pledge and Security
Agreement, dated as of the effective date of the Intercreditor
Agreement (Enterprises Facility), by and among the Grantors and the
Collateral Agent in substantially the form of Exhibit K hereto,
pursuant to which such Grantors shall grant a security interest in the
capital stock (or comparable interest) of each of the Subsidiaries of
the Borrower identified as owned by it on Schedule II hereto and a
security interest in accounts receivable and notes owed by CMS Energy
or the Borrower or any Subsidiary of the Borrower to such Grantor, in
each case as the same may be amended, restated, supplemented or
otherwise modified from time to time.
"PRIMARY WEB PORTAL" is defined in Section 10.15.
"PRIME RATE" means the rate of interest per annum publicly
announced from time to time by Citibank as its base rate in effect at
its principal office in New York City; each change in the Prime Rate
shall be effective from and including the date such change is publicly
announced as being effective.
"PRO FORMA DIVIDEND AMOUNT" means, from and after any date of
any Consumers Dividend Restriction, the sum of (a) the aggregate amount
which Consumers could have paid to CMS Energy during the four calendar
quarters immediately preceding such date had such Consumers Dividend
Restriction been in effect during such quarters plus (b) cash dividends
received by CMS Energy from any other Subsidiary during such quarters.
"PROJECT FINANCE DEBT" means Debt of any Person that is
non-recourse to such Person (unless such Person is a special-purpose
entity) and any Affiliate of such Person, other than with respect to
the interest of the holder of such Debt in the collateral, if any,
securing such Debt.
"PROJECT FINANCE EQUITY" means, at any date of determination,
consolidated equity of the common, preference and preferred
stockholders of CMS Energy and the Consolidated Subsidiaries relating
to any obligor with respect to Project Finance Debt.
"PROMISSORY NOTE" means any promissory note of the Borrower
payable to the order of a Lender (and, if requested, its registered
assigns) issued pursuant to Section 3.01(c); and "PROMISSORY NOTES"
means any or all of the foregoing.
"RECIPIENT" is defined in Section 10.08.
"REGISTER" is defined in Section 10.07(h).
"RELATED PARTIES" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers,
employees, agents and advisors of such Person and such Person's
Affiliates.
18
"REQUIRED LENDERS" means, on any date of determination,
Lenders that, collectively, on such date (i) hold more than 50% of the
then aggregate unpaid principal amount of the Loans owing to Lenders
and (ii) if no Loans are then outstanding, have Percentages in the
aggregate of more than 50%. Any determination of those Lenders
constituting the Required Lenders shall be made by the Administrative
Agent and shall be conclusive and binding on all parties absent
manifest error.
"RESTATEMENT" means the restatement of the financial
statements of CMS Energy or its Subsidiaries for any fiscal quarter of
2001, as well as any adjustment of previously announced quarterly
results, but only if made to reflect the restatement of such quarters.
"RESTATEMENT EVENT" means (i) the Restatement, (ii) any
lawsuit or other action previously or hereafter brought against CMS
Energy, any of its Subsidiaries or any of their Affiliates or any
present or former officer or director of CMS Energy, any of its
Subsidiaries or any of their Affiliates involving or arising out of the
Restatement, and any settlement thereof, or other development with
respect thereto, or (iii) the occurrence of any default or event of
default under any indenture, instrument or other agreement or contract,
or the exercise of any remedy in respect thereof, that arises directly
or indirectly as a result of any of the matters described in any of the
foregoing clauses (i) or (ii) or this clause (iii); provided, however,
that, for purposes of the definition of "MATERIAL ADVERSE CHANGE", (a)
the foregoing clause (ii) shall be inapplicable if such lawsuit or
other action, settlement (in an amount in the aggregate together with
all other settlements of such lawsuits or actions) or other development
described in such clause (ii) could reasonably be expected, in each
case, to result in liability to such Person in excess of $6,000,000 and
(b) the foregoing clause (iii) shall be inapplicable if any such event
described in such clause (iii) would constitute an Event of Default
under Section 8.01(e).
"RESTRICTED SUBSIDIARY" means (i) the Borrowers and (ii) any
other Subsidiary of CMS Energy (other than Consumers and its
Subsidiaries) that, on a consolidated basis with any of its
Subsidiaries as of any date of determination, accounts for more than
10% of the consolidated assets of CMS Energy and its Consolidated
Subsidiaries.
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw Hill Companies, Inc., or any successor thereto.
"SECURITIZED BONDS" means any nonrecourse bonds or similar
asset-backed securities issued by a special-purpose subsidiary of
Consumers which are payable solely from specialized charges authorized
by the utility commission of the relevant state in connection with the
recovery of regulatory assets or other qualified costs.
"6.75% SENIOR NOTES" means CMS Energy's 6.75% Senior Notes due
January 2004, the aggregate outstanding principal amount of which was
equal to $287,025,000 as of February 28, 2003.
"SOLVENT", when used with respect to any Person, means that at
the time of determination:
19
(i) the fair market value of its assets is in excess
of the total amount of its liabilities (including, without
limitation, net contingent liabilities); and
(ii) it is then able and expects to be able to pay
its debts (including, without limitation, contingent debts and
other commitments) as they mature; and
(iii) it has capital sufficient to carry on its
business as conducted and as proposed to be conducted.
For purposes of this definition, the amount of contingent liabilities at any
time shall be computed as the amount that, in light of all the facts and
circumstances known to such Person at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"STATUTORY RESERVE RATE" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator
of which is the number one minus the aggregate of the maximum reserve
percentages (including any marginal, special, emergency or supplemental
reserves) expressed as a decimal established by the Board to which the
Administrative Agent is subject for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of the
Board). Such reserve percentages shall include those imposed pursuant
to such Regulation D. Eurodollar Rate Loans shall be deemed to
constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or
offsets that may be available from time to time to any Lender under
such Regulation D or any comparable regulation. The Statutory Reserve
Rate shall be adjusted automatically on and as of the effective date of
any change in any reserve percentage.
"SUBSIDIARY" means, with respect to any Person, any
corporation or unincorporated entity of which more than 50% of the
outstanding capital stock (or comparable interest) having ordinary
voting power (irrespective of whether at the time capital stock (or
comparable interest) of any other class or classes of such corporation
or entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by said Person
(whether directly or through one or more other Subsidiaries). In the
case of an unincorporated entity, a Person shall be deemed to have more
than 50% of interests having ordinary voting power only if such
Person's vote in respect of such interests comprises more than 50% of
the total voting power of all such interests in the unincorporated
entity.
"SUPPORT OBLIGATIONS" means, for any Person, without
duplication, any financial obligation, contingent or otherwise, of such
Person guaranteeing or otherwise supporting any Debt or other
obligation of any other Person in any manner, whether directly or
indirectly, and including any obligation of such Person, direct or
indirect (including, but not limited to, letters of credit and surety
bonds in connection therewith), (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Debt or to purchase
(or to advance or supply funds for the purchase of) any security for
the payment of such Debt, (ii) to purchase property, securities or
services for the purpose of assuring the owner of such Debt of the
payment of such Debt, (iii) to maintain working capital, equity
capital, available cash or other financial statement condition of the
primary obligor
20
so as to enable the primary obligor to pay such Debt, (iv) to provide
equity capital under or in respect of equity subscription arrangements
(to the extent that such obligation to provide equity capital does not
otherwise constitute Debt), or (v) to perform, or arrange for the
performance of, any non-monetary obligations or non-funded debt payment
obligations of the primary obligor.
"TAX SHARING AGREEMENT" means the Amended and Restated
Agreement for the Allocation of Income Tax Liabilities and Benefits,
dated as of January 1, 1994, by and among CMS Energy, each of the
members of the Consolidated Group (as defined therein), and each of the
corporations that become members of the Consolidated Group.
"TERMINATION DATE" means the earlier to occur of (i) April 30,
2004 and (ii) the date of termination or reduction in whole of the
Commitments pursuant to Section 2.03 or 8.02.
"TRUSTEE" has the meaning assigned to that term in the
Indenture.
"TYPE" has the meaning assigned to such term (i) in the
definition of "Loan" when used in such context and (ii) in the
definition of "Borrowing" when used in such context.
SECTION 1.02. COMPUTATION OF TIME PERIODS; CONSTRUCTION.
(a) Unless otherwise indicated, each reference in this
Agreement to a specific time of day is a reference to New York City time. In the
computation of periods of time under this Agreement, any period of a specified
number of days or months shall be computed by including the first day or month
occurring during such period and excluding the last such day or month. In the
case of a period of time "from" a specified date "to" or "until" a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each means "to but excluding".
(b) The definitions of terms herein shall apply equally
to the singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes", and "including" shall be deemed
to be followed by the phrase "without limitation". The word "will" shall be
construed to have the same meaning and effect as the word "shall". Unless the
context requires otherwise (i) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (ii) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (iii) the words "herein", "hereof" and "hereunder", and words of
similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, (iv) all references herein to
Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement and (v)
the words "asset" and "property" shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights.
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SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 6.01(e) ("GAAP"), it being
understood that such financial statements do not reflect the Restatement. If any
changes in generally accepted accounting principles are hereafter required or
permitted and are adopted by CMS Energy or any of its Subsidiaries, or CMS
Energy or any of its Subsidiaries shall change its application of generally
accepted accounting principles with respect to any Off-Balance Sheet
Liabilities, in each case, with the agreement of its independent certified
public accountants, and such changes result in a change in the method of
calculation of any of the financial covenants, tests, restrictions or standards
herein or in the related definitions or terms used therein ("ACCOUNTING
CHANGES"), the parties hereto agree, at the Borrower's request, to enter into
negotiations, in good faith, in order to amend such provisions in a credit
neutral manner so as to reflect equitably such changes with the desired result
that the criteria for evaluating CMS Energy's and its Subsidiaries' financial
condition shall be the same after such changes as if such changes had not been
made; provided, however, until such provisions are amended in a manner
reasonably satisfactory to the Agents, the Arranger and the Required Lenders, no
Accounting Change shall be given effect in such calculations. In the event such
amendment is entered into, all references in this Agreement to GAAP shall mean
generally accepted accounting principles as of the date of such amendment.
Notwithstanding the foregoing, all financial statements to be delivered by the
Borrower pursuant to Section 7.03 shall be prepared in accordance with generally
accepted accounting principles in effect at such time.
ARTICLE II
COMMITMENTS
SECTION 2.01. THE COMMITMENTS; CONVERSION TO TERM LOAN.
(a) Each Lender severally agrees, on the terms and
conditions hereinafter set forth to make Loans to the Borrower during the period
from the Initial Funding Date until the Commitment Termination Date in an
aggregate outstanding amount not to exceed on any day such Lender's Available
Commitment (after giving effect to all Extensions of Credit to be made on such
day and the application of the proceeds thereof). Within the limits hereinafter
set forth, the Borrower may request Extensions of Credit hereunder, prepay
Loans, and use the resulting increase in the Available Commitments for further
Extensions of Credit in accordance with the terms hereof.
(b) At the Borrower's option prior to the 90th day after
the Closing Date upon written notice (a "Notice to Convert") to the
Administrative Agent (who shall promptly notify each of the Lenders), or
automatically on the 90th day after the Closing Date if not converted prior to
such date (such date of conversion being the "Conversion Date"), the then
outstanding aggregate principal amount of the Loans hereunder shall be converted
to a term loan. Any Notice to Convert shall expressly state the applicable
Conversion Date and shall be irrevocable once given. The Borrower shall be
deemed to have represented and warranted that the conditions contained in
Section 5.03 have been satisfied as of the date of any Notice to Convert. Upon
delivery of such Notice to Convert (or if no such Notice to Convert is given,
upon the automatic Conversion Date described above), (i) the Borrower's option
to borrow and reborrow Loans shall terminate, (ii) the aggregate of the Lenders'
Commitments shall be reduced to zero,
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and (iii) the outstanding principal balance of all Loans hereunder shall be due
and payable on the Termination Date. All references in this Agreement to Loans
shall include such Loans as converted hereunder.
SECTION 2.02. FEES.
(a) The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a commitment fee equal to the product of
(i) the average daily amount of such Lender's Available Commitment from the
Initial Funding Date, in the case of each Bank, and from the effective date
specified in the Lender Assignment pursuant to which it became a Lender, in the
case of each other Lender, until the Commitment Termination Date multiplied by
(ii) the Commitment Fee Margin in effect as of the date upon which such fee is
payable. Such fees shall be payable quarterly in arrears on the last day of each
March, June, September and December, commencing the first such date to occur
following the Initial Funding Date, and on the Commitment Termination Date.
(b) In addition to the fees provided for in subsection
(a) above, the Borrower shall pay to the Administrative Agent, for the account
of CUSA and the other Persons entitled thereto, such other fees as are provided
for in that certain letter agreement, dated March 30, 2003 among the Borrower,
the Agents and the Arranger (the "FEE LETTER"), in the amounts and at the times
specified therein.
SECTION 2.03. REDUCTION OF THE COMMITMENTS; MANDATORY PREPAYMENTS.
(a) The Borrower may (and shall provide notice thereof to
the Administrative Agent not later than 10:00 a.m. (New York City time) on the
date of termination or reduction, and the Administrative Agent shall promptly
distribute copies thereof to the Lenders) terminate in whole or reduce ratably
in part the unused portions of the Commitments; provided that any such partial
reduction shall be in the aggregate amount of $5,000,000 or an integral multiple
of $1,000,000 in excess thereof.
(b) Upon the occurrence of a Change of Control the
Commitments shall be reduced to zero and the principal amount outstanding
hereunder, all interest thereon and all other amounts payable under this
Agreement and the other Loan Documents shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower.
(c) The Borrower shall make the following mandatory
prepayments:
(i) Promptly and in any event within 3 Business Days
after CMS Energy's or any of its Subsidiaries' receipt of any Net
Proceeds from the sale or issuance of equity securities, the Borrower
shall make or cause to be made a mandatory prepayment of the
Obligations in an amount equal to one hundred percent (100%) of such
Net Proceeds;
(ii) Promptly and in any event within 3 Business Days
after CMS Energy's or any of its Subsidiaries' receipt of any Net
Proceeds from the incurrence of Debt For Borrowed Money, other than (a)
Debt incurred by Consumers or any Subsidiary of Consumers and (b) Debt
giving rise to a Designated Prepayment under clause (iv) below,
23
the Borrower shall make or cause to be made a mandatory prepayment of
the Obligations in an amount equal to one hundred percent (100%) of
such Net Proceeds; and
(iii) Promptly and in any event within 3 Business Days
after CMS Energy's or any of its Subsidiaries' receipt of any Net
Proceeds from the sale, assignment or other disposition of (but not the
lease or license of) any property, including, without limitation, any
sale of capital stock or other equity interest in any of CMS Energy's
direct or indirect Subsidiaries, in an amount, when combined with the
Net Proceeds of all other such transactions since the Closing Date that
have not been applied to the prepayment of the Obligations in
accordance with this clause (iii), in excess of $10,000,000, the
Borrower shall make or cause to be made a mandatory prepayment of the
Obligations in an amount equal to one hundred percent (100%) of such
aggregate Net Proceeds, provided that such amount shall exclude Net
Proceeds arising from (A) any sale, assignment or other disposition of
property by Consumers or any Subsidiary of Consumers (other than the
capital stock of Consumers), (B) the sale of all or substantially all
of the electrical power book of MS&T and (C) any sale or other
disposition by CMS Energy or any of its Subsidiaries in the ordinary
course of business consistent with past practice, provided, further
that any Designated Prepayment under this clause (iii) arising from the
sale or disposition of any Collateral that is subject to a Lien
pursuant to the AIG Pledge Agreement shall be applied first to prepay
the obligations under (and in accordance with the terms of) the CMS
Energy Credit Agreement if an "Event of Default" under (and as defined
in) the AIG Pledge Agreement arising from the non-compliance with the
terms of Section 4.5 of the AIG Pledge Agreement has occurred and is
continuing, or would result from the transaction giving rise to such
Designated Prepayment.
(iv) Promptly, and in any event within 3 Business Days
after the reissuance, remarketing, refinancing or repurchase of each of
CMS Energy's reset put securities due July 1, 2003 and CMS Energy's
general term notes due in 2003 other than with cash collateral required
to be deposited into the Bond Cash Collateral Account pursuant to
Section 5.01(c)(ii), the Borrower shall make or cause to be made a
mandatory prepayment of the Obligations in an amount equal to 100% of
the principal amount of the refinanced, reissued, remarketed or
repurchased obligations.
Nothing in this Section 2.03(c) shall be construed to constitute the Lenders'
consent to any transaction referenced in clauses (i), (ii), (iii) and (iv) above
which is not expressly permitted by Article VII. The Borrower shall give the
Administrative Agent prior written notice or telephonic notice promptly
confirmed in writing (each of which the Administrative Agent shall promptly
transmit to each Lender), when a Designated Prepayment will be made (which date
of prepayment shall be no later than the date on which such Designated
Prepayment becomes due and payable pursuant to this Section 2.03(c)). Designated
Prepayments shall be allocated and applied to the outstanding Loans, and shall
permanently reduce on a ratable basis the Commitment of each Lender. All
Designated Prepayments shall be applied first to repay outstanding ABR Loans and
then to repay outstanding Eurodollar Rate Loans with those Eurodollar Rate Loans
which have earlier expiring Interest Periods being repaid prior to those which
have later expiring Interest Periods.
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SECTION 2.04. COMPUTATIONS OF OUTSTANDINGS. Whenever reference is made
in this Agreement to the principal amount outstanding on any date under this
Agreement, such reference shall refer to the aggregate principal amount of all
Loans outstanding on such date under this Agreement after giving effect to all
Extensions of Credit to be made on such date and the application of the proceeds
thereof. At no time shall the principal amount outstanding under this Agreement
exceed the aggregate amount of the Commitments hereunder. References to the
unused portion of the Commitments under this Agreement shall refer to the
excess, if any, of the Commitments hereunder over the principal amount
outstanding hereunder; and references to the unused portion of any Lender's
Commitment under this Agreement shall refer to such Lender's Percentage of the
unused Commitments hereunder.
ARTICLE III
LOANS
SECTION 3.01. LOANS.
(a) The Borrower may request a Borrowing (other than a
Conversion) by delivering a notice (a "NOTICE OF BORROWING") to the
Administrative Agent no later than 12:00 noon (New York City time) on the third
Business Day or, in the case of ABR Loans, on the first Business Day, prior to
the date of the proposed Borrowing. The Administrative Agent shall give each
Lender prompt notice of each Notice of Borrowing. Each Notice of Borrowing shall
be in substantially the form of Exhibit A and shall specify the requested (i)
date of such Borrowing, (ii) Type of Loans to be made in connection with such
Borrowing, (iii) Interest Period, if any, for such Loans and (iv) amount of such
Borrowing. Each proposed Borrowing shall conform to the requirements of Sections
3.03 and 3.04.
(b) Each Lender shall, before 12:00 noon (New York City
time) on the date of such Borrowing, make available for the account of its
Applicable Lending Office to the Administrative Agent at the Administrative
Agent's offices at 2 Penns Way, Suite 200, New Castle, DE 19270, in same day
funds, such Lender's Percentage of such Borrowing. After the Administrative
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article V, the Administrative Agent will make such funds available
to the Borrower at the Administrative Agent's aforesaid address. Notwithstanding
the foregoing, unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's Percentage of such
Borrowing, the Administrative Agent may assume that such Lender has made such
Percentage available to the Administrative Agent on the date of such Borrowing
in accordance with the first sentence of this subsection (b), and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount.
(c) Any Lender may request that Loans made by it be
evidenced by a Promissory Note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a Promissory Note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such Promissory Note and interest thereon shall at all times
(including after assignment pursuant to Section 10.07) be represented by one or
more Promissory
25
Notes in such form payable to the order of the payee named therein (or, if such
Promissory Note is a registered note, to such payee and its registered assigns).
SECTION 3.02. CONVERSION OF LOANS. The Borrower may from time to time
Convert any Loan (or portion thereof) of any Type to one or more Loans of the
same or any other Type by delivering a notice of such Conversion (a "NOTICE OF
CONVERSION") to the Administrative Agent no later than 12:00 noon (New York City
time) on (x) the third Business Day prior to the date of any proposed Conversion
into a Eurodollar Rate Loan and (y) the first Business Day prior to the date of
any proposed Conversion into an ABR Loan. The Administrative Agent shall give
each Lender prompt notice of each Notice of Conversion. Each Notice of
Conversion shall be in substantially the form of Exhibit B and shall specify (i)
the requested date of such Conversion, (ii) the Type of, and Interest Period, if
any, applicable to, the Loans (or portions thereof) proposed to be Converted,
(iii) the requested Type of Loans to which such Loans (or portions thereof) are
proposed to be Converted, (iv) the requested initial Interest Period, if any, to
be applicable to the Loans resulting from such Conversion and (v) the aggregate
amount of Loans (or portions thereof) proposed to be Converted. Each proposed
Conversion shall be subject to the provisions of Sections 3.03 and 3.04.
SECTION 3.03. INTEREST PERIODS. The period between the date of each
Eurodollar Rate Loan and the date of payment in full of such Loan shall be
divided into successive periods of months ("INTEREST PERIODS") for purposes of
computing interest applicable thereto. The initial Interest Period for each such
Loan shall begin on the day such Loan is made, and each subsequent Interest
Period shall begin on the last day of the immediately preceding Interest Period
for such Loan. The duration of each Interest Period shall be 1, 2, 3, or 6
months, as the Borrower may, in accordance with Section 3.01 or 3.02, select;
provided, however, that:
(i) the Borrower may not select any Interest Period for a
Eurodollar Rate Loan that ends after the Termination Date;
(ii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall occur on the next succeeding Business Day,
provided that if such extension would cause the last day of such
Interest Period to occur in the next following calendar month, the last
day of such Interest Period shall occur on the next preceding Business
Day; and
(iii) any Interest Period that commences on the last
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such
Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period.
SECTION 3.04. OTHER TERMS RELATING TO THE MAKING AND CONVERSION OF
LOANS.
(a) Notwithstanding anything in Section 3.01 or 3.02 to
the contrary:
(i) each Borrowing shall be in an aggregate amount not
less than $5,000,000, or an integral multiple of $1,000,000 in excess
thereof (or such lesser amount as shall be equal to the total amount of
the Available Commitments on such date, after giving effect to all
other Extensions of Credit to be made on such date), and shall consist
of Loans of
26
the same Type, having the same Interest Period and made or Converted on
the same day by the Lenders ratably according to their respective
Percentages;
(ii) the Borrower may request that more than one Borrowing
be made on the same day;
(iii) at no time shall the sum of all Borrowings comprising
Eurodollar Rate Loans outstanding hereunder be greater than ten (10);
(iv) no Eurodollar Rate Loan may be Converted on a date
other than the last day of the Interest Period applicable to such Loan
unless the corresponding amounts, if any, payable to the Lenders
pursuant to Section 4.04(b) are paid contemporaneously with such
Conversion;
(v) if the Borrower shall either fail to give a timely
Notice of Conversion pursuant to Section 3.02 in respect of any Loans
or fail, in any Notice of Conversion that has been timely given, to
select the duration of any Interest Period for Loans to be Converted
into Eurodollar Rate Loans in accordance with Section 3.03, such Loans
shall, on the last day of the then existing Interest Period therefor,
automatically Convert into, or remain as, as the case may be, ABR
Loans; and
(vi) if, on the date of any proposed Conversion, any Event
of Default or Default shall have occurred and be continuing, all Loans
then outstanding shall, on such date, automatically Convert into, or
remain as, as the case may be, ABR Loans.
(b) If any Lender shall notify the Administrative Agent
that the introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or that any central bank or other governmental
authority asserts that it is unlawful, for such Lender or its Applicable Lending
Office to perform its obligations hereunder to make, or to fund or maintain,
Eurodollar Rate Loans hereunder, (i) the obligation of such Lender to make, or
to Convert Loans into, Eurodollar Rate Loans for such Borrowing or any
subsequent Borrowing from such Lender shall be forthwith suspended until the
earlier to occur of the date upon which (A) such Lender shall cease to be a
party hereto and (B) it is no longer unlawful for such Lender to make, fund or
maintain Eurodollar Rate Loans, and (ii) if the maintenance of Eurodollar Rate
Loans then outstanding through the last day of the Interest Period therefor
would cause such Lender to be in violation of such law, regulation or assertion,
the Borrower shall either prepay or Convert all Eurodollar Rate Loans from such
Lender within five days after such notice. Promptly upon becoming aware that the
circumstances that caused such Lender to deliver such notice no longer exist,
such Lender shall deliver notice thereof to the Administrative Agent (but the
failure to do so shall impose no liability upon such Lender). Promptly upon
receipt of such notice from such Lender (or upon such Lender's assigning all of
its Commitment, Loans, participation and other rights and obligations hereunder
pursuant to Section 10.07), the Administrative Agent shall deliver notice
thereof to the Borrower and the Lenders and such suspension shall terminate.
(c) If the Required Lenders shall, at least one Business
Day before the date of any requested Borrowing, notify the Administrative Agent
that the Adjusted LIBO Rate for Eurodollar Rate Loans to be made in connection
with such Borrowing will not adequately reflect
27
the cost to such Required Lenders of making, funding or maintaining their
respective Eurodollar Rate Loans for such Borrowing, or that they are unable to
acquire funding in a reasonable manner so as to make available Eurodollar Rate
Loans in the amount and for the Interest Period requested, or if the
Administrative Agent shall determine that adequate and reasonable means do not
exist to be able to determine the Adjusted LIBO Rate, then the right of the
Borrower to select Eurodollar Rate Loans for such Borrowing and any subsequent
Borrowing shall be suspended until the Administrative Agent shall notify the
Borrower and the Lenders that the circumstances causing such suspension no
longer exist, and each Loan to be made or Converted in connection with such
Borrowing shall be an ABR Loan.
(d) If any Lender shall have delivered a notice to the
Administrative Agent described in Section 3.04(b), and if and so long as such
Lender shall not have withdrawn such notice in accordance with said Section
3.04(b), the Borrower or the Administrative Agent may demand that such Lender
assign in accordance with Section 10.07, to one or more banks or other financial
institutions designated by the Borrower or the Administrative Agent (each a
"PROSPECTIVE LENDER"), all (but not less than all) of such Lender's Commitment,
Loans, participation and other rights and obligations hereunder; provided that
any such demand by the Borrower during the continuance of an Event of Default or
Default shall be ineffective without the consent of the Required Lenders. If,
within 30 days following any such demand by the Administrative Agent or the
Borrower, any such Prospective Lender so designated shall fail to consummate
such assignment on terms reasonably satisfactory to such Lender, or the Borrower
and the Administrative Agent shall have failed to designate any such Prospective
Lender, then such demand by the Borrower or the Administrative Agent shall
become ineffective, it being understood for purposes of this provision that such
assignment shall be conclusively deemed to be on terms reasonably satisfactory
to such Lender, and such Lender shall be compelled to consummate such assignment
forthwith, if such Prospective Lender (i) shall agree to such assignment in
substantially the form of the Lender Assignment attached hereto as Exhibit F and
(ii) shall tender payment to such Lender in an amount equal to the full
outstanding dollar amount accrued in favor of such Lender hereunder (as computed
in accordance with the records of the Administrative Agent), including, without
limitation, all accrued interest and fees and, to the extent not paid by the
Borrower, any payments required pursuant to Section 4.04(b).
(e) Each Notice of Borrowing and Notice of Conversion
shall be irrevocable and binding on the Borrower. In the case of any Borrowing
which the related Notice of Borrowing or Notice of Conversion specifies is to be
comprised of Eurodollar Rate Loans, the Borrower shall indemnify each Lender
against any loss, cost or expense incurred by such Lender as a result of any
failure to fulfill, on or before the date specified in such Notice of Borrowing
or Notice of Conversion for such Borrowing, the applicable conditions (if any)
set forth in this Article III (other than failure pursuant to the provisions of
Section 3.04(b) or (c) hereof) or in Article V, including any such loss
(including loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the Loan to be made by such Lender when such Loan, as a result of
such failure, is not made on such date.
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SECTION 3.05. REPAYMENT OF LOANS; INTEREST
(a) Principal. The Borrower shall repay the outstanding
principal amount of the Loans on the Termination Date (or such earlier date as
may be required pursuant to Section 2.03).
(b) Interest. The Borrower shall pay interest on the
unpaid principal amount of each Loan owing to each Lender from the date of such
Loan until such principal amount shall be paid in full, at the Applicable Rate
for such Loan (except as otherwise provided in this subsection (b)), payable as
follows:
(i) ABR Loans. If such Loan is an ABR Loan, interest
thereon shall be payable quarterly in arrears on the last day of each
March, June, September and December, on the date of any Conversion of
such ABR Loan and on the date such ABR Loan shall become due and
payable or shall otherwise be paid in full; provided that any amount of
principal that is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which
such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the Default Rate.
(ii) Eurodollar Rate Loans. If such Loan is a Eurodollar
Rate Loan, interest thereon shall be payable on the last day of such
Interest Period and, if the Interest Period for such Loan has a
duration of more than three months, on that day of each third month
during such Interest Period that corresponds to the first day of such
Interest Period (or, if any such month does not have a corresponding
day, then on the last day of such month); provided that any amount of
principal that is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which
such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the Default Rate.
ARTICLE IV
PAYMENTS, COMPUTATIONS AND YIELD PROTECTION
SECTION 4.01. PAYMENTS AND COMPUTATIONS.
(a) The Borrower shall make each payment hereunder and
under the other Loan Documents not later than 2:00 p.m. (New York City time) on
the day when due in Dollars to the Administrative Agent at its offices at 2
Penns Way, Suite 200, New Castle, DE 19270, in same day funds; any payment
received after 3:00 p.m. (New York City time) shall be deemed to have been
received at the start of business on the next succeeding Business Day, unless
the Administrative Agent shall have received from, or on behalf of, the Borrower
a Federal Reserve reference number with respect to such payment before 4:00 p.m.
(New York City time). The Administrative Agent will promptly thereafter cause to
be distributed like funds relating to the payment of principal, interest, fees
or other amounts payable to the Lenders, to the respective Lenders to which the
same are payable, for the account of their respective Applicable Lending
Offices, in each case to be applied in accordance with the terms of this
Agreement. If and to the extent that any distribution of any payment from the
Borrower required to be made to any Lender pursuant to the preceding sentence
shall not be made in full by the Administrative Agent on the date such payment
was received by the Administrative Agent, the Administrative Agent shall
29
pay to such Lender, upon demand, interest on the unpaid amount of such
distribution, at a rate per annum equal to the Federal Funds Effective Rate,
from the date of such payment by the Borrower to the Administrative Agent to the
date of payment in full by the Administrative Agent to such Lender of such
unpaid amount. Upon the Administrative Agent's acceptance of a Lender Assignment
and recording of the information contained therein in the Register pursuant to
Section 10.07, from and after the effective date specified in such Lender
Assignment, the Administrative Agent shall make all payments hereunder and under
any Promissory Notes in respect of the interest assigned thereby to the Lender
assignee thereunder, and the parties to such Lender Assignment shall make all
appropriate adjustments in such payments for periods prior to such effective
date directly between themselves.
(b) The Borrower hereby authorizes the Administrative
Agent and each Lender, if and to the extent payment owed to the Administrative
Agent or such Lender, as the case may be, is not made when due hereunder (or, in
the case of a Lender, under any Promissory Note held by such Lender), to charge
from time to time against any or all of the Borrower's accounts with the
Administrative Agent or such Lender, as the case may be, any amount so due.
(c) All computations of interest based on the Alternate
Base Rate (when the Alternate Base Rate is based on the Prime Rate) shall be
made by the Administrative Agent on the basis of a year of 365 or 366 days, as
the case may be. All other computations of interest and fees hereunder
(including computations of interest based on the Adjusted LIBO Rate and the
Federal Funds Effective Rate) shall be made by the Administrative Agent on the
basis of a year of 360 days. In each such case, such computation shall be made
for the actual number of days (including the first day but excluding the last
day) occurring in the period for which such interest or fees are payable. Each
such determination by the Administrative Agent or a Lender shall be conclusive
and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under any other
Loan Document shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest
and fees hereunder; provided, however, that if such extension would cause
payment of interest on or principal of Eurodollar Rate Loans to be made in the
next following calendar month, such payment shall be made on the next preceding
Business Day and such reduction of time shall in such case be included in the
computation of payment of interest hereunder.
(e) Unless the Administrative Agent shall have received
notice from the Borrower prior to the date on which any payment is due to the
Lenders hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date, and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the
Administrative Agent, such Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender, together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Effective Rate.
30
(f) Any amount payable by the Borrower hereunder or under
any of the Promissory Notes that is not paid when due (whether at stated
maturity, by acceleration or otherwise) shall (to the fullest extent permitted
by law) bear interest, from the date when due until paid in full, at a rate per
annum equal at all times to the Default Rate, payable on demand.
(g) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
interest and fees then due hereunder, such funds shall be applied, subject to
Section 4.07, (i) first, toward payment of interest and fees then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
interest and fees then due to such parties, and (ii) second, toward payment of
principal then due hereunder, ratably among the parties entitled thereto.
SECTION 4.02. INTEREST RATE DETERMINATION. The Administrative Agent
shall give prompt notice to the Borrower and the Lenders of the applicable
interest rate determined by the Administrative Agent for purposes of Section
3.05(b)(i) or (ii).
SECTION 4.03. PREPAYMENTS. The Borrower shall have no right to prepay
any principal amount of any Loans other than as provided in subsections (a) and
(b) below.
(a) The Borrower may (and shall provide notice thereof to
the Administrative Agent not later than 10:00 a.m. (New York City time) on the
date of prepayment, and the Administrative Agent shall promptly distribute
copies thereof to the Lenders), and if such notice is given, the Borrower shall,
prepay the outstanding principal amounts of Loans made as part of the same
Borrowing, in whole or ratably in part, together with (i) accrued interest to
the date of such prepayment on the principal amount prepaid and (ii) in the case
of Eurodollar Rate Loans, any amount payable to the Lenders pursuant to Section
4.04(b); provided, however, that each partial prepayment shall be in an
aggregate principal amount of not less than $5,000,000 or an integral multiple
of $1,000,000 in excess thereof.
(b) On the date of any termination or optional or
mandatory reduction of the Commitments pursuant to Section 2.03, the Borrower
shall pay or prepay the principal outstanding on the Loans in full in cash in an
amount equal to the excess of (i) the sum of the aggregate principal amount of
the Loans outstanding (after giving effect to all Extensions of Credit to be
made on such date and the application of the proceeds thereof) over (ii) the
aggregate amount of the Commitments (following such termination or reduction, if
any), together with (x) accrued interest to the date of such prepayment on the
principal amount repaid and (y) in the case of prepayments of Eurodollar Rate
Loans, any amount payable to the Lenders pursuant to Section 4.04(b). Any
payments and prepayments required by this subsection (b) shall be applied to
outstanding ABR Loans up to the full amount thereof before they are applied to
outstanding Eurodollar Rate Loans.
SECTION 4.04. YIELD PROTECTION.
(a) Increased Costs. If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation after the Closing Date, or (ii) the compliance with any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) issued or made after the Closing Date, there shall be
reasonably
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incurred any increase in the cost to any Lender of agreeing to make or making,
funding or maintaining Eurodollar Rate Loans, then the Borrower shall from time
to time, upon demand by such Lender (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of such
Lender additional amounts sufficient to compensate such Lender for such
increased cost. A certificate as to the amount of such increased cost and giving
a reasonable explanation thereof, submitted to the Borrower and the
Administrative Agent by such Lender shall constitute such demand and shall be
conclusive and binding for all purposes, absent manifest error.
(b) Breakage. If, due to any prepayment pursuant to
Section 4.03, an acceleration of maturity of the Loans pursuant to Section 8.02,
or any other reason, any Lender receives payments of principal of any Eurodollar
Rate Loan other than on the last day of the Interest Period relating to such
Loan or if the Borrower shall Convert any Eurodollar Rate Loans on any day other
than the last day of the Interest Period therefor, or if the Borrower shall fail
to prepay a Eurodollar Rate Loan on the date specified in a notice of
prepayment, the Borrower shall, promptly after demand by such Lender (with a
copy of such demand to the Administrative Agent), pay to the Administrative
Agent for the account of such Lender any amounts required to compensate such
Lender for additional losses, costs, or expenses (including anticipated lost
profits) that such Lender may reasonably incur as a result of such payment,
Conversion or failure to prepay, including any loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such Lender to fund or maintain such Loan. For purposes of this subsection (b),
a certificate setting forth the amount of such additional losses, costs, or
expenses and giving a reasonable explanation thereof, submitted to the Borrower
and the Administrative Agent by such Lender, shall constitute such demand and
shall be conclusive and binding for all purposes, absent manifest error.
(c) Capital. If any Lender determines that (i) compliance
with any law or regulation or any guideline or request from any central bank or
other governmental authority (whether or not having the force of law) affects or
would affect the amount of capital required or expected to be maintained by such
Lender, whether directly, or indirectly as a result of commitments of any
corporation controlling such Lender (but without duplication), and (ii) the
amount of such capital is increased by or based upon (A) the existence of such
Lender's commitment to lend hereunder, or (B) the issuance or maintenance of any
Loan and (C) other similar such commitments, then, upon demand by such Lender,
the Borrower shall immediately pay to the Administrative Agent for the account
of such Lender from time to time as specified by such Lender additional amounts
sufficient to compensate such Lender in the light of such circumstances, to the
extent that such Lender reasonably determines such increase in capital to be
allocable to the transactions contemplated hereby. A certificate as to such
amounts and giving a reasonable explanation thereof (to the extent permitted by
law), submitted to the Borrower and the Administrative Agent by such Lender,
shall be conclusive and binding for all purposes, absent manifest error.
(d) Notices. Each Lender hereby agrees to use its best
efforts to notify the Borrower of the occurrence of any event referred to in
subsection (a), (b) or (c) of this Section 4.04 promptly after becoming aware of
the occurrence thereof. The failure of any Lender to provide such notice or to
make demand for payment under said subsection shall not constitute a waiver of
such Lender's rights hereunder; provided that, notwithstanding any provision to
the
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contrary contained in this Section 4.04, the Borrower shall not be required to
reimburse any Lender for any amounts or costs incurred under subsection (a), (b)
or (c) above, more than 90 days prior to the date that such Lender notifies the
Borrower in writing thereof, in each case unless, and to the extent that, any
such amounts or costs so incurred shall relate to the retroactive application of
any event notified to the Borrower which entitles such Lender to such
compensation. If any Lender shall subsequently determine that any amount
demanded and collected under this Section 4.04 was done so in error, such Lender
will promptly return such amount to the Borrower.
(e) Survival of Obligations. Subject to subsection (d)
above, the Borrower's obligations under this Section 4.04 shall survive the
repayment of all other amounts owing to the Lenders and the Agents under the
Loan Documents and the termination of the Commitments. If and to the extent that
the obligations of the Borrower under this Section 4.04 are unenforceable for
any reason, the Borrower agrees to make the maximum contribution to the payment
and satisfaction thereof which is permissible under applicable law.
SECTION 4.05. SHARING OF PAYMENTS, ETC. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Loans owing to it (other than pursuant
to Section 4.04 or Section 4.06) in excess of its ratable share of payments
obtained by all the Lenders on account of the Loans of such Lenders, such Lender
shall forthwith purchase from the other Lenders such participation in the Loans
owing to them as shall be necessary to cause such purchasing Lender to share the
excess payment ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share (according to the
proportion of (i) the amount of such Lender's required repayment to (ii) the
total amount so recovered from the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 4.05 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
Notwithstanding the foregoing, if any Lender shall obtain any such excess
payment involuntarily, such Lender may, in lieu of purchasing participations
from the other Lenders in accordance with this Section 4.05, on the date of
receipt of such excess payment, return such excess payment to the Administrative
Agent for distribution in accordance with Section 4.01(a).
SECTION 4.06. TAXES.
(a) All payments by the Borrower hereunder and under the
other Loan Documents shall be made in accordance with Section 4.01, free and
clear of and without deduction for all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Lender and each Agent, taxes imposed on its
overall net income, and franchise taxes imposed on it by the jurisdiction under
the laws of which such Lender or Agent (as the case may be) is organized or any
political subdivision thereof and, in the case of each Lender, taxes imposed on
its overall net income, and
33
franchise taxes imposed on it by the jurisdiction of such Lender's Applicable
Lending Office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "TAXES"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under any
other Loan Document to any Lender or Agent, (i) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
4.06) such Lender or Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made, (ii) the Borrower
shall make such deductions and (iii) the Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(b) In addition, the Borrower agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder or under
any other Loan Document or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement or any other Loan Document
(hereinafter referred to as "OTHER TAXES").
(c) The Borrower will indemnify each Lender and Agent for
the full amount of Taxes and Other Taxes (including any Taxes and any Other
Taxes imposed by any jurisdiction on amounts payable under this Section 4.06)
paid by such Lender or Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
This indemnification shall be made within thirty (30) days from the date such
Lender or Agent (as the case may be) makes written demand therefor; provided,
that such Lender or Agent (as the case may be) shall not be entitled to demand
payment under this Section 4.06 for an amount if such demand is not made within
one year following the date upon which such Lender or Agent (as the case may be)
shall have been required to pay such amount.
(d) Within thirty (30) days after the date of any payment
of Taxes, the Borrower will furnish to the Administrative Agent, at its address
referred to in Section 10.02, the original or a certified copy of a receipt
evidencing payment thereof.
(e) Each Bank represents and warrants that either (i) it
is organized under the laws of a jurisdiction within the United States or (ii)
it has delivered to the Borrower or the Administrative Agent duly completed
copies of such form or forms prescribed by the United States Internal Revenue
Service indicating that such Bank is entitled to receive payments without
deduction or withholding of any United States federal income taxes, as permitted
by the Internal Revenue Code of 1986, as amended. Each other Lender agrees that,
on or prior to the date upon which it shall become a party hereto, and upon the
reasonable request from time to time of the Borrower or the Administrative
Agent, such Lender will deliver to the Borrower and the Administrative Agent (to
the extent that it is not prohibited by law from doing so) either (A) a
statement that it is organized under the laws of a jurisdiction within the
United States or (B) duly completed copies of such form or forms as may from
time to time be prescribed by the United States Internal Revenue Service,
indicating that such Lender is entitled to receive payments without deduction or
withholding of any United States federal income taxes, as permitted by the
Internal Revenue Code of 1986, as amended. Each Bank that has delivered, and
each other
34
Lender that hereafter delivers, to the Borrower and the Administrative Agent the
form or forms referred to in the two preceding sentences further undertakes to
deliver to the Borrower and the Administrative Agent, to the extent that it is
not prohibited by law from doing so, further copies of such form or forms, or
successor applicable form or forms, as the case may be, as and when any previous
form filed by it hereunder shall expire or shall become incomplete or inaccurate
in any respect. Each Lender represents and warrants that each such form supplied
by it to the Administrative Agent and the Borrower pursuant to this subsection
(e), and not superseded by another form supplied by it, is or will be, as the
case may be, complete and accurate.
SECTION 4.07. APPORTIONMENT OF PAYMENTS.
(a) Subject to the provisions of Section 2.03 and Section
4.07(b), all payments of principal and interest in respect of outstanding Loans,
all payments of fees and all other payments in respect of any other Obligations
hereunder, shall be allocated among such of the Lenders as are entitled thereto,
ratably or otherwise as expressly provided herein. Except as provided in Section
4.07(b) with respect to payments and proceeds of Collateral received after the
occurrence of an Event of Default, all such payments and any other amounts
received by the Administrative Agent from or for the benefit of the Borrower
shall be applied
(i) first, to pay principal of and interest on any
portion of the Loans which the Administrative Agent may have advanced
on behalf of any Lender other than CUSA for which the Administrative
Agent has not then been reimbursed by such Lender or the Borrower,
(ii) second, to pay interest on the Loans and then the
principal of the Loans, in each case, then due and payable (in the
order described hereinbelow),
(iii) third, to pay all other Obligations of any Loan Party
under any Loan Document then due and payable, ratably, and
(iv) fourth, as the Borrower so designates.
All such principal and interest payments in respect of the Loans shall be
applied first to repay outstanding ABR Loans and then to repay outstanding
Eurodollar Rate Loans with those Eurodollar Rate Loans which have earlier
expiring Interest Periods being repaid prior to those which have later expiring
Interest Periods
(b) During the continuance of an Event of Default and
after declaration thereof by written notice from the Administrative Agent to the
Borrower, the Administrative Agent shall apply all payments in respect of any
Loans, and the Collateral Agent shall deliver all proceeds of Collateral to the
Administrative Agent for application, in the following order:
(i) first, to pay principal of and interest on any
portion of the Loans which the Administrative Agent may have advanced
on behalf of any Lender other than CUSA for which the Administrative
Agent has not then been reimbursed by such Lender or the Borrower;
35
(ii) second, to pay any fees, expense reimbursements or
indemnities then due to the Agents under any of the Loan Documents;
(iii) third, to pay any fees, expense reimbursements or
indemnities then due to the Lenders under any of the Loan Documents;
(iv) fourth, to pay interest due in respect of the Loans
ratably in accordance with the Lenders' respective Percentages;
(v) fifth, to the payment or prepayment of principal
outstanding on all Loans;
(vi) sixth, to the ratable payment of all other
Obligations of the Loan Parties then outstanding under the Loan
Documents.
Notwithstanding the foregoing, the Collateral Agent shall apply the proceeds of
any voluntary sale of Collateral that is subject to a Lien pursuant to the AIG
Pledge Agreement to prepay the obligations under (and in accordance with the
terms of) the CMS Energy Credit Agreement if an "Event of Default" under (and as
defined in) the AIG Pledge Agreement arising from the non-compliance with the
terms of Section 4.5 of the AIG Pledge Agreement has occurred and is continuing,
or would result from the transaction giving rise to such proceeds. The order of
priority set forth in this Section 4.07(b) and the related provisions of this
Agreement are set forth solely to determine the rights and priorities of the
Agents and the Lenders as among themselves.
SECTION 4.08. Proceeds of Collateral. During the continuance of an
Event of Default and after declaration thereof by written notice from the
Administrative Agent to the Borrower, the Borrower shall cause all proceeds of
Collateral to be deposited pursuant to arrangements for the collection of such
amounts established by the Borrower and the Administrative Agent (or the
Collateral Agent, as applicable) for application pursuant to Section 4.07 (other
than proceeds in respect of Collateral that is subject to a Lien pursuant to the
AIG Pledge Agreement if an "Event of Default" under (and as defined in) the AIG
Pledge Agreement arising from the non-compliance with the terms of Section 4.5
of the AIG Pledge Agreement has occurred and is continuing, or would result from
the transaction giving rise to such proceeds, which proceeds shall then be
applied to prepay the obligations under (and in accordance with the terms of)
the CMS Energy Credit Agreement). All collections of proceeds of Collateral
which are received directly by the Borrower or any Subsidiary of the Borrower
shall be deemed to have been received by the Borrower or such Subsidiary of the
Borrower as the Collateral Agent's trustee and, during the continuance of an
Event of Default and after declaration thereof by written notice from the
Administrative Agent to the Borrower, upon the Borrower's or such Subsidiary's
receipt thereof, the Borrower shall immediately transfer or cause to be
transferred all such amounts to the Administrative Agent for application
pursuant to Section 4.07 (other than proceeds in respect of Collateral that is
subject to a Lien pursuant to the AIG Pledge Agreement if an "Event of Default"
under (and as defined in) the AIG Pledge Agreement arising from the
non-compliance with the terms of Section 4.5 of the AIG Pledge Agreement has
occurred and is continuing, or would result from the transaction giving rise to
such proceeds, which proceeds shall then be applied to prepay the obligations
under (and in accordance with the terms of) the CMS Energy Credit Agreement).
All other proceeds of Collateral received by the Collateral Agent and/or the
Administrative Agent, whether through direct payment or otherwise, will be
36
deemed received by such Agent, will be the sole property of such Agent, and will
be held by such Agent, for the benefit of the Lenders for application pursuant
to Section 4.07 (other than proceeds in respect of Collateral that is subject to
a Lien pursuant to the AIG Pledge Agreement if an "Event of Default" under (and
as defined in) the AIG Pledge Agreement arising from the non-compliance with the
terms of Section 4.5 of the AIG Pledge Agreement has occurred and is continuing,
or would result from the transaction giving rise to such proceeds, which
proceeds shall then be applied to prepay the obligations under (and in
accordance with the terms of) the CMS Energy Credit Agreement).
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS
AGREEMENT. The effectiveness of this Agreement is subject to the fulfillment of
the following conditions precedent:
(a) The Administrative Agent shall have received, on or
before the Closing Date, the following, in form and substance satisfactory to
each Lender (except where otherwise specified below) and (except for any
Promissory Notes) in sufficient copies for each Lender:
(i) Certified copies of the resolutions of the Board of
Directors, or of the Executive Committee of the Board of Directors (or
persons performing similar functions), of the Borrower, each Guarantor
and each other Grantor (each a "LOAN PARTY") authorizing each such Loan
Party to enter into each Loan Document to which it is, or is to be, a
party, and of all documents evidencing other necessary corporate or
other action and Governmental Approvals, if any, with respect to each
such Loan Document.
(ii) A certificate of the Secretary or an Assistant
Secretary of each Loan Party certifying the names, true signatures and
incumbency of (A) the officers of such Loan Party authorized to sign
the Loan Documents to which it is, or is to be, a party, and the other
documents to be delivered hereunder and thereunder and (B) the
representatives of such Loan Party authorized to sign notices to be
provided under the Loan Documents to which it is, or is to be, a party,
which representatives shall be acceptable to the Administrative Agent.
(iii) Copies of the Certificate of Incorporation and
by-laws (or comparable constitutive documents) of each Loan Party,
together with all amendments thereto, certified by the Secretary or an
Assistant Secretary of each such Loan Party.
(iv) Good Standing Certificates (or other similar
certificate) for each of the Loan Parties, issued by the Secretary of
State of the jurisdiction of organization of each such Loan Party as of
a recent date.
(v) The Guaranty, duly executed by each Guarantor.
(vi) The Pledge Agreement described in clause (i) of the
definition of "Pledge Agreements", duly executed by CMS Energy.
37
(vii) A certified copy of Schedule I hereto, in form and
substance reasonably satisfactory to the Administrative Agent setting
forth:
(A) all Project Finance Debt of the Consolidated
Subsidiaries, together with the Borrower's Ownership Interest
in each such Consolidated Subsidiary, as of February 28, 2003;
and
(B) debt (as such term is construed in
accordance with GAAP) of the Loan Parties as of February 28,
2003.
(viii) A certificate, executed by a duly authorized officer
of the Borrower, confirming that attached thereto is a true, correct
and complete copy of the CMS Energy Credit Agreement, as in effect on
the Closing Date, which CMS Energy Credit Agreement shall amend and
restate Existing Credit Agreements on terms and conditions reasonably
acceptable to the Agents.
(ix) Favorable opinions of:
(A) Belinda Foxworth, Esq., Deputy General
Counsel of the Borrower and counsel for the other Loan
Parties, in substantially the form of Exhibit C and as to such
other matters as the Required Lenders, through the
Administrative Agent, may reasonably request; and
(B) Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel to the Loan Parties in substantially the form
of Exhibit D and as to such other matters as the
Administrative Agent may reasonably request.
(b) The following statements shall be true and the
Administrative Agent shall have received a certificate of a duly authorized
officer of the Borrower, dated the Closing Date and in sufficient copies for
each Lender stating that:
(i) the representations and warranties set forth in
Section 6.01 of this Agreement are true and correct on and as of the
Closing Date as though made on and as of such date,
(ii) no event has occurred and is continuing that
constitutes a Default or an Event of Default, and
(iii) all Governmental Approvals necessary in connection
with the Loan Documents and the transactions contemplated thereby have
been obtained and are in full force and effect, and all third party
approvals necessary or advisable in connection with the Loan Documents
and the transactions contemplated thereby have been obtained and are in
full force and effect, other than filings necessary to create or
perfect security interests in the Collateral or as may be required
under applicable energy, antitrust or securities laws in connection
with the exercise of remedies with respect to certain Collateral.
38
(c) The Administrative Agent shall have received evidence
satisfactory to it that:
(i) all financing statements relating to the Collateral
have been completed for filing or recording and/or filed, and all
certificates representing capital stock or other ownership interests
included in the Collateral have been delivered to the Collateral Agent
(with duly executed stock powers); and
(ii) the Borrower has deposited cash into a cash
collateral account (the "Bond Cash Collateral Account") in respect of
which the Collateral Agent shall have a first priority security
interest, which cash collateral shall be used as further described in
Section 7.01(n).
SECTION 5.02. CONDITIONS PRECEDENT TO EACH EXTENSION OF CREDIT. The
obligation of each Lender to make an Extension of Credit (including the initial
Extension of Credit, but excluding the Conversion of a Eurodollar Rate Loan into
an ABR Loan) shall be subject to the further conditions precedent that, on the
date of such Extension of Credit and after giving effect thereto:
(a) The following statements shall be true (and each of
the giving of the applicable notice or request with respect thereto and the
making of such Extension of Credit without prior correction by the Borrower
shall (to the extent that such correction has been previously consented to by
the Lenders) constitute a representation and warranty by the Borrower that, on
the date of such Extension of Credit, such statements are true):
(i) the representations and warranties contained in
Section 6.01 of this Agreement (other than those contained in
subsections (e)(iii) and (f) thereof) are correct on and as of the date
of such Extension of Credit, before and after giving effect to such
Extension of Credit and to the application of the proceeds thereof, as
though made on and as of such date; and
(ii) no Default or Event of Default has occurred and is
continuing, or would result from such Extension of Credit or the
application of the proceeds thereof.
(b) The Administrative Agent shall have received such
other approvals, opinions and documents as any Lender, through the
Administrative Agent, may reasonably request as to the legality, validity,
binding effect or enforceability of the Loan Documents or the business, assets,
property, financial condition, results of operations or prospects of CMS Energy
and its Consolidated Subsidiaries.
SECTION 5.03. CONDITIONS PRECEDENT TO CERTAIN EXTENSIONS OF CREDIT.
The obligation of each Lender to make an Extension of Credit (including the
initial Extension of Credit) that would (after giving effect to all Extensions
of Credit on such date and the application of proceeds thereof) increase the
principal amount outstanding hereunder, shall be subject to the further
conditions precedent that, on the date of such Extension of Credit and after
giving effect thereto:
(a) the following statements shall be true (and each of
the giving of the applicable notice or request with respect thereto and the
making of such Extension of Credit
39
without prior correction by the Borrower shall (to the extent that such
correction has been previously consented to by the Lenders) constitute a
representation and warranty by the Borrower that, on the date of such Extension
of Credit, such statements are true):
(i) the representations and warranties contained in
subsections (e)(iii) and (f) of Section 6.01 of this Agreement are
correct on and as of the date of such Extension of Credit, before and
after giving effect to such Extension of Credit and to the application
of the proceeds thereof, as though made on and as of such date; and
(ii) no Default or Event of Default has occurred and is
continuing, or would result from such Extension of Credit or the
application of the proceeds thereof; and
(b) the Administrative Agent shall have received such
other approvals, opinions and documents as any Lender, through the
Administrative Agent, may reasonably request.
SECTION 5.04. RELIANCE ON CERTIFICATES. The Lenders and each Agent
shall be entitled to rely conclusively upon the certificates delivered from time
to time by officers of the Borrower as to the names, incumbency, authority and
signatures of the respective persons named therein until such time as the
Administrative Agent may receive a replacement certificate, in form acceptable
to the Administrative Agent, from an officer of such Person identified to the
Administrative Agent as having authority to deliver such certificate, setting
forth the names and true signatures of the officers and other representatives of
such Person thereafter authorized to act on behalf of such Person.
SECTION 5.05. CONDITION PRECEDENT TO THE INITIAL EXTENSION OF CREDIT.
The obligation of each Lender to make its initial Extension of Credit is subject
to the fulfillment of the following conditions precedent:
(a) The Borrower shall have paid all fees under or
referenced in Section 2.02(b) and all expenses referenced in Section 10.04(a),
in each case to the extent then due and payable.
(b) The Administrative Agent shall have received, on or
before the day of the initial Extension of Credit, in form and substance
satisfactory to it with sufficient copies for each Lender:
(i) A certificate, executed by the chief executive
officer and the chief financial officer of the CMS Energy and
Consumers, as applicable, in favor of the Agents and the Lenders with
respect to the financial statements described in Section 6.01(e)(i) and
(ii) certifying that such financial statements have been prepared in
accordance with GAAP (except for changes resulting from any Restatement
Event) and are true and correct as of the date of such certificate;
(ii) Copies of the financial statements of the CMS Energy
and Consumers described in Section 6.01(e)(i) and (ii); and
40
(iii) Copies of the CMS Energy's Annual Report on Form 10-K
for the fiscal years ended December 31, 2001 and December 31, 2002.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants as follows:
(a) Each of CMS Energy, Consumers and each of the
Restricted Subsidiaries is duly organized, validly existing and in good standing
under the laws of the state of its organization and is duly qualified to do
business in, and is in good standing in, all other jurisdictions where the
nature of its business or the nature of property owned or used by it makes such
qualification necessary.
(b) The execution, delivery and performance by each Loan
Party of each Loan Document to which it is or will be a party (i) are within
such Loan Party's powers, (ii) have been duly authorized by all necessary
corporate or other organizational action or proceedings and (iii) do not and
will not (A) require any consent or approval of the stockholders (or other
applicable holder of equity) of such Loan Party (other than such consents and
approvals which have been obtained and are in full force and effect), (B)
violate any provision of the charter or by-laws (or other comparable
constitutive documents) of such Loan Party or of law, (C) violate any legal
restriction binding on or affecting such Loan Party, (D) result in a breach of,
or constitute a default under, any indenture or loan or credit agreement or any
other agreement, lease or instrument to which such Loan Party is a party or by
which it or its properties may be bound or affected, or (E) result in or require
the creation of any Lien (other than pursuant to the Loan Documents and pursuant
to the "Loan Documents" as defined in the CMS Energy Credit Agreement) upon or
with respect to any of its respective properties.
(c) No Governmental Approval is required, other than
filings necessary to create or perfect security interests in the Collateral or
as may be required under applicable energy, antitrust or securities laws in
connection with the exercise of remedies with respect to certain Collateral.
(d) Each Loan Document executed on the Closing Date is,
and each other Loan Document to which any Loan Party will be a party when
executed and delivered hereunder will (i) where applicable, create valid and,
upon filing of the financing statements delivered on the Closing Date and
described in Section 5.01(c)(i), perfected Liens in the Collateral covered
thereby securing the payment of all of the Loans purported to be secured
thereby, which Liens (x) with respect to all Collateral subject to a Lien under
the AIG Pledge Agreement shall be perfected Liens from and after the effective
date of the Intercreditor Agreement (Enterprises Facility) and (y) with respect
to all other Collateral shall be pari-passu with any Liens thereon in favor of
the collateral agent under the CMS Energy Credit Agreement, and (ii) be, legal,
valid and binding obligations of such Loan Party enforceable against such Loan
Party in accordance with their respective terms; subject to the qualification,
however, that the enforcement of the rights and remedies herein and therein is
subject to bankruptcy and other similar laws of general
41
application affecting rights and remedies of creditors and the application of
general principles of equity (regardless of whether considered in a proceeding
in equity or at law).
(e) (i) The consolidated balance sheets of CMS Energy and
its Consolidated Subsidiaries as at December 31, 2001 and December 31, 2002, and
the related consolidated statements of income, retained earnings and cash flows
of CMS Energy and its Consolidated Subsidiaries for the fiscal years then ended,
included in CMS Energy's Annual Report on Form 10-K for the fiscal years ended
December 31, 2001 and December 31, 2002, in each case as such financial
statements are proposed to be restated in connection with the Restatement,
copies of each of which have been furnished to each Lender, fairly present the
financial condition of CMS Energy and its Consolidated Subsidiaries as at such
dates and the results of operations of CMS Energy and its Consolidated
Subsidiaries for the periods ended on such dates (it being understood that such
financial statements do not give effect to any Restatement Event), all in
accordance with generally accepted accounting principles consistently applied
(except for changes resulting from any Restatement Event); (ii) the consolidated
balance sheets of Consumers and its consolidated Subsidiaries as at December 31,
2001 and December 31, 2002, and the related consolidated statements of income,
retained earnings and cash flows of Consumers and its consolidated Subsidiaries
for the fiscal years then ended, included in CMS Energy's Annual Report on Form
10-K for the fiscal years ended December 31, 2001 and December 31, 2002, in each
case as such financial statements are proposed to be restated in connection with
the Restatement, copies of each of which have been furnished to each Lender,
fairly present the financial condition of Consumers and its consolidated
Subsidiaries as at such dates and the results of operations of Consumers and its
consolidated Subsidiaries for the periods ended on such dates (it being
understood that such financial statements do not give effect to any Restatement
Event), all in accordance with generally accepted accounting principles
consistently applied (except for changes resulting from any Restatement Event);
(iii) since December 31, 2002, except as disclosed in CMS Energy's Annual Report
on Form 10-K for the fiscal year ended December 31, 2002, there has been no
Material Adverse Change; and (iv) except as a result of any Restatement Event,
no Loan Party has any material liabilities or obligations except as reflected in
the foregoing financial statements and in Schedule I, as evidenced by the Loan
Documents and as may be incurred, in accordance with the terms of this
Agreement, in the ordinary course of business (as presently conducted) following
the Closing Date.
(f) Except (i) as disclosed in CMS Energy's Annual Report
on Form 10-K for the fiscal year ended December 31, 2002, and (ii) such other
similar actions, suits and proceedings predicated on the occurrence of the same
events giving rise to any actions, suits and proceedings described in the Annual
Report filed with the Securities and Exchange Commission set forth in clause (i)
above (all such matters in clauses (i) and (ii) being the "Disclosed Matters")
and (iii) any Restatement Event, there are no pending or threatened actions,
suits or proceedings against or, to the knowledge of CMS Energy, affecting CMS
Energy or any of its Subsidiaries or the properties of CMS Energy or any of its
Subsidiaries before any court, governmental agency or arbitrator, that would, if
adversely determined, reasonably be expected to materially adversely affect the
financial condition, properties, business or operations of CMS Energy and its
Subsidiaries, considered as a whole, or affect the legality, validity or
enforceability of this Agreement or any other Loan Document. There have been no
adverse developments with respect to the Disclosed Matters that have had or
could reasonably be expected to result in a Material Adverse Change.
42
(g) All insurance required by Section 7.01(b) is in full
force and effect.
(h) No Plan Termination Event has occurred nor is
reasonably expected to occur with respect to any Plan of CMS Energy or any of
its ERISA Affiliates which would result in a material liability to CMS Energy,
except as disclosed and consented to by the Required Lenders in writing from
time to time. Except as disclosed in CMS Energy's Annual Report on Form 10-K for
the period ended December 31, 2002, since the date of the most recent Schedule B
(Actuarial Information) to the annual report of CMS Energy (Form 5500 Series),
if any, there has been no material adverse change in the funding status of the
Plans referred therein and no "prohibited transaction" has occurred with respect
thereto which is reasonably expected to result in a material liability to CMS
Energy. Neither CMS Energy nor any of its ERISA Affiliates has incurred nor
reasonably expects to incur any material withdrawal liability under ERISA to any
Multiemployer Plan, except as disclosed and consented to by the Required Lenders
in writing from time to time.
(i) No fire, explosion, accident, strike, lockout or
other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of
the public enemy or other casualty (except for any such circumstance, if any,
which is covered by insurance which coverage has been confirmed and not disputed
by the relevant insurer) affecting the properties, business or operations of CMS
Energy, Consumers or any Restricted Subsidiary has occurred that could
reasonably be expected to have a material adverse effect on the business,
assets, property, financial condition, results of operations or prospects of (A)
CMS Energy and its Subsidiaries, considered as a whole, or (B) Consumers and its
Subsidiaries, considered as a whole.
(j) CMS Energy and its Subsidiaries have filed all tax
returns (Federal, state and local) required to be filed and paid all taxes shown
thereon to be due, including interest and penalties, or, to the extent CMS
Energy or any of its Subsidiaries is contesting in good faith an assertion of
liability based on such returns, has provided adequate reserves for payment
thereof in accordance with GAAP.
(k) No extraordinary judicial, regulatory or other legal
constraints exist which limit or restrict Consumers' ability to declare or pay
cash dividends with respect to its capital stock, other than pursuant to the
Consumers Credit Facility.
(l) CMS Energy owns not less than 80% of the outstanding
shares of common stock of the Borrower.
(m) CMS Energy owns not less than 80% of the outstanding
shares of common stock of Consumers.
(n) The Consolidated 2002-2007 Projections of Consumers,
CMS Energy and the Borrower (the "PROJECTIONS") are based upon assumptions that
CMS Energy believed were reasonable at the time the Projections were delivered,
and all other financial information delivered by the Borrower to the
Administrative Agent and the Banks on and after March 30, 2003 is true and
correct in all material respects as at the dates and for the periods indicated
therein (it being understood that such Projections and financial information do
not give effect to any Restatement Event).
43
(o) No Loan Party is engaged in the business of extending
credit for the purpose of buying or carrying margin stock (within the meaning of
Regulation U issued by the Board), and no proceeds of any Loan will be used to
buy or carry any margin stock or to extend credit to others for the purpose of
buying or carrying any margin stock.
(p) No Loan Party is an investment company (within the
meaning of the Investment Company Act of 1940, as amended).
(q) No proceeds of any Extension of Credit will be used
to acquire any security in any transaction without the approval of the board of
directors of the Person issuing such security if (i) the acquisition of such
security would cause CMS Energy to own, directly or indirectly, 5.0% or more of
any outstanding class of securities issued by such Person, or (ii) such security
is being acquired in connection with a tender offer.
(r) Following application of the proceeds of each
Extension of Credit, not more than 25 percent of the value of the assets of the
Borrower and its Subsidiaries on a consolidated basis will be margin stock
(within the meaning of Regulation U issued by the Board).
(s) No Loan Party is a registered "holding company" or a
"subsidiary" or an "affiliate" of a registered "holding company," as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended, 15
USC 79 et seq.
(t) The Borrower has not withheld any fact from the
Administrative Agent or the Lenders in regard to the occurrence of any Material
Adverse Change.
(u) After giving effect to the Loans to be made on the
Initial Funding Date or such other date as Loans requested hereunder are made,
and the disbursement of the proceeds of such Loans pursuant to the Borrower's
instructions, CMS Energy and its Subsidiaries, taken as a whole, are Solvent.
(v) Schedule I sets forth as of February 28, 2003 (i) all
Project Finance Debt of the Consolidated Subsidiaries, and (ii) debt (as such
term is construed in accordance with GAAP) of the Loan Parties, and, as of the
Closing Date, there are no defaults in the payment of principal or interest on
any such Debt and no payments thereunder have been deferred or extended beyond
their stated maturity (except as disclosed on such Schedule).
ARTICLE VII
COVENANTS OF THE BORROWER
SECTION 7.01. AFFIRMATIVE COVENANTS. So long as any Loan or any other
amount payable hereunder or under any Promissory Note shall remain unpaid, or
any Lender shall have any Commitment:
(a) Payment of Taxes, Etc. CMS Energy shall pay and
discharge, and each of its Subsidiaries shall pay and discharge, before the same
shall become delinquent, all taxes, assessments and governmental charges,
royalties or levies imposed upon it or upon its property except, in the case of
taxes, to the extent CMS Energy or any Subsidiary, as the case may be, is
44
contesting the same in good faith and by appropriate proceedings and has set
aside adequate reserves for the payment thereof in accordance with GAAP.
(b) Maintenance of Insurance. CMS Energy shall maintain,
and each of its Restricted Subsidiaries and Consumers shall maintain, insurance
covering CMS Energy, each of its Restricted Subsidiaries, Consumers and their
respective properties in effect at all times in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses and
owning similar properties in the same general geographical area in which CMS
Energy, its Restricted Subsidiaries and Consumers operates, either with
reputable insurance companies or, in whole or in part, by establishing reserves
of one or more insurance funds, either alone or with other corporations or
associations.
(c) Preservation of Existence, Etc. Except as otherwise
permitted by Section 7.02, CMS Energy shall preserve and maintain, and each of
its Restricted Subsidiaries and Consumers shall preserve and maintain, its
corporate or limited liability company existence, material rights (statutory and
otherwise) and franchises, and take such other action as may be necessary or
advisable to preserve and maintain its right to conduct its business in the
states where it shall be conducting its business.
(d) Compliance with Laws, Etc. CMS Energy shall comply,
and each of its Restricted Subsidiaries and Consumers shall comply, in all
material respects with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, including any such laws,
rules, regulations and orders relating to zoning, environmental protection, use
and disposal of Hazardous Substances, land use, construction and building
restrictions, and employee safety and health matters relating to business
operations.
(e) Inspection Rights. Subject to the requirements of
laws or regulations applicable to CMS Energy or its Subsidiaries, as the case
may be, and in effect at the time, at any time and from time to time upon
reasonable notice, CMS Energy shall permit (i) each Agent and its agents and
representatives to examine and make copies of and abstracts from the records and
books of account of, and the properties of, CMS Energy or any of its
Subsidiaries and (ii) each Agent, each of the Lenders, and their respective
agents and representatives to discuss the affairs, finances and accounts of CMS
Energy and its Subsidiaries with CMS Energy and its Subsidiaries and their
respective officers, directors and accountants. Each such visitation and
inspection described in the preceding sentence by or on behalf of any Lender
shall, unless occurring at a time when a Default or Event of Default shall be
continuing, be at such Lender's expense; all other such inspections and
visitations shall be at the Borrower's expense.
(f) Keeping of Books. From and after December 31, 2002,
CMS Energy shall keep, and each of its Subsidiaries shall keep, proper records
and books of account, in which full and correct entries shall be made of all
financial transactions of CMS Energy and its Subsidiaries and the assets and
business of CMS Energy and its Subsidiaries, in accordance with GAAP (except as
related to the Restatement).
(g) Maintenance of Properties, Etc. CMS Energy shall
maintain, and each of its Restricted Subsidiaries shall maintain, in substantial
conformity with all laws and material contractual obligations, good and
marketable title to all of its properties which are used or useful
45
in the conduct of its business; provided, however, that the foregoing shall not
restrict the sale of any asset of CMS Energy or any Restricted Subsidiary to the
extent not prohibited by Section 7.02(i). In addition, CMS Energy shall
preserve, maintain, develop, and operate, and each of its Subsidiaries shall
preserve, maintain, develop and operate, in substantial conformity with all laws
and material contractual obligations, all of its material properties which are
used or useful in the conduct of its business in good working order and
condition, ordinary wear and tear excepted.
(h) Use of Proceeds. The Borrower shall use all
Extensions of Credit for general corporate purposes (subject to the terms and
conditions of this Agreement).
(i) Consolidated Leverage Ratio. CMS Energy shall
maintain, as of the last day of each fiscal quarter (in each case, the
"MEASUREMENT QUARTER"), a maximum ratio of (i) Consolidated Debt for the
immediately preceding four-fiscal-quarter period ending on the last day of such
Measurement Quarter (calculated exclusive of Panhandle and its Subsidiaries), to
(ii) Consolidated EBITDA for such period (calculated exclusive of Panhandle and
its Subsidiaries), of not more than 7.00 to 1.00, commencing with the period
ending June 30, 2003.
(j) Cash Dividend Coverage Ratio. CMS Energy shall
maintain, as of the last day of each Measurement Quarter, a minimum ratio of (i)
the sum of (A) Cash Dividend Income for the four-fiscal-quarter period ending on
such day, plus (B) 25% of the amount of Equity Distributions received by CMS
Energy during such period but in no event in excess of $10,000,000 to (ii) an
amount equal to (A) interest expense (excluding all arrangement, underwriting
and other similar fees payable in connection with this Agreement and the CMS
Energy Credit Agreement) accrued by CMS Energy in respect of all Debt during
such period, minus (B) cash interest income received by CMS Energy and its
Subsidiaries from Persons other than CMS Energy or any of its Subsidiaries,
minus (C) all amounts received by CMS Energy from its Subsidiaries and
Affiliates during such period constituting reimbursement of interest expense and
commitment, guaranty and letter of credit charges of CMS Energy to such
Subsidiary or Affiliate, of not less than 1.20 to 1.00, commencing with the
Measurement Quarter ending on June 30, 2003; provided, that CMS Energy shall be
deemed not to be in breach of the foregoing covenant if, during the Measurement
Quarter, it has permanently reduced the Commitments and the principal amount
outstanding under this Agreement and the Promissory Notes and/or the principal
amount outstanding under the CMS Energy Credit Agreement and the "Promissory
Notes" thereunder (and as such term is defined therein), such that the amount
determined pursuant to clause (ii) above, when recalculated on a pro forma basis
assuming that the amount of such reduced commitments and principal amount
outstanding under such agreements and promissory notes were in effect at all
times during such four-fiscal-quarter period, would result in CMS Energy being
in compliance with such ratio.
(k) Further Assurances. The Borrower shall promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or that any Lender through the Administrative
Agent may reasonably request in order to give effect to the transactions
contemplated by this Agreement and the other Loan Documents. In addition, the
Borrower will use all reasonable efforts to duly obtain or make Governmental
Approvals required from time to time on or prior to such date as the same may
become legally required.
46
(l) Subsidiary Guarantees. CMS Energy will (i) with
respect to each Person that becomes a Restricted Subsidiary after the Closing
Date (other than (a) any Subsidiary of CMS Energy organized under the laws of a
jurisdiction located other than in the United States (each a "FOREIGN
SUBSIDIARY") if the execution of the Guaranty by such Subsidiary would result in
any materially adverse tax consequences to CMS Energy, (b) Panhandle and its
Subsidiaries, and (c) MS&T), subject to any limitations under contractual
restrictions as in effect as of the Closing Date or applicable law with respect
to each Foreign Subsidiary, cause each such Restricted Subsidiary to execute the
Guaranty pursuant to which it agrees to be bound by the terms and provisions of
the Guaranty, and (ii) cause such Persons identified in clause (i) above to
deliver resolutions, opinions of counsel and such other constitutive
documentation as the Administrative Agent may reasonably request, all in form
and substance reasonably satisfactory to the Administrative Agent.
(m) Compliance with Fee Letter. Each of the Borrower and
CMS Energy shall comply with its obligations under the Fee Letter.
(n) Bond Cash Collateral Account. The Borrower shall at
all times maintain the Bond Cash Collateral Account, and shall promptly execute
and deliver all further instruments and documents, and take all further action,
that the Administrative Agent may reasonably request such that the Collateral
Agent shall have a first priority security interest therein and shall use the
cash collateral therein solely to repay in full in cash all amounts owing in
respect of CMS Energy's reset put securities due July 1, 2003 and CMS Energy's
general term notes due in 2003 or to repay the Obligations hereunder in
accordance with the terms of Section 2.03(c)(iv).
(o) Payment of Declared Dividend. CMS Energy shall cause
each of its direct Subsidiaries to pay all dividends within 30 days after
declaration thereof.
(p) Securities Demand. Unless (x) the "Loans" and
"Commitments" under (and as defined in) the CMS Energy Credit Agreement and
Loans and Commitments hereunder shall have been permanently reduced in an
aggregate principal amount of $550,000,000 or more on or before January 2, 2004,
or (y) CMS Energy's reset put securities due July 1, 2003 shall have been
reissued or remarketed pursuant to the terms thereof or refinanced and a
mandatory prepayment of the Obligations shall have occurred in accordance with
the terms of Section 2.03(c)(iv), then, upon notice from the Administrative
Agent (at the direction of the Required Lenders) (a "SECURITIES DEMAND"), to the
extent permitted under each of CMS Energy's indentures (and each supplement
issued thereunder), CMS Energy will cause the issuance and sale of debt and/or
equity securities ("SECURITIES") the proceeds of which shall be used to repay
the 6.75% Senior Notes on their maturity date upon such terms and conditions
specified in the Securities Demand; provided that (i) the interest rate (whether
floating or fixed) shall be determined by Administrative Agent in light of the
then prevailing market conditions for comparable securities, (ii) the
Administrative Agent in their reasonable discretion and after consultation with
CMS Energy, shall determine whether the Securities shall be issued through a
public offering or a private placement; (iii) the Securities will be issued
pursuant to an indenture or indentures, which shall contain such terms,
conditions, and covenants as are typical and customary for similar financings
and are reasonably satisfactory in all respects to the Administrative Agent; and
(iv) all other arrangements with respect to the Securities shall be
47
reasonably satisfactory in all respects to the Administrative Agent in light of
the then prevailing market conditions.
SECTION 7.02. NEGATIVE COVENANTS. So long as any Loan or any other
amount payable hereunder or under any Promissory Note shall remain unpaid or any
Lender shall have any Commitment, CMS Energy shall not, without the written
consent of the Required Lenders:
(a) Liens, Etc. (1) Create, incur, assume or suffer to
exist, or permit any of the Loan Parties to create, incur, assume or suffer to
exist, any lien, security interest, or other charge or encumbrance (including
the lien or retained security title of a conditional vendor) of any kind, or any
other type of arrangement intended or having the effect of conferring upon a
creditor a preferential interest upon or with respect to any of its properties
of any character (including capital stock and other ownership interests of CMS
Energy's directly-owned Subsidiaries, intercompany obligations and accounts)
(any of the foregoing being referred to herein as a "LIEN"), whether now owned
or hereafter acquired, or (2) file, or permit any of the other Loan Parties to
file, under the Uniform Commercial Code of any jurisdiction a financing
statement which names CMS Energy or any other Loan Party as debtor (other than
financing statements that do not evidence a Lien), or (3) sign, or permit any of
the other Loan Parties to sign, any security agreement authorizing any secured
party thereunder to file such financing statement, or (4) assign, or permit any
of the other Loan Parties to assign, accounts, excluding, however, from the
operation of the foregoing restrictions the Liens created under the Loan
Documents and the following:
(i) Liens for taxes, assessments or governmental charges
or levies to the extent not past due;
(ii) cash pledges or deposits to secure (A) obligations
under workmen's compensation laws or similar legislation, (B) public or
statutory obligations of CMS Energy or any of the other Loan Parties,
(C) Support Obligations of CMS Energy or any Loan Party, or (D)
obligations of the Borrower or MS&T in respect of hedging arrangements
and commodity purchases and sales (including any cash margins with
respect thereto); provided that with respect to clauses (C) and (D)
above the aggregate amount of cash pledges or deposits securing such
Support Obligations and such obligations of the Borrower or MS&T shall
not exceed $400,000,000 at any one time outstanding;
(iii) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's liens and other
similar Liens arising in the ordinary course of business securing
obligations which are not overdue or which have been fully bonded and
are being contested in good faith;
(iv) Liens securing the obligations under the Loan
Documents and under the "Loan Documents" as defined in the CMS Energy
Credit Agreement (and subordinated Liens securing the refinancing of
all or any portion of such obligations, which Liens shall be
subordinated on terms and conditions acceptable to the Administrative
Agent and the Collateral Agent);
48
(v) Liens securing Off-Balance Sheet Liabilities (and all
refinancings and recharacterizations thereof permitted under Section
7.02(b)(iv)) in an aggregate amount not to exceed $775,000,000;
(vi) purchase money Liens or purchase money security
interests upon or in property acquired or held by CMS Energy or any of
the other Loan Parties in the ordinary course of business to secure the
purchase price of such property or to secure indebtedness incurred
solely for the purpose of financing the acquisition of any such
property to be subject to such Liens or security interests, or Liens or
security interests existing on any such property at the time of
acquisition, or extensions, renewals or replacements of any of the
foregoing for the same or a lesser amount, provided that no such Lien
or security interest shall extend to or cover any property other than
the property being acquired and no such extension, renewal or
replacement shall extend to or cover property not theretofore subject
to the Lien or security interest being extended, renewed or replaced,
and provided, further, that the aggregate principal amount of the Debt
at any one time outstanding secured by Liens permitted by this clause
(vi) shall not exceed $15,000,000;
(vii) Utility easements, building restrictions and such
other encumbrances or charges against real property as are of a nature
generally existing with respect to properties of a similar character
and which do not in any material way affect the marketability of the
same or interfere with the use thereof in the business of CMS Energy or
any other Loan Party;
(viii) Liens existing on any capital asset of any Person at
the time such Person is merged or consolidated with or into, or
otherwise acquired by, CMS Energy or any other Loan Party and not
created in contemplation of such event, provided that such Liens do not
encumber any other property or assets and such merger, consolidation or
acquisition is otherwise permitted under this Agreement;
(ix) Liens existing on any capital asset prior to the
acquisition thereof by CMS Energy or any other Loan Party and not
created in contemplation thereof; provided that such Liens do not
encumber any other property or assets;
(x) Liens existing as of the Closing Date;
(xi) Liens securing Project Finance Debt otherwise
permitted under this Agreement;
(xii) Liens arising out of the refinancing, extension,
renewal or refunding of any Debt secured by any Lien permitted by any
of the foregoing clauses (v), (viii), (ix), (x) or (xi); provided that
(a) such Debt is not secured by any additional assets, and (b) the
amount of such Debt secured by any such Lien is otherwise permitted
under this Agreement;
(xiii) Liens on accounts receivable (other than intercompany
receivables) and other contract rights of MS&T and its Subsidiaries
arising on or after the Closing Date in favor of any Person (other than
an Affiliate of CMS Energy or any of its Subsidiaries) that facilitates
the origination of such accounts receivable or other contract rights;
49
(xiv) subordinated Liens granted pursuant to the terms of
the AIG Pledge Agreement, which Liens shall be subordinated pursuant to
the terms of the Intercreditor Agreement (CMS Energy Facility), to
secure certain surety bond obligations as described in the AIG Pledge
Agreement; and
(xv) subordinated Liens arising out of the refinancing,
extension, renewal or refunding of the 6.75% Senior Notes, CMS Energy's
reset put securities due July 1, 2003 and CMS Energy's general term
notes due in 2003, which Liens shall be subordinated on terms and
conditions acceptable to the Administrative Agent and the Collateral
Agent.
(b) Borrower Debt. Permit the Borrower or any Subsidiary
of the Borrower other than Panhandle and its Subsidiaries) to create, incur,
assume or suffer to exist any debt (as such term is construed in accordance with
GAAP) other than:
(i) debt arising by reason of the endorsement of
negotiable instruments for deposit or collection or similar
transactions in the ordinary course of the Borrower's or its
Subsidiaries' business;
(ii) in the form of indemnities in respect of unfiled
mechanics' liens and Liens affecting the Borrower's or its
Subsidiaries' properties permitted under Section 7.02(a)(iii);
(iii) debt arising under (a) the Loan Documents and (b) the
"Loan Documents" as defined in the CMS Energy Credit Agreement in a
principal amount equal to $409,000,000 minus any principal payments
(but with respect to principal payments of revolving loans prior to the
"Conversion Date" thereunder, only to the extent of any concurrent
reduction or termination of the "Commitments" as defined therein) made
from time to time thereunder;
(iv) debt constituting Off-Balance Sheet Liabilities
(including any recharacterization thereof as debt pursuant to any
changes in generally accepted accounting principles hereafter required
or permitted and which are adopted by CMS Energy or any of its
Subsidiaries with the agreement of its independent certified public
accountants) to the extent permitted by Section 7.02(o), and any
extensions, renewals, refundings or replacements thereof, provided that
any such extension, renewal, refunding or replacement is in an
aggregate principal amount not greater than the principal amount of, is
an obligation of the same Person that is the obligor in respect of, and
has a weighted average life to maturity not less than the weighted
average life to maturity of, the debt so extended, renewed, refunded or
replaced;
(v) other debt of the Borrower and its Subsidiaries
outstanding on the Closing Date (including the debt of the Loan Parties
as of February 28, 2003 as set forth on Schedule I), and any
extensions, renewals, refundings or replacements thereof, provided that
any such extension, renewal, refunding or replacement is in an
aggregate principal amount not greater than the principal amount of, is
an obligation of the same Person that is the obligor in respect of, and
has a weighted average life to maturity not less than the weighted
average life to maturity of, the debt so extended, renewed, refunded or
replaced;
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(vi) (a) unsecured, subordinated debt owed (i) to CMS
Energy by the Borrower, (ii) to the Borrower or CMS Capital, L.L.C. (or
any successor by merger to CMS Capital, L.L.C.) and (iii) to any
Grantor by any Loan Party, and (b) unsecured debt owed to any
Subsidiary of the Borrower (other than a Grantor) by CMS Capital,
L.L.C. (or any successor by merger to CMS Capital, L.L.C.), and (c)
unsecured debt of any Foreign Subsidiary of the Borrower owed to
another Foreign Subsidiary of the Borrower provided that the proceeds
of any repayment of such debt are remitted to a Loan Party;
(vii) Project Finance Debt of any Loan Party or any of its
Subsidiaries incurred on or after the Closing Date, provided that the
Net Proceeds thereof shall be applied in accordance with Section
2.03(c) if required to be so applied; and
(viii) capital lease obligations and other Debt secured by
purchase money Liens to the extent such Liens shall be permitted under
Section 7.02(a)(vi).
(c) Lease Obligations. Create, incur, assume or suffer to
exist, or permit any of the other Loan Parties to create, incur, assume or
suffer to exist, any obligations as lessee for the rental or hire of real or
personal property of any kind under leases or agreements to lease (other than
leases which constitute Debt) having an original term of one year or more which
would cause the aggregate direct or contingent liabilities of CMS Energy and the
other Loan Parties in respect of all such obligations payable in any period of
12 consecutive calendar months to exceed $50,000,000.
(d) Investments in Other Persons. Make, or permit any of
the other Loan Parties to make, any loan or advance to any Person, or purchase
or otherwise acquire any capital stock, obligations or other securities of, make
any capital contribution to, or otherwise invest in, any Person, other than (i)
Permitted Investments, (ii) pursuant to the contractual or contingent
obligations of CMS Energy or any other Loan Party as in effect as of the Closing
Date and in amounts not to exceed the estimated amounts as set forth on Schedule
I hereto (whether such obligation is conditioned upon a change in the ratings of
the securities issued by such Person or otherwise) and, in each case, in an
amount not to exceed such contractual or contingent obligation as in effect on
the Closing Date, (iii) investments, directly or indirectly, by any Loan Party
(x) in the capital of any Subsidiary of CMS Energy that is a Loan Party and (y)
in assets contributed to such Loan Party, provided that if any such assets
constitute Collateral prior to such contribution, such assets shall remain
Collateral after giving effect to such contribution and prior to such
contribution CMS Energy shall, and shall cause each applicable Subsidiary to,
execute and deliver to the Administrative Agent all agreements, instruments and
documents as may be necessary or reasonably requested by the Administrative
Agent to perfect its security interest in such Collateral, (iv) investments in
the capital stock or other ownership interests of any of CMS Energy's
Subsidiaries arising from the conversion of intercompany indebtedness to equity,
(v) intercompany loans and advances to the extent the corresponding debt is
permitted under Section 7.02(b)(vi), (vi) investments constituting non-cash
consideration received in connection with the sale of any asset permitted under
Section 7.02(i), and (vii) additional loans, advances, purchases, contributions
and other investments in an amount not to exceed $340,000,000 in the aggregate
at any time; provided, however, that investments described in clauses (iv)
(solely with respect to investments made in any Subsidiary that is not a Loan
Party) and (vii) above shall not be permitted to be made at a time when either a
Default or an Event of Default shall be continuing
51
or would result therefrom; provided, further, that, notwithstanding the
foregoing, neither CMS Energy nor any Loan Party shall make any loans or
advances to any of CMS Energy's Subsidiaries other than, to the extent otherwise
permitted hereunder, Enterprises or any Subsidiary of Enterprises.
(e) Restricted Payments. Declare or pay, or permit any
other Loan Party to declare or pay, directly or indirectly, any dividend,
payment or other distribution of assets, properties, cash, rights, obligations
or securities on account of any share of any class of capital stock or other
ownership interests of CMS Energy or any of the other Loan Parties (other than
(1) stock splits and dividends payable solely in nonconvertible equity
securities of CMS Energy and (2) dividends and distributions made to CMS Energy
or a Loan Party), or purchase, redeem, retire, or otherwise acquire for value,
or permit any of the other Loan Parties to purchase, redeem, retire, or
otherwise acquire for value, any shares of any class of capital stock or other
ownership interests of CMS Energy or any of the other Loan Parties or any
warrants, rights, or options to acquire any such shares, now or hereafter
outstanding, or make, or permit any of the other Loan Parties to make, any
distribution of assets to any of its shareholders (other than distributions to
CMS Energy or any other Loan Party) (any such dividend, payment, distribution,
purchase, redemption, retirement or acquisition being hereinafter referred to as
a "RESTRICTED PAYMENT") other than (i) pursuant to the terms of any class of
capital stock of CMS Energy issued and outstanding (and as in effect on) the
Closing Date, any purchase or redemption of capital stock of CMS Energy made by
exchange for, or out of the proceeds of the substantially concurrent sale of,
capital stock of CMS Energy (other than Redeemable Stock or Exchangeable Stock
(as such terms are defined in the Indenture on the Closing Date)); and (ii)
payments made by CMS Energy or any other Loan Party pursuant to the Tax Sharing
Agreement.
(f) Compliance with ERISA. (i) Permit to exist any
"accumulated funding deficiency" (as defined in Section 412(a) of the Internal
Revenue Code of 1986, as amended), (ii) terminate, or permit any ERISA Affiliate
to terminate, any Plan or withdraw from, or permit any ERISA Affiliate to
withdraw from, any Multiemployer Plan, so as to result in any material (in the
opinion of the Required Lenders) liability of CMS Energy, any other Loan Party
or Consumers to such Plan, Multiemployer Plan or the PBGC, or (iii) permit to
exist any occurrence of any Reportable Event (as defined in Title IV of ERISA),
or any other event or condition, which presents a material (in the opinion of
the Required Lenders) risk of such a termination by the PBGC of any Plan or
withdrawal from any Multiemployer Plan so as to result in a material liability
to CMS Energy, any other Loan Party or Consumers.
(g) Transactions with Affiliates. Enter into, or permit
any of its Subsidiaries to enter into, any transaction with any of its
Affiliates unless such transaction is on terms no less favorable to CMS Energy
or such Subsidiary than if the transaction had been negotiated in good faith on
an arm's-length basis with a non-Affiliate; provided that (x) the purchase by,
or other transfer to, Trunkline Field Services Company of certain assets of CMS
Field Services, Inc. as described to the Administrative Agent and the Lenders
prior to the date hereof shall be permitted hereunder and (y) any transaction
permitted under Sections 7.02(b), 7.02(e) or 7.02(h) shall be permitted
hereunder.
(h) Mergers, Etc. Merge with or into or consolidate with
or into, or permit any of the other Loan Parties or Consumers to merge with or
into or consolidate with or into, any
52
other Person, except that (i) (x) any Loan Party may merge with or into any
other Loan Party, (y) any Subsidiary of a Loan Party that is not a Loan Party
may merge into such Loan Party or with or into any other Subsidiary of any Loan
Party, provided that (a) in any such merger into a Loan Party under clause (y)
above, the Loan Party is the survivor thereof, (b) no Default or Event of
Default shall be continuing or result therefrom and (c) such Loan Party shall
not be liable with respect to any Debt or allow its property to be subject to
any Lien which it could not become liable with respect to or allow its property
to become subject to under this Agreement or any other Loan Document on the date
of such transaction, and (ii) any Loan Party may merge with or into any other
Person, provided that (a) the Loan Party is the survivor thereof, or, in the
case of any Loan Party that is a corporation reconstituting itself as limited
liability company, such limited liability company shall be the survivor thereof
and shall be thereafter deemed to be a Loan Party hereunder, (b) no Default or
Event of Default shall be continuing or result therefrom, (c) such Loan Party
shall not be liable with respect to any Debt or allow its property to be subject
to any Lien which it could not become liable with respect to or allow its
property to become subject to under this Agreement or any other Loan Document on
the date of such transaction, and (d) immediately after giving effect to such
merger, the Net Worth of such Loan Party shall be equal to or greater than the
Net Worth of such Loan Party as of the last day of the fiscal quarter
immediately preceding the date of such merger.
(i) Sales, Etc., of Assets. Sell, lease, transfer,
assign, or otherwise dispose of all or any substantial part of its assets, or
permit any of the other Loan Parties (other than MS&T) to sell, lease, transfer,
or otherwise dispose of all or any substantial part of its assets, except to
give effect to a transaction permitted by subsection (h) above or subsection (j)
below; provided, further, that neither CMS Energy nor any of the other Loan
Parties (other than MS&T) shall sell, assign, transfer, lease, convey or
otherwise dispose of any property, whether now owned or hereafter acquired, or
any income or profits therefrom, or enter into any agreement to do so, except:
(A) the sale of property for consideration not less than
the Fair Market Value thereof so long as (i) any non-cash consideration
resulting from such sale shall be pledged or assigned to the Collateral
Agent, for the benefit of the Lenders, pursuant to an instrument in
form and substance reasonably acceptable to the Collateral Agent, (ii)
cash consideration resulting from such sale shall be (x) in an amount
determined by the Borrower for any sale the consideration of which is
$10,000,000 or less, or, together with all other such sales under this
clause (x), $25,000,000 or less, (y) in the case of the sale of
substantially all or any portion of the capital stock and assets of CMS
Field Services, Inc. and its Subsidiaries, not less than 60% of the
aggregate consideration resulting from such sale, (z) for all other
sales, not less than 90% of the aggregate consideration resulting from
such sale, and (iii) the Borrower complies with the mandatory
prepayment provisions set forth in Section 2.03(c);
(B) the transfer of property from a Loan Party to any
other Loan Party;
(C) the transfer of property constituting an investment
otherwise permitted under Section 7.02(d);
53
(D) the sale of electricity and natural gas and other
property in the ordinary course of Borrower's and its Subsidiaries
respective businesses consistent with past practice;
(E) any transfer of an interest in receivables and
related security, accounts or notes receivable on a limited recourse
basis in connection with the incurrence of Off-Balance Sheet
Liabilities, provided that such transfer qualifies as a legal sale and
as a sale under GAAP and the incurrence of such Off-Balance Sheet
Liabilities is permitted under Section 7.02(o);
(F) the transfer of property constituting not more than
two percent (2%) of the ownership interests held by CMS Energy and its
Subsidiaries as of the Closing Date in CMS International Ventures,
L.L.C. to CMS Energy Foundation and/or Consumers Foundation and/or any
other third-party 501(c)(3) charitable organization;
(G) the disposition of equipment if such equipment is
obsolete or no longer useful in the ordinary course of CMS Energy's or
such Subsidiary's business;
(H) the sale of substantially all of the capital stock
and assets of Panhandle; provided that such sale shall be consummated
substantially in accordance with, and on terms not materially more
adverse to the interests of the Agents and the Lenders than the terms
and conditions set forth in, that certain Stock Purchase Agreement,
dated as of December 21, 2002, by and among CMS Gas Transmission
Company, AIG Highstar Capital, L.P., AIG Highstar II Funding Corp.,
Southern Union Company and Southern Union Panhandle Corp.
(j) Maintenance of Ownership of Subsidiaries. Sell,
transfer, assign or otherwise dispose of any shares of capital stock or other
ownership interests of any of the Loan Parties or Consumers (other than
preferred or preference stock of Consumers) or any warrants, rights or options
to acquire such capital stock or other ownership interests, or permit any other
Loan Party or Consumers to issue, sell, transfer, assign or otherwise dispose of
any shares of its capital stock (other than preferred or preference stock of
Consumers) or other ownership interests or the capital stock or other ownership
interests of any other Loan Party or any warrants, rights or options to acquire
such capital stock or other ownership interests, except (i) to give effect to a
transaction permitted by subsection (d), (h) or (i) above, and (ii) in
connection with the foreclosure of any Liens permitted under Section
7.02(a)(iv).
(k) Amendment of Tax Sharing Agreement. Directly or
indirectly, amend, modify, supplement, waive compliance with, seek a waiver
under, or assent to noncompliance with, any term, provision or condition of the
Tax Sharing Agreement if the effect of such amendment, modification, supplement,
waiver or assent is to (i) reduce materially any amounts otherwise payable to,
or increase materially any amounts otherwise owing or payable by, CMS Energy
thereunder, or (ii) change materially the timing of any payments made by or to
CMS Energy thereunder.
(l) Prepayments of Indebtedness. Make or agree to pay or
make, or permit any of the other Loan Parties to make or agree to pay or make,
directly or indirectly, any
54
payment or other distribution (whether in cash, securities or other property) of
or in respect of principal of or interest on any Debt, or any payment or other
distribution (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any Debt (other than the
obligations of the Loan Parties under the Loan Documents and under the "Loan
Documents" as defined in the CMS Energy Credit Agreement), other than (i) any
payments on account of (a) any Debt when and as such payment was due (including
at the maturity thereof if the initial stated maturity thereof is on or prior to
the Termination Date) pursuant to the mandatory payment provisions applicable to
such Debt at the time it was incurred (including, without limitation, regularly
scheduled payment dates for principal, interest, fees and other amounts due
thereon) or any extension thereof thereafter granted by the holder of such Debt,
(b) refinancings of Debt otherwise permitted under this Agreement, (c) any Debt
owed to CMS Energy or any of its Subsidiaries, (d) Debt secured by a Lien on
assets subject to an asset sale permitted by Section 7.02(i) and (e) the
extinguishment of any intercompany Debt in connection with a dividend or
distributions permitted under Section 7.02(e), (ii) payments constituting the
exchange of CMS Energy's common stock for CMS Energy's outstanding Debt (and any
cash payments made in lieu of the issuance of fractional shares) to the extent
such exchange is permitted under the Securities and Exchange Act of 1933, as
amended and (iii) prepayments of CMS Energy's reset put securities due July 1,
2003 and CMS Energy's general term notes due in 2003.
(m) Conduct of Business. Engage, or permit any Restricted
Subsidiary to engage, in any business other than (a) the business engaged in by
CMS Energy and its Subsidiaries on the date hereof, and (b) any business or
activities which are substantially similar, related or incidental thereto.
(n) Organizational Documents. Amend, modify or otherwise
change, or permit any Restricted Subsidiary to amend, modify or otherwise change
any of the terms or provisions in any of their respective certificate of
incorporation and by-laws (or comparable constitutive documents) as in effect on
the Closing Date in any manner adverse to the interests of the Lenders.
(o) Off-Balance Sheet Liabilities. Create, incur, assume
or suffer to exist, or permit any Subsidiary (other than Consumers and its
Subsidiaries) to create, incur, assume or suffer to exist, Off-Balance Sheet
Liabilities (exclusive of lease obligations otherwise permitted under Section
7.02(c)) in the aggregate in excess of $775,000,000 at any time.
(p) Intercreditor Agreement (Enterprises Facility). Use
its best efforts to cause the parties to the AIG Pledge Agreement to execute and
deliver the Intercreditor Agreement (Enterprises Facility), together with all
further instruments and documents, and take all further action, that may be
necessary or that any Lender through the Administrative Agent may reasonably
request in order to give effect to such Intercreditor Agreement (Enterprises
Facility).
SECTION 7.03. REPORTING OBLIGATIONS. So long as any Loan or any other
amount payable hereunder or under any Promissory Note shall remain unpaid or any
Lender shall have any Commitment, CMS Energy will, unless the Required Lenders
shall otherwise consent in
55
writing, furnish to the Administrative Agent (with sufficient copies for each
Lender), the following:
(a) as soon as possible and in any event within five days
after the Borrower knows or should have reason to know of the occurrence of each
Default or Event of Default continuing on the date of such statement, a
statement of the chief financial officer or chief accounting officer of the
Borrower setting forth details of such Default or Event of Default and the
action that the Borrower proposes to take with respect thereto;
(b) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal year of CMS
Energy, commencing with the fiscal quarter ending on March 31, 2003, a
consolidated balance sheet and consolidated statements of income and retained
earnings and of cash flows of CMS Energy and its Subsidiaries as at the end of
such quarter and for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter (which requirement shall be deemed
satisfied by the delivery of CMS Energy's quarterly report on Form 10-Q for such
quarter), all in reasonable detail and duly certified (subject to year-end audit
adjustments) by the chief financial officer or chief accounting officer of CMS
Energy as having been prepared in accordance with GAAP, together with (A) a
schedule (substantially in the form of Exhibit E appropriately completed) of (1)
the computations used by CMS Energy in determining compliance with the covenants
contained in Sections 7.01(i) and 7.01(j) and the ratio set forth in Section
8.01(j), (2) all Project Finance Debt of the Consolidated Subsidiaries, together
with CMS Energy's Ownership Interest in each such Consolidated Subsidiary and
(3) all Support Obligations of CMS Energy of the types described in clauses (iv)
and (v) of the definition of Support Obligations (whether or not each such
Support Obligation or the primary obligation so supported is fixed, conclusively
determined or reasonably quantifiable) to the extent such Support Obligations
have not been previously disclosed as "Consolidated Debt" pursuant to clause (1)
above, and (B) a certificate of said officer stating that no Default or Event of
Default has occurred and is continuing or, if a Default or Event of Default has
occurred and is continuing, a statement as to the nature thereof and the action
that CMS Energy proposes to take with respect thereto;
(c) as soon as available and in any event within 120 days
after the end of each fiscal year of CMS Energy and its Subsidiaries, commencing
with the fiscal year ending on December 31, 2003, a copy of the Annual Report on
Form 10-K (or any successor form) for CMS Energy and its Subsidiaries for such
year, including therein a consolidated balance sheet of CMS Energy and its
Subsidiaries as of the end of such fiscal year and consolidated statements of
income and retained earnings and of cash flows of CMS Energy and its
Subsidiaries for such fiscal year, accompanied by a report thereon of a
nationally-recognized independent public accounting firm, together with (1) a
schedule in form satisfactory to the Required Lenders of (A) the computations
used by such accounting firm in determining, as of the end of such fiscal year,
compliance with the covenants contained in Sections 7.01(i) and 7.01(j) and the
ratio set forth in Section 8.01(j), (B) all Project Finance Debt of the
Consolidated Subsidiaries, together with CMS Energy's Ownership Interest in each
such Consolidated Subsidiary and (C) all Support Obligations of CMS Energy of
the types described in clauses (iv) and (v) of the definition of Support
Obligations (whether or not each such Support Obligation or the primary
obligation so supported is fixed, conclusively determined or reasonably
quantifiable) to the extent such Support Obligations have not been previously
disclosed as "Consolidated Debt"
56
pursuant to clause (A) above, and (2) a certificate of the chief financial
officer or chief accounting officer of CMS Energy stating that no Default or
Event of Default has occurred and is continuing or, if a Default or Event of
Default has occurred and is continuing, a statement as to the nature thereof and
the action that CMS Energy proposes to take with respect thereto;
(d) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal year of CMS
Energy, commencing with the fiscal quarter ending on March 31, 2003, a balance
sheet and statements of income and retained earnings and of cash flows of CMS
Energy as at the end of such quarter and for the period commencing at the end of
the previous fiscal year and ending with the end of such quarter, all in
reasonable detail and duly certified (subject to year-end audit adjustments) by
the chief financial officer or chief accounting officer of CMS Energy as having
been prepared in accordance with GAAP;
(e) as soon as available and in any event within 120 days
after the end of each fiscal year of CMS Energy, commencing with the fiscal year
ending on December 31, 2003, a balance sheet of CMS Energy as at the end of such
fiscal year and statements of income and retained earnings and of cash flows of
CMS Energy for such fiscal year, all in reasonable detail and duly certified
(subject to year end audit adjustments) by the chief financial officer or chief
accounting officer of CMS Energy as having been prepared in accordance with
GAAP;
(f) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal year of the
Borrower, commencing with the fiscal quarter ending on March 31, 2003, a balance
sheet and statements of income and retained earnings and of cash flows of the
Borrower as at the end of such quarter and for the period commencing at the end
of the previous fiscal year and ending with the end of such quarter, all in
reasonable detail and duly certified (subject to year-end audit adjustments) by
the chief financial officer or chief accounting officer of the Borrower as
having been prepared in accordance with GAAP;
(g) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower, commencing with the fiscal
year ending on December 31, 2003, a balance sheet of the Borrower as at the end
of such fiscal year and statements of income and retained earnings and of cash
flows of the Borrower for such fiscal year, all in reasonable detail and duly
certified (subject to year end audit adjustments) by the chief financial officer
or chief accounting officer of the Borrower as having been prepared in
accordance with GAAP;
(h) as soon as possible and in any event (A) within 30
days after CMS Energy knows or has reason to know that any Plan Termination
Event described in clause (i) of the definition of Plan Termination Event with
respect to any Plan of CMS Energy or any ERISA Affiliate of CMS Energy has
occurred and could reasonably be expected to result in a material liability to
CMS Energy and (B) within 10 days after CMS Energy knows or has reason to know
that any other Plan Termination Event with respect to any Plan of CMS Energy or
any ERISA Affiliate of CMS Energy has occurred and could reasonably be expected
to result in a material liability to CMS Energy, a statement of the chief
financial officer or chief accounting officer of CMS Energy describing such Plan
Termination Event and the action, if any, which CMS Energy proposes to take with
respect thereto;
57
(i) except as may arise in connection with the sale of
Panhandle, promptly after receipt thereof by CMS Energy or any of its ERISA
Affiliates from the PBGC copies of each notice received by CMS Energy or any
such ERISA Affiliate of the PBGC's intention to terminate any Plan or to have a
trustee appointed to administer any Plan;
(j) except as may arise in connection with the sale of
Panhandle, promptly and in any event within 30 days after the filing thereof
with the Internal Revenue Service, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each Plan
(if any) to which CMS Energy is a contributing employer;
(k) promptly after receipt thereof by CMS Energy or any
of its ERISA Affiliates from a Multiemployer Plan sponsor, a copy of each notice
received by CMS Energy or any of its ERISA Affiliates concerning the imposition
or amount of withdrawal liability in an aggregate principal amount of at least
$250,000 pursuant to Section 4202 of ERISA in respect of which CMS Energy is
reasonably expected to be liable;
(l) promptly after CMS Energy becomes aware of the
occurrence thereof, notice of all actions, suits, proceedings or other events of
the type described in Section 6.01(f);
(m) promptly after the sending or filing thereof, notice
to the Administrative Agent and each Lender of any sending or filing of all
proxy statements, financial statements and reports which CMS Energy sends to its
public security holders (if any), all regular, periodic and special reports
which CMS Energy files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or with any national
securities exchange, pursuant to the Exchange Act, and all final prospectuses
with respect to any securities issued or to be issued by CMS Energy or any of
its Subsidiaries;
(n) as soon as possible and in any event within five days
after the occurrence of any material default under any material agreement to
which CMS Energy or any of its Subsidiaries is a party, which default would
materially adversely affect the business, assets, property, financial condition,
results of operations or prospects of CMS Energy and its Subsidiaries,
considered as a whole, any of which is continuing on the date of such
certificate, a certificate of the chief financial officer of CMS Energy setting
forth the details of such material default and the action which CMS Energy or
any such Subsidiary proposes to take with respect thereto; and
(o) promptly after requested, such other information
respecting the business, properties, condition or operations, financial or
otherwise, of CMS Energy and its Subsidiaries as any Agent or the Required
Lenders may from time to time reasonably request in writing.
The Borrower and CMS Energy, as applicable, shall be deemed to have fulfilled
its obligations pursuant to clauses (b), (c), (d), (e), (f), (g) and (m) above
to the extent the Administrative Agent (and the Lenders, if applicable) receives
an electronic copy of the requisite document or documents in a format reasonably
acceptable to the Administrative Agent, provided that (1) an executed, tangible
copy of any report required pursuant to clause (e) above is delivered to the
Administrative Agent at the time of any such electronic delivery, and (2) a
tangible copy of each
58
requisite document delivered electronically is made available by the Borrower or
CMS Energy, as applicable, promptly upon request by any Agent or Lender.
ARTICLE VIII
DEFAULTS
SECTION 8.01. EVENTS OF DEFAULT. If any of the following events (each
an "EVENT OF DEFAULT") shall occur and be continuing, the Administrative Agent
and the Lenders shall be entitled to exercise the remedies set forth in Section
8.02:
(a) The Borrower shall fail to pay (i) any principal of
any Loan when due or (ii) any interest thereon, fees or other amounts (other
than any principal of any Loan) payable hereunder within two Business Days after
such interest, fees or other amounts shall have become due; or
(b) Any representation or warranty made by or on behalf
of the Borrower in any Loan Document or certificate or other writing delivered
pursuant thereto shall prove to have been incorrect in any material respect when
made or deemed made; or
(c) CMS Energy or any of its Subsidiaries shall fail to
perform or observe any term or covenant on its part to be performed or observed
contained in Section 7.01(c), (h), (i), (j), (l), (o) or (p) or in Section 7.02
hereof (and CMS Energy, the Borrower, each Lender and each Agent hereby agrees
that an Event of Default under this subsection (c) shall be given effect as if
the defaulting Subsidiary were a party to this Agreement); or
(d) CMS Energy or any of its Subsidiaries shall fail to
perform or observe any other term or covenant on its part to be performed or
observed contained in any Loan Document and any such failure shall remain
unremedied, after written notice thereof shall have been given to the Borrower
by the Administrative Agent, for a period of 10 Business Days (and CMS Energy,
the Borrower, each Lender and each Agent hereby agrees that an Event of Default
under this subsection (d) shall be given effect as if the defaulting Subsidiary
were a party to this Agreement); or
(e) CMS Energy, any Restricted Subsidiary or Consumers
shall fail to pay any of its Debt (including any interest or premium thereon but
excluding Debt incurred under this Agreement) (i) under the CMS Energy Credit
Agreement, or (ii) otherwise aggregating, in the case of CMS Energy and each
Restricted Subsidiary, $6,000,000 or more or, in the case of Consumers,
$25,000,000 or more, when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in any agreement or
instrument relating to such Debt; or any other default under any agreement or
instrument relating to any such Debt (including any "amortization event" or
event of like import in connection with any Off-Balance Sheet Liabilities), or
any other event, shall occur and shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect of such
default or event is (i) to accelerate, or to permit the acceleration of, the
maturity of such Debt; or any such Debt shall be declared to be due and payable,
or required to be prepaid (other than by a regularly scheduled required
prepayment) prior to the stated maturity thereof; unless in each such case the
obligee
59
under or holder of such Debt shall have waived in writing such circumstance so
that such circumstance is no longer continuing, or (ii) with respect to any such
event occurring in connection with any Off-Balance Sheet Liabilities aggregating
$6,000,000 or more, to terminate the reinvestment of collections or proceeds of
receivables and related security under any agreements or instruments related
thereto (other than a termination resulting solely from the request of CMS
Energy or its Subsidiaries); or
(f) (i) CMS Energy, any Restricted Subsidiary or
Consumers shall generally not pay its debts as such debts become due, or shall
admit in writing its inability to pay its debts generally, or shall make an
assignment for the benefit of creditors; or (ii) any proceeding shall be
instituted by or against CMS Energy, any Restricted Subsidiary or Consumers
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of its debts under any law relating to bankruptcy, insolvency, or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, or other similar official for it or
for any substantial part of its property and, in the case of a proceeding
instituted against CMS Energy, either such proceeding shall remain undismissed
or unstayed for a period of 60 days or any of the actions sought in such
proceeding (including the entry of an order for relief against CMS Energy, a
Restricted Subsidiary or Consumers or the appointment of a receiver, trustee,
custodian or other similar official for CMS Energy, such Restricted Subsidiary
or Consumers or any of its property) shall occur; or (iii) CMS Energy, any
Restricted Subsidiary or Consumers shall take any corporate or other action to
authorize any of the actions set forth above in this subsection (f); or
(g) Any judgment or order for the payment of money in
excess of $6,000,000 shall be rendered against the Borrower, any Guarantor or
any of their respective properties and either (i) enforcement proceedings shall
have been commenced by any creditor upon such judgment or order or (ii) there
shall be any period of 30 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect; or
(h) Any material provision of any Loan Document, after
execution hereof or delivery thereof under Article V, shall for any reason other
than the express terms hereof or thereof cease to be valid and binding on any
party thereto; or any Loan Party shall so assert in writing; or any Guarantor
shall terminate or revoke any of its obligations under the applicable Guaranty;
or
(i) Any "Event of Default" shall occur under and as
defined in the AIG Pledge Agreement as in effect on January 8, 2003 (and without
giving effect to any amendment or other modification thereto); or
(j) There shall be imposed or enacted any Consumers
Dividend Restriction, the result of which is that the Dividend Coverage Ratio
shall be less than 1.15 to 1.0 at any time after the imposition of such
Consumers Dividend Restriction; or
(k) At any time, for any reason (except to the extent
permitted by the terms of the Loan Documents or due to any failure by the
Collateral Agent to take any action on its part to
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be performed under applicable law in order to maintain the perfection or
priority of any such Liens), (i) the Liens intended to be created under any of
the Loan Documents with respect to Collateral having a Fair Market Value of
$6,000,000 or more become, or the Borrower or any such Subsidiary seeks to
render such Liens, invalid or unperfected, or (ii) Liens in favor of the
Collateral Agent for the benefit of the Lenders contemplated by the Loan
Documents with respect to Collateral having a Fair Market Value of $6,000,000 or
more shall, at any time, for any reason, be invalidated or otherwise cease to be
in full force and effect, or such Liens shall not have the priority contemplated
by this Agreement or the Loan Documents.
SECTION 8.02. REMEDIES. If any Event of Default has occurred and is
continuing, then the Administrative Agent or the Collateral Agent, as
applicable, shall at the request, or may with the consent, of the Required
Lenders, upon notice to the Borrower (i) declare the Commitments and the
obligation of each Lender to make or Convert Loans to be terminated, whereupon
the same shall forthwith terminate, (ii) declare the principal amount
outstanding hereunder, all interest thereon and all other amounts payable under
this Agreement and the other Loan Documents to be forthwith due and payable,
whereupon the principal amount outstanding hereunder, all such interest and all
such amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower, and (iii) exercise in respect of any and all collateral,
in addition to the other rights and remedies provided for herein or otherwise
available to the Administrative Agent, the Collateral Agent or the Lenders
(including the delivery of instructions and entitlement orders in respect of the
Bond Cash Collateral Account, provided that the Collateral Agent hereby agrees
that it shall not issue such instructions or entitlement orders concerning the
assets held in the Bond Cash Collateral Account unless an Event of Default shall
have occurred and is continuing), all the rights and remedies of a secured party
on default under the Uniform Commercial Code in effect in the State of New York
and in effect in any other jurisdiction in which collateral is located at that
time; provided, however, that in the event of an actual or deemed entry of an
order for relief with respect to the Borrower or any Guarantor under the Federal
Bankruptcy Code, (A) the Commitments and the obligation of each Lender to make
or Convert Loans shall automatically be terminated and (B) the principal amount
outstanding hereunder, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower.
ARTICLE IX
THE AGENTS
SECTION 9.01. AUTHORIZATION AND ACTION.
(a) Each of the Lenders hereby irrevocably appoints each
Agent as its agent and authorizes each such Agent to take such actions on its
behalf and to exercise such powers as are delegated to such Agent by the terms
of the Loan Documents, together with such actions and powers as are reasonably
incidental thereto.
(b) Any Lender serving as an Agent hereunder shall have
the same rights and powers in its capacity as a Lender as any other Lender and
may exercise the same as though it were not an Agent, and such Lender and its
Affiliates may accept deposits from, lend money to
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and generally engage in any kind of business with CMS Energy or any of its
Subsidiaries or other Affiliate thereof as if it were not an Agent hereunder.
(c) No Agent shall have any duties or obligations except
those expressly set forth in the Loan Documents. Without limiting the generality
of the foregoing, (i) no Agent shall be subject to any fiduciary or other
implied duties, regardless of whether a Default or an Event of Default has
occurred and is continuing, (ii) no Agent shall have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated by the Loan Documents that such Agent
is required to exercise in writing by the Required Lenders (or such other number
or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 10.01), and (iii) except as expressly set forth in the Loan
Documents, no Agent shall have any duty to disclose, or shall be liable for the
failure to disclose, any information relating to CMS Energy or any of its
Subsidiaries or Affiliates that is communicated to or obtained by the Lender
serving as such Agent or any of its Affiliates in any capacity. No Agent shall
be liable for any action taken or not taken by it with the consent or at the
request of the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section
10.01 or any other provision of this Agreement) or in the absence of its own
gross negligence or willful misconduct. Each Agent shall be deemed not to have
knowledge of any Default or Event of Default unless and until written notice
thereof is given to such Agent by the Borrower or a Lender (in which case such
Agent shall promptly give a copy of such written notice to the Lenders and the
other Agents). No Agent shall be responsible for or have any duty to ascertain
or inquire into (A) any statement, warranty or representation made in or in
connection with any Loan Document, (B) the contents of any certificate, report
or other document delivered thereunder or in connection therewith, (C) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth in any Loan Document, (D) the validity, enforceability,
effectiveness or genuineness of any Loan Document or any other agreement,
instrument or document, or (E) the satisfaction of any condition set forth in
Article V or elsewhere in any Loan Document, other than to confirm receipt of
items expressly required to be delivered to such Agent.
(d) Each Agent shall be entitled to rely upon, and shall
not incur any liability for relying upon, any notice, request, certificate,
consent, statement, instrument, document or other writing believed by it to be
genuine and to have been signed or sent by the proper Person. Each Agent also
may rely upon any statement made to it orally or by telephone and believed by it
to be made by the proper Person, and shall not incur any liability for relying
thereon. Each Agent may consult with legal counsel (who may be counsel for the
Borrower), independent accountants and other experts selected by it, and shall
not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts.
(e) Each Agent may perform any and all its duties and
exercise its rights and powers by or through one or more sub-agents appointed by
such Agent. Each Agent and any such sub-agent may perform any and all its duties
and exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding subsections of this Section 9.01 shall
apply to any such sub-agent and to the Related Parties of each Agent and any
such sub-agent, and shall apply to their respective activities in connection
with the syndication of the credit facilities provided for herein as well as
activities as an Agent.
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(f) Subject to the appointment and acceptance of a
successor Agent as provided in this subsection (f), any Agent may resign at any
time by notifying the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right, in consultation with the Borrower, to
appoint a successor. If no successor shall have been so appointed by the
Required Lenders and shall have accepted such appointment within 30 days after
the retiring Agent gives notice of its resignation, then the retiring Agent may,
on behalf of the Lenders, appoint a successor Agent which shall be a Lender with
an office in New York, New York, or an Affiliate of any such Lender. Upon the
acceptance of its appointment as an Agent hereunder by a successor, such
successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Agent shall be the same as those payable to its
predecessor unless otherwise agreed between the Borrower and such successor.
After an Agent's resignation hereunder, the provisions of this Article and
Section 10.04 shall continue in effect for the benefit of such retiring Agent,
its sub-agents and their respective Related Parties in respect of any actions
taken or omitted to be taken by any of them while it was acting as an Agent.
(g) Each Lender acknowledges that it has independently
and without reliance upon any Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon any Agent or
any other Lender and based on such documents and information as it shall from
time to time deem appropriate, continue to make its own decisions in taking or
not taking action under or based upon this Agreement, any other Loan Document or
any related agreement or any document furnished hereunder or thereunder. Each
Lender agrees (except as provided in Section 10.05) that it will not take any
legal action, nor institute any actions or proceedings, against the Borrower or
any other obligor hereunder or with respect to any Collateral, without the prior
written consent of the Required Lenders. Without limiting the generality of the
foregoing, no Lender may accelerate or otherwise enforce its portion of the
Loans, or unilaterally terminate its Commitment except in accordance with
Section 8.02.
SECTION 9.02. INDEMNIFICATION. The Lenders agree to indemnify each
Agent (to the extent not reimbursed by the Borrower), ratably according to the
respective Percentages of the Lenders, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against such Agent in any way relating to or
arising out of this Agreement or any action taken or omitted by such Agent under
this Agreement, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender agrees to
reimburse the Agents and the Arranger promptly upon demand for its ratable share
of any out-of-pocket expenses (including counsel fees) incurred by the Agents in
connection with the preparation, syndication, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement to the extent that the Agents
are entitled to reimbursement for such expenses pursuant to Section 10.04 but
are not reimbursed for such expenses by the Borrower.
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SECTION 9.03. CONCERNING THE COLLATERAL AND THE LOAN DOCUMENTS.
(a) Each Lender authorizes and directs the Collateral
Agent to enter into the Loan Documents relating to the Collateral for the
benefit of the Lenders. Each Lender agrees that any action taken by any Agent or
the Required Lenders (or, where required by the express terms of this Agreement,
a greater proportion of the Lenders) in accordance with the provisions of this
Agreement or the other Loan Documents, and the exercise by any Agent or the
Required Lenders (or, where so required, such greater proportion) of the powers
set forth herein or therein, together with such other powers as are reasonably
incidental thereto, shall be authorized and binding upon all of the Lenders.
Without limiting the generality of the foregoing, the Collateral Agent shall
have the sole and exclusive right and authority to (i) act as the disbursing and
collecting agent for the Lenders with respect to all payments and collections
arising in connection with this Agreement and the Loan Documents relating to the
Collateral; (ii) execute and deliver each Loan Document relating to the
Collateral and accept delivery of each such agreement delivered by the Borrower
or any other Loan Party a party thereto; (iii) act as collateral agent for the
Lenders for purposes of the perfection of all Liens created by such agreements
and all other purposes stated therein; provided, however, the Collateral Agent
hereby appoints, authorizes and directs the other Agents and the Lenders to act
as collateral sub-agent for the Collateral Agent and the Lenders for purposes of
the perfection of all Liens with respect to any property of the Borrower or any
of its Subsidiaries at any time in the possession of such Lender, including,
without limitation, deposit accounts maintained with, and cash held by, such
Lender; (iv) manage, supervise and otherwise deal with the Collateral; (v) take
such action as is necessary or desirable to maintain the perfection and priority
of the Liens created or purported to be created by the Loan Documents; and (vi)
except as may be otherwise specifically restricted by the terms of this
Agreement or any other Loan Document, exercise all remedies given to the
Collateral Agent or the Lenders with respect to the Collateral under the Loan
Documents relating thereto, applicable law or otherwise.
(b) The Administrative Agent and each Lender hereby
directs, in accordance with the terms of this Agreement, the Collateral Agent to
release any Lien held by the Collateral Agent for the benefit of the Lenders:
(i) against all of the Collateral, upon payment in full
of the Obligations of all of the Loan Parties under the Loan Documents
and termination of this Agreement;
(ii) against any part of the Collateral sold or disposed
of by the Borrower or any of its Subsidiaries, if such sale or
disposition is otherwise permitted under this Agreement, as certified
to the Collateral Agent by the Borrower, or is otherwise consented to
by the Required Lenders;
(iii) against any part of the Collateral consisting of a
promissory note, upon payment in full of the Debt evidenced thereby;
and/or
(iv) against any of the Collateral and any Grantor upon
the occurrence of any event described in Section 8.10 of the Pledge
Agreements.
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The Administrative Agent and each Lender hereby directs the Collateral Agent to
execute and deliver or file such termination and partial release statements and
do such other things as are necessary to release Liens to be released pursuant
to this Section 9.03(b) promptly upon the effectiveness of any such release.
SECTION 9.04. RELEASE OF GUARANTORS. Upon (x) the liquidation or
dissolution of any Guarantor, or sale of all of the capital stock or other
ownership interests of any Guarantor, in each case which is permitted pursuant
to the terms of any Loan Document or consented to in writing by the Required
Lenders or all of the Lenders, as applicable, and upon at least five (5)
Business Days' prior written request by the Borrower or (y) the occurrence of
any event described in Section 11 of the Guaranty, the Collateral Agent shall
(and is hereby irrevocably authorized by the Lenders to) execute such documents
as may be necessary to evidence the release of the applicable Guarantor from its
obligations under the Guaranty; provided, however, that (i) the Collateral Agent
shall not be required to execute any such document on terms which, in the
Collateral Agent's opinion, would expose the Collateral Agent to liability or
create any obligation or entail any consequence other than the release of such
Guarantor without recourse or warranty, and (ii) such release shall not in any
manner discharge, affect or impair the Loans, any other Guarantor's obligations
under the Guaranty, or, if applicable, any obligations of CMS Energy or any
Subsidiary in respect of the proceeds of any such sale retained by CMS Energy or
any Subsidiary.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. AMENDMENTS, ETC. No amendment or waiver of any provision
of any Loan Document, nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Required Lenders, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by all the Lenders, do any of the following: (i) waive, modify or
eliminate any of the conditions specified in Article V, (ii) increase the
Commitments of the Lenders that may be maintained hereunder, (iii) reduce the
principal of, or interest on, any Loan, any Applicable Margin, any Commitment
Fee Margin or any fees or other amounts payable hereunder (other than fees
payable to the Administrative Agent pursuant to Section 2.02(b)), (iv) postpone
any date fixed for any payment of principal of, or interest on, any Loan or any
fees or other amounts payable hereunder (other than fees payable to the
Administrative Agent pursuant to Section 2.02(b)) (except with respect to any
modifications of the provisions relating to amounts, timing or application of
prepayments of Loans and other Obligations which modification shall require only
the approval of the Required Lenders), (v) change the definition of "Required
Lenders" contained in Section 1.01 or change any other provision that specifies
the percentage of the Commitments or of the aggregate unpaid principal amount of
the Loans or the number of Lenders which shall be required for the Lenders or
any of them to take any action hereunder, (vi) (vi) amend, waive or modify
Section 2.03(b) or this Section 10.01, (vii) release the Collateral Agent's Lien
on all of the Collateral or any portion of the Collateral in excess of
$50,000,000 (except as provided in Section 9.03(b)), or (viii) extend the
Commitment Termination Date or the Termination Date; and provided, further, that
no amendment, waiver or consent shall, unless in writing and signed by each
Agent in addition to the Lenders required above to take such action,
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affect the rights or duties of any Agent under this Agreement or any other Loan
Document. Any request from the Borrower for any amendment, waiver or consent
under this Section 10.01 shall be addressed to the Administrative Agent.
SECTION 10.02. NOTICES, ETC. All notices and other communications
provided for hereunder and under the other Loan Documents shall be in writing
(including telegraphic, facsimile, telex or cable communication) and mailed,
telegraphed, telecopied, telexed, cabled or delivered, (i) if to the Borrower or
CMS Energy, at its address at c/o CMS Energy Corporation, Fairlane Plaza South,
330 Town Center Drive, Suite 1100, Dearborn, Michigan 48126, Attention: S.
Kinnie Smith, Jr., General Counsel, with a copy to Laura L. Mountcastle, Vice
President, Investor Relations and Treasurer, 330 Town Center Drive, Suite 1100,
Dearborn, Michigan 48126; (ii) if to any Bank, at the address set forth on its
signature page hereto; (iii) if to any Lender other than a Bank, at its
Applicable Lending Office specified in the Lender Assignment pursuant to which
it became a Lender; (iv) if to the Administrative Agent with respect to funding
or payment of any amounts hereunder, at its address at 2 Penns Way, Suite 200,
New Castle, DE 19270, Attn: Dawn Conover, Telephone No. (302) 894-6063, Telecopy
No. (302) 894-6120; (v) if to the Administrative Agent for any other reason or
to the Collateral Agent, at its address at 388 Greenwich Street, New York, New
York 10003, Attn: Nick McKee, Telephone No. (212) 816-8592, Telecopy No. (212)
816-8098; or, as to each party, at such other address as shall be designated by
such party in a written notice to the other parties. All such notices and
communications shall, when mailed, telegraphed, telecopied, telexed or cabled,
be effective five days after when deposited in the mails, or when delivered to
the telegraph company, telecopied, confirmed by telex answerback or delivered to
the cable company, respectively, except that notices and communications to any
Agent pursuant to Article II, III, or IX shall not be effective until received
by such Agent.
SECTION 10.03. NO WAIVER OF REMEDIES. No failure on the part of the
Borrower, any Lender or any Agent to exercise, and no delay in exercising, any
right hereunder or under any other Loan Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 10.04. COSTS, EXPENSES AND INDEMNIFICATION.
(a) The Borrower agrees to (i) reimburse on demand all
reasonable costs and expenses of each Agent and the Arranger (including
reasonable fees and expenses of counsel to the Agents) in connection with (A)
the preparation, syndication, negotiation, execution and delivery of the Loan
Documents and (B) the care and custody of any and all collateral, and any
proposed modification, amendment, or consent relating to any Loan Document, and
(ii) to pay on demand all reasonable costs and expenses of each Agent and, on
and after the date upon which the principal amount outstanding hereunder becomes
or is declared to be due and payable pursuant to Section 8.02 or an Event of
Default specified in Section 8.01(a) shall have occurred and be continuing, each
Lender (including fees and expenses of counsel to the Agents, special Michigan
counsel to the Lenders and, from and after such date, counsel for each Lender
(including the allocated costs and expenses of in-house counsel)) in connection
with the workout,
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restructuring or enforcement (whether through negotiations, legal proceedings or
otherwise) of this Agreement, the other Loan Documents and the other documents
to be delivered hereunder.
(b) The Borrower shall indemnify each Agent, the
Arranger, each Lender, and each Related Party of any of the foregoing Persons
(each such Person being called an "INDEMNIFIED PERSON") against, and hold each
Indemnified Person harmless from, any and all losses, claims, damages,
liabilities and related expenses, including the reasonable fees, charges and
disbursements of any counsel for any Indemnified Person, incurred by or asserted
against any Indemnified Person arising out of, in connection with, or as a
result of (i) the execution or delivery of any Loan Document or any other
agreement or instrument contemplated hereby or thereby, the performance by the
parties to the Loan Documents of their respective obligations thereunder or the
consummation of the transactions contemplated hereby or thereby, (ii) any Loan
or other Extension of Credit or the use or proposed use of the proceeds
therefrom, (iii) any actual or alleged presence or release of any Hazardous
Substance on or from any property owned or operated by CMS Energy or any of its
Subsidiaries, or any Environmental Liability related in any way to CMS Energy or
any of its Subsidiaries, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnified
Person is a party thereto; provided that such indemnity shall not, as to any
Indemnified Person, be available to the extent that such losses, claims,
damages, liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnified Person.
(c) The Borrower's other obligations under this Section
10.04 shall survive the repayment of all amounts owing to the Lenders and the
Agents under the Loan Documents and the termination of the Commitments. If and
to the extent that the obligations of the Borrower under this Section 10.04 are
unenforceable for any reason, the Borrower agrees to make the maximum
contribution to the payment and satisfaction thereof which is permissible under
applicable law.
SECTION 10.05. RIGHT OF SET-OFF.
(a) Upon (i) the occurrence and during the continuance of
any Event of Default and (ii) the making of the request or the granting of the
consent specified by Section 8.02 to authorize the Administrative Agent to
declare the principal amount outstanding hereunder to be due and payable
pursuant to the provisions of Section 8.02, each Lender is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Lender to or for the credit or the account of the Borrower, against any
and all of the obligations of the Borrower now or hereafter existing under this
Agreement and the Promissory Notes held by such Lender, irrespective of whether
or not such Lender shall have made any demand under this Agreement or such
Promissory Notes, as the case may be, and although such obligations may be
unmatured. Each Lender agrees to notify promptly the Borrower after any such
set-off and application made by such Lender, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of each Lender under this Section 10.05 are in addition to other rights
and remedies (including other rights of set-off) which such Lender may have.
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(b) The Borrower agrees that it shall have no right of
off-set, deduction or counterclaim in respect of its obligations hereunder, and
that the obligations of the Lenders hereunder are several and not joint. Nothing
contained herein shall constitute a relinquishment or waiver of the Borrower's
rights to any independent claim that the Borrower may have against any Agent or
any Lender for such Agent's or such Lender's, as the case may be, gross
negligence or willful misconduct, but no Lender shall be liable for any such
conduct on the part of any Agent or any other Lender, and no Agent shall be
liable for any such conduct on the part of any Lender.
SECTION 10.06. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrower and the Agents and when the
Administrative Agent shall have been notified by each Bank that such Bank has
executed it and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agents and each Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lenders.
SECTION 10.07. ASSIGNMENTS AND PARTICIPATION.
(a) Any Lender may sell participations in all or a
portion of its rights and obligations under this Agreement pursuant to
subsection (b) below and any Lender may assign all or any part of its rights and
obligations under this Agreement pursuant to subsection (c) below.
(b) Any Lender may sell participations to one or more
banks or other entities (each a "PARTICIPANT") in all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or a
portion of its Commitment and its outstanding Loan), provided that (i) such
Lender's obligations under this Agreement (including, without limitation, its
Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) such Lender shall remain the holder of the Loans of
such Lender for all purposes of this Agreement and (iv) the Borrower shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement. Each Lender shall retain
the sole right to approve, without the consent of any Participant, any
amendment, modification or waiver of any provision of the Loan Documents other
than any amendment, modification or waiver with respect to any Loan or
Commitment in which such Participant has an interest which would require consent
of all of the Lenders pursuant to the terms of Section 10.01 or of any other
Loan Document. The Borrower agrees that each Participant shall be deemed to have
the right of set-off provided in Section 10.05 in respect of its participating
interest in amounts owing under the Loan Documents to the same extent as if the
amount of its participating interest were owing directly to it as a Lender under
the Loan Documents, provided that each Lender shall retain the right of set-off
provided in Section 10.05 with respect to the amount of participating interests
sold to each Participant. The Lenders agree to share with each Participant, and
each Participant, by exercising the right of set-off provided in Section 10.05,
agrees to share with each Lender, any amount received pursuant to the exercise
of its right of set-off, such amounts to be shared in accordance with Section
10.05 as if each Participant were a Lender. The Borrower further agrees that
each Participant shall be entitled to the benefits of Sections 4.04 and 4.06 to
the same extent as if it were a Lender and had acquired its interest by
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assignment pursuant to Section 10.07(c); provided that (i) a Participant shall
not be entitled to receive any greater payment under Section 4.04 or 4.06 than
the Lender who sold the participating interest to such Participant would have
received had it retained such interest for its own account, unless the sale of
such interest to such Participant is made with the prior written consent of the
Borrower, and (ii) any Participant not incorporated under the laws of the United
States of America or any State thereof agrees to comply with the provisions of
Section 4.06 to the same extent as if it were a Lender.
(c) Any Lender may, in the ordinary course of its
business and in accordance with applicable law, with the consent of the
Administrative Agent (such consent not to be unreasonably withheld or delayed),
at any time assign to one or more financial institutions all or any part of its
rights and obligations under this Agreement, provided that the minimum principal
amount of any such assignment (other than assignments to a Federal Reserve Bank,
or to any other Lender or affiliate or Approved Fund of a Lender, or to any
direct or indirect contractual counterparties in swap agreements relating to the
Loans to the extent required in connection with the physical settlement of any
Lender's obligations pursuant thereto) shall be $1,000,000 (or such lesser
amount consented to by the Administrative Agent); provided that, unless such
Lender is assigning all of its rights and obligations hereunder, after giving
effect to such assignment the assigning Lender shall have Loans in the aggregate
of not less than $1,000,000 (unless otherwise consented to by the Administrative
Agent).
(d) Any Lender may, in connection with any sale or
participation or proposed sale or participation pursuant to this Section 10.07
disclose to the purchaser or Participant or proposed purchaser or Participant
any information relating to the Borrower furnished to such Lender by or on
behalf of the Borrower, provided that prior to any such disclosure of non-public
information, the purchaser or Participant or proposed purchaser or Participant
(which Participant is not an affiliate of a Lender) shall agree to preserve the
confidentiality of any confidential information (except any such disclosure as
may be required by law or regulatory process) relating to the Borrower received
by it from such Lender.
(e) Assignments under this Section 10.07 shall be made
pursuant to an agreement (a "LENDER ASSIGNMENT") substantially in the form of
Exhibit F hereto or in such other form as may be agreed to by the parties
thereto and shall not be effective until a $3,500 fee has been paid to the
Administrative Agent by the assignee, which fee shall cover the cost of
processing such assignment, provided, that such fee shall not be incurred in the
event of an assignment by any Lender of all or a portion of its rights under
this Agreement to (i) a Federal Reserve Bank or (ii) a Lender or an affiliate or
Approved Fund of the assigning Lender or (iii) to any direct or indirect
contractual counterparties in swap agreements relating to the Loans to the
extent required in connection with the physical settlement of any Lender's
obligations pursuant thereto.
(f) Notwithstanding anything to the contrary contained
herein, any Lender (a "GRANTING LENDER") may grant to a special purpose funding
vehicle (an "SPC"), identified as such in writing from time to time by the
Granting Lender to the Administrative Agent and the Borrower, the option to
provide to the Borrower all or any part of any Loan that such Granting Lender is
obligated to make to the Borrower pursuant to this Agreement; provided that (i)
nothing herein shall constitute a commitment by any SPC to make any Loan, (ii)
if an SPC elects
69
not to exercise such option or otherwise fails to provide all or any part of
such Loan, the Granting Lender shall remain obligated to make such Loan pursuant
to the terms hereof, (iii) the Borrower shall not be required to pay any amount
under Section 4.06 that is greater than the amount which it would have been
required to pay had there been no grant to an SPC and (iv) any SPC (or assignee
of an SPC) will comply, if applicable, with the provisions contained in Section
4.06. No grant by any Granting Lender to an SPC agreeing to provide a Loan or
the making of such Loan by such SPC shall operate to relieve such Granting
Lender of its liabilities and obligations hereunder, except to the extent of the
making of such Loan by such SPC. The making of a Loan by an SPC hereunder shall
utilize the Commitment of the Granting Lender to the same extent, and as if,
such Loan were made by such Granting Lender. Each party hereto hereby agrees
that no SPC shall be liable for any indemnity or similar payment obligation
under this Agreement (all liability for which shall remain with the Granting
Lender). In addition, each party hereto hereby agrees (which agreement shall
survive the termination of this Agreement) that any SPC may (i) with notice to,
but without the prior written consent of, the Borrower and the Administrative
Agent and without paying any processing fee therefor, assign all or a portion of
its interests in any Loans to the Granting Lender or to any financial
institutions (consented to by the Administrative Agent in its sole discretion)
providing liquidity and/or credit support to or for the account of such SPC to
support the funding or maintenance of Loans and (ii) disclose on a confidential
basis any non-public information relating to its Loans to any rating agency,
commercial paper dealer or provider of any surety, guarantee or credit or
liquidity enhancement to such SPC. This Section 10.07(f) may not be amended
without the written consent of any SPC that holds an option to provide Loans. No
recourse under any obligation, covenant, or agreement of the SPC contained in
this Agreement shall be had against any shareholder, officer, agent or director
of the SPC as such, by the enforcement of any assessment or by any proceeding,
by virtue of any statute or otherwise; it being expressly agreed and understood
that this Agreement is a corporate obligation of the SPC and no personal
liability shall attach to or be incurred by any officer, agent or member of the
SPC as such, or any of them under or by reason of any of the obligations,
covenants or agreements of the SPC contained in this Agreement, or implied
therefrom, and that any and all personal liability for breaches by the SPC of
any such obligations, covenants or agreements, either at law or by statute or
constitution, of every such shareholder, officer, agent or director is hereby
expressly waived by all parties to this Agreement as a condition of and
consideration for the SPC entering into this Agreement; provided, however, that
the foregoing shall not relieve any such person or entity of any liability they
might otherwise have as a result of fraudulent actions or omissions taken by
them. All parties to this Agreement acknowledge and agree that the SPC shall
only be liable for any claims that each of them may have against the SPC only to
the extent of the SPC's assets. The provisions of this clause shall survive the
termination of this Agreement.
(g) Any Lender may at any time pledge or assign a
security interest in all or any portion of its rights under this Agreement to
secure obligations of such Lender, including without limitation any pledge or
assignment to secure obligations to a Federal Reserve Bank; provided that no
such pledge or assignment shall release such Lender from any of its obligations
hereunder or substitute any such pledgee or assignee for such Lender as a party
hereto.
(h) The Administrative Agent shall maintain at its
address referred to in Section 10.02 a copy of each Lender Assignment delivered
to and accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment of, and
70
principal amount of the Loans owing to, each Lender from time to time (the
"REGISTER"). The entries in the Register shall be conclusive and binding for all
purposes, absent manifest error, and the Borrower, the Agents and the Lenders
may treat each Person whose name is recorded in the Register as a Lender
hereunder for all purposes of this Agreement. The Register shall be available
for inspection by the Borrower or any Lender at any reasonable time and from
time to time upon reasonable prior notice.
SECTION 10.08. CONFIDENTIALITY. In connection with the negotiation and
administration of this Agreement and the other Loan Documents, the Borrower has
furnished and will from time to time furnish to the Agents and the Lenders
(each, a "RECIPIENT") written information which is identified to the Recipient
when delivered as confidential (such information, other than any such
information which (i) was publicly available, or otherwise known to the
Recipient, at the time of disclosure, (ii) subsequently becomes publicly
available other than through any act or omission by the Recipient or (iii)
otherwise subsequently becomes known to the Recipient other than through a
Person whom the Recipient knows to be acting in violation of his or its
obligations to the Borrower, being hereinafter referred to as "CONFIDENTIAL
INFORMATION"). The Recipient will not knowingly disclose any such Confidential
Information to any third party (other than to those persons who have a
confidential relationship with the Recipient), and will take all reasonable
steps to restrict access to such information in a manner designed to maintain
the confidential nature of such information, in each case until such time as the
same ceases to be Confidential Information or as the Borrower may otherwise
instruct. It is understood, however, that the foregoing will not restrict the
Recipient's ability to freely exchange such Confidential Information with its
Affiliates or with prospective Participants in or assignees of the Recipient's
position herein, but the Recipient's ability to so exchange Confidential
Information shall be conditioned upon any such Affiliate's or prospective
Participant's (as the case may be) entering into an agreement as to
confidentiality similar to this Section 10.08. It is further understood that the
foregoing will not prohibit the disclosure of any or all Confidential
Information if and to the extent that such disclosure may be required (1) by a
regulatory agency or otherwise in connection with an examination of the
Recipient's records by appropriate authorities, (2) pursuant to court order,
subpoena or other legal process or in connection with any proceeding, suit or
other action relating to any Loan Document or (3) otherwise, as required by law;
in the event of any required disclosure under clause (2) or (3), above, the
Recipient agrees to use reasonable efforts to inform the Borrower as promptly as
practicable to the extent not prohibited by law. Notwithstanding any other
provision of this Agreement, each party (and each Participant pursuant to
Section 10.07) (and each employee, representative or other agent of such party
(or Participant)) may disclose to any and all persons, without limitation of any
kind, the U.S. tax treatment and U.S. tax structure of the transactions
contemplated by the Loan Documents and all materials of any kind (including
opinions or other tax analyses) that are provided to such party relating to such
U.S. tax treatment and U.S. tax structure, other than any information for which
nondisclosure is reasonably necessary in order to comply with applicable
securities laws.
SECTION 10.09. Waiver of Jury Trial. THE BORROWER, CMS ENERGY, THE
AGENTS AND THE LENDERS EACH HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OTHER INSTRUMENT OR DOCUMENT
DELIVERED HEREUNDER OR THEREUNDER.
71
SECTION 10.10. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS
AGREEMENT AND THE PROMISSORY NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF
THE GENERAL OBLIGATIONS LAWS OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT
REGARD TO CONFLICTS OF LAW PRINCIPLES). THE BORROWER, CMS ENERGY, THE LENDERS
AND THE AGENTS, EACH (I) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK
STATE COURT OR FEDERAL COURT SITTING IN NEW YORK CITY IN ANY ACTION ARISING OUT
OF ANY LOAN DOCUMENT, (II) AGREES THAT ALL CLAIMS IN SUCH ACTION MAY BE DECIDED
IN SUCH COURT, (III) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE
DEFENSE OF AN INCONVENIENT FORUM AND (IV) CONSENTS TO THE SERVICE OF PROCESS BY
MAIL. A FINAL JUDGMENT IN ANY SUCH ACTION SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY
PARTY TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR AFFECT ITS RIGHT
TO BRING ANY ACTION IN ANY OTHER COURT. EACH OF THE BORROWER AND CMS ENERGY
AGREES THAT THE AGENTS SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER, CMS
ENERGY OR ITS RESPECTIVE PROPERTY IN A COURT IN ANY LOCATION TO ENABLE THE
AGENTS AND THE LENDERS TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR
THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR
OF THE AGENTS OR ANY LENDER. EACH OF THE BORROWER AND CMS ENERGY AGREES THAT IT
WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY ANY
AGENT OR ANY LENDER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF ANY AGENT
OR ANY LENDER. EACH OF THE BORROWER AND CMS ENERGY WAIVES ANY OBJECTION THAT IT
MAY HAVE TO THE LOCATION OF THE COURT IN WHICH ANY AGENT OR ANY LENDER MAY
COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION.
SECTION 10.11. RELATION OF THE PARTIES; NO BENEFICIARY. No term,
provision or requirement, whether express or implied, of any Loan Document, or
actions taken or to be taken by any party thereunder, shall be construed to
create a partnership, association, or joint venture between such parties or any
of them. No term or provision of the Loan Documents shall be construed to confer
a benefit upon, or grant a right or privilege to, any Person other than the
parties hereto. The Borrower hereby acknowledges that neither any Agent nor any
Lender has any fiduciary relationship with or fiduciary duty to the Borrower
arising out of or in connection with this Agreement or any of the other Loan
Documents, and the relationship between the Agents and the Lenders, on the one
hand, and the Borrower, on the other hand, in connection herewith or therewith
is solely that of debtor and creditor.
SECTION 10.12. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement.
72
SECTION 10.13. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made herein and in the certificates pursuant
hereto shall be considered to have been relied upon by the Agents and the
Lenders and shall survive the making by the Lenders of the Extensions of Credit
and the execution and delivery to the Lenders of any Promissory Notes evidencing
the Extensions of Credit and shall continue in full force and effect so long as
any Promissory Note or any amount due hereunder is outstanding and unpaid or any
Commitment of any Lender has not been terminated.
SECTION 10.14. LIMITATION OF LIABILITY: COMMUNICATIONS. WITH RESPECT TO
COMMUNICATIONS DELIVERED PURSUANT TO SECTION 10.15 OF THIS AGREEMENT, SUCH
COMMUNICATIONS AND THE PLATFORM ARE PROVIDED "AS IS" AND "AS AVAILABLE". THE
CITIGROUP PARTIES DO NOT WARRANT THE ACCURACY, ADEQUACY OR COMPLETENESS OF THE
COMMUNICATIONS OR THE PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR
OMISSIONS IN THE COMMUNICATIONS OR THE PLATFORM. NO WARRANTY OF ANY KIND,
EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD
PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE
CITIGROUP PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE PLATFORM. THE
BORROWER HEREBY ACKNOWLEDGES THAT ALTHOUGH THE PRIMARY WEB PORTAL IS SECURED
WITH A DUAL FIREWALL AND A USER IDENTIFICATION/PASSWORD AUTHORIZATION SYSTEM AND
THE PLATFORM IS SECURED THROUGH A SINGLE USER PER DEAL AUTHORIZATION METHOD
WHEREBY EACH USER MAY ACCESS THE PLATFORM ONLY ON A DEAL-BY-DEAL BASIS, THE
DISTRIBUTION OF MATERIAL THROUGH AN ELECTRONIC MEDIUM IS NOT NECESSARILY SECURE
AND THAT THERE ARE CONFIDENTIALITY AND OTHER RISKS ASSOCIATED WITH SUCH
DISTRIBUTION. THE PROVISIONS OF THIS SECTION 10.14 SHALL SURVIVE THE MAKING OF
ANY LOAN, THE REPAYMENT THEREOF AND THE TERMINATION OF THIS AGREEMENT AND ANY
LOAN DOCUMENT.
SECTION 10.15. PLATFORM AND PRIMARY WEB PORTAL.
(a) The Borrower shall use its commercially reasonable
best efforts to transmit to the Administrative Agent all information, documents
and other materials that it is obligated to furnish to the Administrative Agent
pursuant to this Agreement and the other Loan Documents, including, without
limitation, all notices, requests, financial statements, financial and other
reports, certificates and other information materials, but excluding any such
communication that (i) relates to a notice of borrowing or other extension of
credit or a conversion of an existing interest rate on any Loan or borrowing
(including, without limitation, any Notice of Conversion), (ii) relates to the
payment of any principal or other amount due hereunder prior to the scheduled
date therefor, (iii) provides notice of any Default or Event of Default
hereunder or (iv) is required to be delivered to satisfy any condition precedent
to the effectiveness of this Agreement and/or any extension of credit hereunder
(all such non-excluded communications being referred to herein collectively as
"COMMUNICATIONS"), in an electronic/soft medium in a format reasonably
acceptable to the Administrative Agent to oploanswebadmin@citigroup.com. In
addition, the Borrower shall continue to provide the
73
Communications to the Administrative Agent in the manner specified in this
Agreement but only to the extent requested by the Administrative Agent. Each
Lender and the Borrower further agree that the Administrative Agent may make the
Communications available to the Lenders by posting the Communications on
"e-Disclosure" (the "PLATFORM"), the Administrative Agent's internet delivery
system that is part of SSB Direct, Global Fixed Income's primary web portal (the
"PRIMARY WEB PORTAL").
(b) The Administrative Agent agrees that the receipt of
the Communications by the Administrative Agent at its e-mail address set forth
in clause (a) above shall constitute effective delivery of the Communications to
the Administrative Agent for purposes of this Agreement and under the Loan
Documents. Each Lender agrees that notice to it at its e-mail address provided
in clause (a) above specifying that Communications have been posted to the
Platform shall constitute effective delivery of the Communications to such
Lender under this Agreement and under the Loan Documents.
(c) Nothing in this Agreement or any other Loan Document
shall prejudice the right of the Administrative Agent or any Lender to give any
notice or other communication pursuant hereto or to any other Loan Document in
any other manner specified herein or therein.
(d) The provisions of Section 10.15(a) and (b) shall
terminate on the date that neither CUSA nor any of the Citigroup Parties is the
Administrative Agent.
[Signature pages follow.]
74
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto dully authorized, as of the date
first above written.
CMS ENTERPRISES COMPANY
By: /s/ Laura L. Mountcastle
--------------------------
Name: Laura L. Mountcastle
Title: Authorized Representative
CMS ENERGY CORPORATION
By: /s/ Laura L. Mountcastle
--------------------------
Name: Laura L. Mountcastle
Title: Authorized Representative
Signature Page to
Credit Agreement
CITICORP USA, INC., as Collateral Agent and as
Administrative Agent
By: /s/ Dale R. Goncher
--------------------
Name: Dale R. Goncher
Title: Director
CITIBANK, N.A., as a Lender
By: /s/ Dale R. Goncher
---------------------
Name : Dale R. Goncher
Title: Director
Address : 388 Greenwich St.
New York, NY 10013
Attn: Nicholas McKee
Telephone: (212)816-8592
Fax: (212) 816-8098
Signature Page to
Credit Agreement
COMMITMENT SCHEDULE
LENDER Commitment
- ------ ----------
CITIBANK, N.A. $441,000,000
Total Commitments: $441,000,000
CMS ENERGY CORPORATION
SCHEDULE I
GAAP DEBT BREAKDOWN
AS OF FEBRUARY 28, 2003
BORROWER FACILITY CURRENT BALANCE
CMS ENERGY
$295.8MM Credit Agreement $123,819,866
$300MM Credit Agreement 133,800,000
General Term Notes
Series D 79,922,000
Series E 215,955,000
Series F 297,686,000
Sr. Unsecured Notes @ 7 5/8% 175,815,000
Convert. Sub. Debentures 172,500,000
Extend. Tenor Rate Adj. Sec. 180,000,000
Sr. Unsecured Notes @ 7.5% 408,845,000
Sr. Unsecured Notes @ 6.75% 287,025,000
Sr. Notes @ 8.9% 260,475,000
Sr. Notes @ 8 3/8% 150,000,000
Sr. Notes @ 9.875% 467,558,000
Premium Equity Participating Security Units 220,000,000
Sr. Notes @ 8.5% 300,375,000
CMS Methanol Company 14,000,000
PANHANDLE EASTERN PIPE LINE
Sr. Notes @ 6.125% 292,500,000
Sr. Notes @ 6.5% 158,980,000
Sr. Notes @ 7.0% 135,890,000
Sr. Notes @ 8.25% 60,000,000
Notes @ 7.785% 100,000,000
Debentures @ 7.2% 58,000,000
Debentures @ 7.95% 76,500,000
Citibank Bridge Loan 40,000,000
CMS ENTERPRISES
None
CMS GENERATION COMPANY
CMS Capital LLC 4,957,214
CMS GAS TRANSMISSION
CMS Capital LLC 11,394,197
Antrim Gas Term Loan with BOM 22,625,000
Jackson Pipeline RCF with Tor Dom 2,687,000
CMS ELECTRIC & GAS
None
CMS MARKETING SERVICES & TRADING
CMS Capital LLC 127,353,473
CMS INTERNATIONAL VENTURES LLC
None
DEARBORN INDUSTRIAL ENERGY LLC
None
CMS GENERATION MICHIGAN POWER LLC
None
DEARBORN INDUSTRIAL GENERATION
CMS Capital LLC 13,337,242
CMS FIELD SERVICES
The CIT Group 731,204
CMS GAS PROCESSING LLC
CMS Capital LLC 6,036,529
CMS NATURAL GAS GATHERING LLC
CMS Capital LLC 3,346,852
PANHANDLE PIPE LINE COMPANY
Trunkline Gas Company S-T 100,000,000
Trunkline Gas Company L-T 100,000,000
CMS CAPITAL LLC
CMS Enterprises Company 11,197,420
CMSG Filer City Operating Company 413,815
CMSG Honey Lake Company 462,258
CMS Jackson Pipeline Company 91,705
CMS Bay Area Pipeline Company 1,054,924
CMSG Graying Holdings Company 1,164,325
CMSG Operating Company 1,323,669
CMSG Mon Valley Company 11,563
CMS Saginaw Bay Lateral Company 276,140
CMS Antrim Gas LLC 1,370,523
CMSG Holdings Company 1,206,958
CMSG Altoona Company 182,228
CMSG Genesee Company 1,513,182
CMS Resource Development 2,855,881
CMSG Recycling Company 371,025
CMSG Lyonsdale Company 20,160
Mon Valley Energy 113
CMSG Chateaugay Company 35,096
CMS Grands Lacs LLC 1,400,457
HYDRA-CO Enterprises, Inc. 1,696,027
CMSG Operating Company II 1,055,368
HCE Appomattox, Inc. 341,816
HCE Jamaica Development, Inc. 5,780
HCO Jamaica, Inc. 164,957
CMS Electric & Gas Company 4,036,096
CMS Texon Company 632,042
CMS Marysville Gas Liquids Company 670,134
CMSG Stratton Company 72,258
CMS Field Services, Inc. 34,262,090
CMS Laverne Gas Processing, LLC 64,085
Panhandle Eastern Pipeline Company 308,744,037
Taweeelah A2 Operating Company 810,173
Dearborn Generation Operating, LLC 3,955,220
CMS Capital Financial Services, Inc. 602,157
CMSG Michigan Power, LLC 804,292
CMS Enterprises Data Mart 243,398
CMS MS&T Michigan, LLC 15,991,117
CMS Energy UK Limited 1,879,798
CMS MicroPower Systems, LLC 3,422,229
CMSG Investment Company I 808,707
CMS Business Development, LLC 3,266,068
CMS Enterprises Development, LLC 232,701
CMS International Ventures, LLC 3,436,843
CMS Enterprise Oil & Gas Company 108,856,818
CMSG Investment Company V 1,553,780
TOTAL GAAP DEBT $5,324,674,009
SCHEDULE II
Pledged Ownership Interests
GRANTOR PLEDGED SUBSIDIARIES
- ------- --------------------
CMS Energy Corporation CMS Enterprises Company (100%)
Consumers Energy Company (100%)
CMS Enterprises Company CMS Generation Co. (100%)
CMS Gas Transmission Company (100%)
CMS Capital, L.L.C. (100%)
CMS Marketing, Services and Trading Company (100%)
CMS International Ventures, L.L.C. (40.47%)
CMS International Ventures, L.L.C. CMS Electric & Gas, L.L.C. (100%)
CMS Generation Co. CMS International Ventures, L.L.C. (21.02%)
Dearborn Industrial Energy, L.L.C. (100%)
CMS Generation Michigan Power L.L.C. (100%)
Dearborn Industrial Energy, L.L.C. Dearborn Industrial Generation, L.L.C. (100%)
CMS Gas Transmission Company CMS International Ventures, L.L.C. (37.01%)
Panhandle Eastern Pipe Line Company (100%)
CMS Field Services, Inc. (100%)
CMS Field Services, Inc. CMS Gas Processing, L.L.C. (100%)
CMS Natural Gas Gathering, L.L.C. (100%)
CMS Field Services Holdings Company (100%)
EXHIBIT 4(j)
EXECUTION COPY
- --------------------------------------------------------------------------------
$75,000,000
CREDIT AGREEMENT
Dated as of April 21, 2003,
Among
CMS ENTERPRISES COMPANY
as Borrower
CMS ENERGY CORPORATION
as a Loan Party
THE BANKS NAMED HEREIN
as Banks
CITICORP USA, INC.
as Administrative Agent and as Collateral Agent
----------------------------
CITIGROUP CAPITAL MARKETS
as Sole Book Manager and Sole Lead Arranger
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Section Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms ........................................ 1
SECTION 1.02. Computation of Time Periods; Construction .................... 21
SECTION 1.03. Accounting Terms ............................................. 21
ARTICLE II
COMMITMENTS
SECTION 2.01. The Commitments; Conversion to Term Loan ..................... 22
SECTION 2.02. Fees ......................................................... 22
SECTION 2.03. Reduction of the Commitments; Mandatory Prepayments .......... 23
SECTION 2.04. Computations of Outstandings ................................. 24
ARTICLE III
LOANS
SECTION 3.01. Loans ........................................................ 25
SECTION 3.02. Conversion of Loans .......................................... 26
SECTION 3.03. Interest Periods ............................................. 26
SECTION 3.04. Other Terms Relating to the Making and Conversion of Loans.... 26
SECTION 3.05. Repayment of Loans; Interest ................................. 28
ARTICLE IV
PAYMENTS, COMPUTATIONS AND YIELD PROTECTION
SECTION 4.01. Payments and Computations .................................... 29
SECTION 4.02. Interest Rate Determination .................................. 31
SECTION 4.03. Prepayments .................................................. 31
SECTION 4.04. Yield Protection ............................................. 31
SECTION 4.05. Sharing of Payments, Etc ..................................... 33
SECTION 4.06. Taxes ........................................................ 33
SECTION 4.07. Apportionment of Payments .................................... 35
SECTION 4.08. Proceeds of Collateral ....................................... 36
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01. Conditions Precedent to the Effectiveness of this Agreement... 37
SECTION 5.02. Conditions Precedent to Each Extension of Credit ............. 39
SECTION 5.03. Conditions Precedent to Certain Extensions of Credit ......... 39
SECTION 5.04. Reliance on Certificates ..................................... 40
i
TABLE OF CONTENTS (CONT'D)
SECTION PAGE
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties of the Borrower ............... 40
ARTICLE VII
COVENANTS OF THE BORROWER
SECTION 7.01. Affirmative Covenants ........................................ 44
SECTION 7.02. Negative Covenants ........................................... 47
SECTION 7.03. Reporting Obligations ........................................ 56
ARTICLE VIII
DEFAULTS
SECTION 8.01. Events of Default ............................................ 59
SECTION 8.02. Remedies ..................................................... 61
ARTICLE IX
THE AGENTS
SECTION 9.01. Authorization and Action ..................................... 61
SECTION 9.02. Indemnification .............................................. 63
SECTION 9.03. Concerning the Collateral and the Loan Documents ............. 64
SECTION 9.04. Release of Guarantors ........................................ 65
ARTICLE X
MISCELLANEOUS
SECTION 10.01. Amendments, Etc ............................................. 65
SECTION 10.02. Notices, Etc ................................................ 66
SECTION 10.03. No Waiver of Remedies ....................................... 66
SECTION 10.04. Costs, Expenses and Indemnification.......................... 67
SECTION 10.05. Right of Set-off ............................................ 67
SECTION 10.06. Binding Effect .............................................. 68
SECTION 10.07. Assignments and Participation ............................... 68
SECTION 10.08. Confidentiality ............................................. 71
SECTION 10.09. Waiver of Jury Trial ........................................ 72
SECTION 10.10. GOVERNING LAW; SUBMISSION TO JURISDICTION ................... 72
SECTION 10.11. Relation of the Parties; No Beneficiary ..................... 73
SECTION 10.12. Execution in Counterparts ................................... 73
SECTION 10.13. Survival of Agreement ....................................... 73
SECTION 10.14. Limitation of Liability: Communications ..................... 73
SECTION 10.15. Platform and Primary Web Portal.............................. 74
ii
Exhibits
- ---------
EXHIBIT A - Form of Notice of Borrowing
EXHIBIT B - Form of Notice of Conversion
EXHIBIT C - Form of Opinion of Belinda Foxworth, Esq., counsel to the Borrower
EXHIBIT D - Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP, special
counsel to the Borrower
EXHIBIT E - Form of Compliance Schedule
EXHIBIT F - Form of Lender Assignment
EXHIBIT G - Terms of Subordination (Junior Subordinated Debt)
EXHIBIT H - Terms of Subordination (Guaranty of Hybrid Preferred Securities)
EXHIBIT I - Form of Guaranty (CMS Energy and Grantors)
EXHIBIT J - Form of Pledge and Security Agreement (CMS Energy)
EXHIBIT K - Form of Pledge and Security Agreement (Borrower and Grantors)
EXHIBIT L - AIG Pledge Agreement
EXHIBIT M - Intercreditor Agreement (CMS Energy Facility)
Schedules
- ----------
COMMITMENT
SCHEDULE
SCHEDULE I Certain Debt
SCHEDULE II Pledged Ownership Interests
iii
CREDIT AGREEMENT
Dated as of April 21, 2003
THIS CREDIT AGREEMENT (the "AGREEMENT") is made by and among:
(i) CMS Enterprises Company, a Michigan corporation (the
"BORROWER"),
(ii) CMS Energy Corporation, a Michigan corporation ("CMS ENERGY"),
as one of the Loan Parties (as hereinafter defined),
(iii) the banks (the "BANKS") listed on the signature pages hereof
and the other Lenders (as hereinafter defined) from time to
time party hereto, and
(iv) Citicorp USA, Inc. ("CUSA"), as administrative agent (the
"ADMINISTRATIVE AGENT") for the Lenders hereunder and as
collateral agent (the "COLLATERAL AGENT") for the Lenders
hereunder.
PRELIMINARY STATEMENTS
The Borrower has requested the Banks to provide the credit facility
hereinafter described in the amount and on the terms and conditions set forth
herein. The Banks have so agreed on the terms and conditions set forth herein,
and the Agents have agreed to act as agents for the Lenders on such terms and
conditions.
The parties hereto acknowledge and agree that neither Consumers (as
hereinafter defined) nor any of its Subsidiaries (as hereinafter defined) will
be a party to, or will in any way be bound by any provision of, this Agreement
or any other Loan Document (as hereinafter defined), and that no Loan Document
will be enforceable against Consumers or any of its Subsidiaries or their
respective assets.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"ABR", when used in reference to any Loan or Borrowing, refers
to whether such Loan, or the Loans comprising such Borrowing, are
bearing interest at a rate determined by reference to the Alternate
Base Rate.
"ABR LOAN" means a Loan that bears interest as provided in
Section 3.05(b)(i).
1
"ADJUSTED LIBO RATE" means, for each Interest Period for each
Eurodollar Rate Loan made as part of the same Borrowing, an interest
rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%)
equal to (a) the LIBO Rate for such Interest Period multiplied by (b)
the Statutory Reserve Rate.
"ADMINISTRATIVE QUESTIONNAIRE" means an Administrative
Questionnaire in a form supplied by the Administrative Agent.
"AFFILIATE" means, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to
all directors and officers of such Person), controlled by, or under
direct or indirect common control with such Person. A Person shall be
deemed to control another entity if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the
management and policies of such entity, whether through the ownership
of voting securities, by contract, or otherwise.
"AGENT" means, as the context may require, the Administrative
Agent or the Collateral Agent, and "AGENTS" means any or all of the
foregoing.
"AIG PLEDGE AGREEMENT" means that certain Pledge and Security
Agreement, dated as of January 8, 2003, by and among the Borrower and
the other grantors parties thereto in favor of American Home Assurance
Company, as collateral agent, a copy of which is attached hereto as
Exhibit L, as amended, restated, supplemented or otherwise modified
from time to time.
"ALTERNATE BASE RATE" means, for any day, a rate per annum
equal to the greater of (a) the Prime Rate in effect on such day, (b)
1/2 of one percent above the CD Rate, and (c) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%. Any change in the
Alternate Base Rate due to a change in the Prime Rate, the CD Rate or
the Federal Funds Effective Rate shall be effective from and including
the effective date of such change in the Prime Rate, CD Rate or the
Federal Funds Effective Rate, respectively.
"APPLICABLE LENDING OFFICE" means, with respect to each
Lender, at the address specified for such Lender on its signature page
to this Agreement or in the Lender Assignment pursuant to which it
became a Lender, as applicable, or at any office, branch, subsidiary or
affiliate of such Lender specified in a notice received by the
Administrative Agent and the Borrower from such Lender.
"APPLICABLE MARGIN" means, on any date of determination with
respect to any Loans, the per annum rate specified in the table below
for such Loans:
- -------------------------------------------------------------
Applicable Margin
- -------------------------------------------------------------
ABR Loans 4.50%
- -------------------------------------------------------------
Eurodollar
Rate Loans 5.50%
- -------------------------------------------------------------
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"APPLICABLE RATE" means:
(i) in the case of each ABR Loan, a rate per
annum equal at all times to the sum of the Alternate Base Rate
in effect from time to time plus the Applicable Margin; and
(ii) in the case of each Eurodollar Rate Loan
comprising part of the same Borrowing, a rate per annum during
each Interest Period equal at all times to the sum of the
Adjusted LIBO Rate for such Interest Period plus the
Applicable Margin.
"ARRANGER" means Citigroup Capital Markets, Inc.
"AVAILABLE COMMITMENT" means, for each Lender on any day, the
unused portion of such Lender's Commitment, computed after giving
effect to all Extensions of Credit or prepayments to be made on such
day and the application of proceeds therefrom. "AVAILABLE COMMITMENTS"
means the aggregate of the Lenders' Available Commitments.
"BOARD" means the Board of Governors of the Federal Reserve
System of the United States of America.
"BOND CASH COLLATERAL ACCOUNT" is defined in Section
5.01(c)(ii).
"BORROWING" means a borrowing consisting of Loans of the same
Type, having the same Interest Period and made or Converted on the same
day by the Lenders, ratably in accordance with their respective
Percentages. Any Borrowing consisting of Loans of a particular Type may
be referred to as being a Borrowing of such "TYPE". All Loans of the
same Type, having the same Interest Period and made or Converted on the
same day shall be deemed a single Borrowing hereunder until repaid or
next Converted.
"BUSINESS DAY" means a day of the year on which banks are not
required or authorized to close in New York City and Detroit, Michigan,
and, if the applicable Business Day relates to any Eurodollar Rate
Loan, on which dealings are carried on in the London interbank market.
"CASH DIVIDEND INCOME" means, for any period, the amount of
all cash dividends received by CMS Energy from its Subsidiaries during
such period that are paid out of the net income or loss (without giving
effect to: any extraordinary gains in excess of $25,000,000, the amount
of any write-off or write-down of assets, including, without
limitation, write-offs or write-downs related to the sale of assets,
impairment of assets and loss on contracts, in each case in accordance
with GAAP consistently applied, and up to $200,000,000 of other
non-cash write-offs) of such Subsidiaries during such period.
"CD RATE" means the latest three-week moving average of
secondary market morning offering rates in the United States for
three-month certificates of deposit of major United States money market
banks, such three-week moving average being determined weekly on each
Monday (or, if such day is not a Business Day, on the next
3
succeeding Business Day) for the three-week period ending on the
previous Friday by Citibank on the basis of such rates reported by
certificate of deposit dealers to and published by the Federal Reserve
Bank of New York or, if such publication shall be suspended or
terminated, on the basis of quotations for such rates received by
Citibank from three New York certificate of deposit dealers of
recognized standing selected by Citibank, in either case, adjusted to
the nearest 1/16 of one percent or, if there is no nearest 1/16 of one
percent, to the next higher 1/16 of one percent.
"CHANGE OF CONTROL" means (a) any "person" or "group" within
the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act shall
become the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the then outstanding voting capital
stock of CMS Energy, or (b) the majority of the board of directors of
CMS Energy shall fail to consist of Continuing Directors, or (c) a
consolidation or merger of CMS Energy shall occur after which the
holders of the outstanding voting capital stock of CMS Energy
immediately prior thereto hold less than 50% of the outstanding voting
capital stock of the surviving entity, (d) more than 50% of the
outstanding voting capital stock of CMS Energy shall be transferred to
any entity of which CMS Energy owns less than 50% of the outstanding
voting capital stock, or (e) CMS Energy shall cease to own, directly or
indirectly, 80% of the then outstanding voting capital stock of the
Borrower.
"CITIBANK" means Citibank, N.A., a national banking
association.
"CITIGROUP PARTIES" means Citibank, CUSA, Citigroup Capital
Markets, Inc. and each of their respective Affiliates, and each of
their respective officers, directors, employees, agents, advisors, and
representatives.
"CLOSING DATE" means April 21, 2003.
"CMS ENERGY CREDIT AGREEMENT" means that certain $409,000,000
Second Amended and Restated Credit Agreement, dated as of March 30,
2003, by and among CMS Energy, the Banks and the Agents, as the same
may be amended, restated, supplemented or otherwise modified from time
to time.
"CMS ENERGY INTEREST EXPENSE" means at any date, the total
interest expense in respect of Debt of CMS Energy for the four calendar
quarters immediately preceding such date, including, without
duplication, (i) interest expense attributable to capital leases, (ii)
amortization of debt discount, (iii) capitalized interest, (iv) cash
and noncash payments, (v) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, (vi) net costs under interest rate swap, "cap", "collar" or
other hedging agreements (including amortization of discount) and (vii)
interest expense in respect of obligations of Persons deemed to be Debt
of CMS Energy under clause (ix) of the definition of Debt, provided,
however that CMS Energy Interest Expense shall exclude any costs
otherwise included in interest expense recognized on early retirement
of debt.
4
"COLLATERAL" means all property and interests in property now
owned or hereafter acquired by any Loan Party upon which a Lien is
granted under any of the Loan Documents.
"COMBINED OBLIGATIONS" means the sum of all of the Obligations
hereunder and all of the "Obligations" under (and as defined in) the
Enterprises 2003-A Credit Agreement.
"COMMITMENT" means, for each Lender, the obligation of such
Lender to make Loans to the Borrower prior to the Commitment
Termination Date in an aggregate amount no greater than the amount set
forth opposite such Lender's name on the Commitment Schedule under the
heading "Commitment" or, if such Lender has entered into one or more
Lender Assignments, set forth for such Lender in the Register
maintained by the Administrative Agent pursuant to Section 10.07(c), in
each such case as such amount may be reduced from time to time pursuant
to Section 2.03. "COMMITMENTS" means the total of the Lenders'
Commitments hereunder. As of the Closing Date the aggregate of all of
the Lenders' Commitments equals $75,000,000.
"COMMITMENT FEE MARGIN" means a per annum rate equal to the
sum of the Adjusted LIBO Rate for such Interest Period plus 5.50%.
"COMMITMENT SCHEDULE" means the Schedule identifying each
Lender's Commitment as of the Closing Date attached hereto and
identified as such.
"COMMITMENT TERMINATION DATE" means the earlier of (i) the
Conversion Date, (ii) the date of delivery of any Notice to Convert,
and (iii) the date of termination or reduction in whole of the
Commitments pursuant to Section 2.03 or 8.02.
"COMMUNICATIONS" is defined in Section 10.15.
"CONFIDENTIAL INFORMATION" has the meaning assigned to that
term in Section 10.08.
"CONSOLIDATED DEBT" means, without duplication, as determined
on a consolidated basis in accordance with GAAP, at any date of
determination, the sum of the aggregate Debt of CMS Energy plus the
aggregate debt (as such term is construed in accordance with GAAP) of
the Consolidated Subsidiaries; provided, however, that:
(a) Consolidated Debt shall not include any
Support Obligation described in clause (iv) or (v) of the
definition thereof if such Support Obligation or the primary
obligation so supported is not fixed or conclusively
determined or is not otherwise reasonably quantifiable as of
the date of determination;
(b) Consolidated Debt shall not include (i) any
Junior Subordinated Debt owned by any Hybrid Preferred
Securities Subsidiary or (ii) any guaranty by CMS Energy of
payments with respect to any Hybrid Preferred Securities,
provided that such guaranty is subordinated to the rights of
the Lenders hereunder and under the other Loan Documents
pursuant to terms of subordination
5
substantially similar to those set forth in Exhibit H, or
pursuant to other terms and conditions satisfactory to the
Required Lenders;
(c) for purposes of this definition only, the
percentage of the Net Proceeds from any issuance of hybrid
debt/equity securities (other than Junior Subordinated Debt
and Hybrid Preferred Securities) by CMS Energy or any
Consolidated Subsidiary that shall be considered Consolidated
Debt shall be agreed by the Arranger and CMS Energy (and
consented to by the Required Lenders) and shall be based on,
among other things, the treatment (if any) given to such
hybrid securities by the rating agencies;
(d) with respect to any Support Obligations
provided by CMS Energy in connection with a purchase or sale
by MS&T or its Subsidiaries of natural gas, natural gas
liquids, gas condensates, electricity, oil, propane, coal, any
other commodity, weather derivatives or any derivative
instrument with respect to any commodity with any other Person
(a "COUNTERPARTY"), Consolidated Debt shall include only the
excess, if any, of (A) the aggregate amount of any Support
Obligations provided by CMS Energy in respect of MS&T's or any
of its Subsidiary's obligations under any such purchase or
sale transaction (a "COVERING TRANSACTION") entered into by
MS&T or any of its Subsidiaries in connection with such
purchase or sale over (B) the aggregate amount of (i) any
Support Obligations provided by the direct or indirect parent
company of such Counterparty (the "COUNTERPARTY GUARANTOR")
and (ii) any irrevocable letter of credit provided by any
financial institution for the account of such Counterparty or
Counterparty Guarantor, in each case for the benefit of MS&T
or any of its Subsidiaries in support of such Counterparty's
payment obligations to MS&T or such Subsidiary arising from
such purchase or sale, provided that (x) the senior,
unsecured, non-credit enhanced indebtedness of such
Counterparty Guarantor or such financial institution (as the
case may be) is rated BBB- (or its equivalent) or higher by
any two of S&P, Fitch and Moody's, provided that in the event
that such Counterparty Guarantor has no such rated
indebtedness, Dun & Bradstreet Inc. has rated such
Counterparty Guarantor at least investment grade, (y) no
default by such Counterparty Guarantor in respect of any such
Support Obligations provided by such Counterparty Guarantor
has occurred and is continuing and (z) such Counterparty
Guarantor is not CMS Energy or any Affiliate of CMS Energy or
any of its Subsidiaries;
(e) Consolidated Debt shall not include any
Project Finance Debt of CMS Energy or any Consolidated
Subsidiary; and
(f) Consolidated Debt shall not include the
principal amount of any Securitized Bonds.
"CONSOLIDATED EBITDA" means, with reference to any period, the
pretax operating income of CMS Energy and its Subsidiaries ("PRETAX
OPERATING INCOME") for such period plus, to the extent deducted in
determining Pretax Operating Income (without duplication), (i)
depreciation, depletion and amortization, and (ii) any non-cash
6
write-offs and write-downs contained in CMS Energy's Pretax Operating
Income, including, without limitation, write-offs or write-downs
related to the sale of assets, impairment of assets and loss on
contracts, in each case in accordance with GAAP consistently applied,
all calculated for CMS Energy and its Subsidiaries on a consolidated
basis for such period; provided, however that Consolidated EBITDA shall
not include any operating income attributable to that portion of the
revenues of Consumers dedicated to the repayment of the Securitized
Bonds.
"CONSOLIDATED SUBSIDIARY" means any Subsidiary whose accounts
are or are required to be consolidated with the accounts of CMS Energy
in accordance with GAAP.
"CONSUMERS" means Consumers Energy Company, a Michigan
corporation, all of whose common stock is on the Closing Date owned by
CMS Energy.
"CONSUMERS CREDIT FACILITY" means, collectively, Consumer's
existing (i) $300,000,000 term loan facility, (ii) $150,000,000 term
loan B facility, (iii) $140,000,000 term loan facility and (iv)
$250,000,000 revolving loan facility, as in effect on the date hereof.
"CONSUMERS DIVIDEND RESTRICTION" means any restriction enacted
or imposed after October 1, 1992 upon the ability of Consumers to pay
cash dividends to CMS Energy in respect of Consumers' capital stock,
whether such restriction is imposed by statute, regulation, decisions
or rulings by the Michigan Public Service Commission or the Federal
Energy Regulatory Commission (or any successor agency or agencies),
final judgments of any court of competent jurisdiction, indentures,
agreements, contracts or restrictions to which Consumers is a party or
by which it is bound or otherwise; provided, that no restriction on
such dividends existing on October 1, 1992 shall be a Consumers
Dividend Restriction at any time.
"CONTINUING DIRECTOR" means, as of any date of determination,
any member of the board of directors of CMS Energy who (a) was a member
of such board of directors on the Closing Date, or (b) was nominated
for election or elected to such board of directors with the approval of
the Continuing Directors who were members of such board of directors at
the time of such nomination or election; provided that an individual
who is so elected or nominated in connection with a merger,
consolidation, acquisition or similar transaction shall not be a
Continuing Director unless such individual was a Continuing Director
prior thereto.
"CONVERSION", "CONVERT" or "CONVERTED" refers to a conversion
of Loans of one Type into Loans of another Type, or to the selection of
a new, or the renewal of the same, Interest Period for Loans, as the
case may be, pursuant to Section 3.02 or 3.03.
"CONVERSION DATE" is defined in Section 2.01(b).
"DEBT" means, for any Person, without duplication, any and all
indebtedness, liabilities and other monetary obligations of such Person
(whether for principal, interest, fees, costs, expenses or otherwise,
and whether contingent or otherwise) (i) for borrowed money or
evidenced by bonds, debentures, notes or other similar instruments,
(ii) to pay
7
the deferred purchase price of property or services (except trade
accounts payable arising in the ordinary course of business which are
not overdue), (iii) as lessee under leases which shall have been or
should be, in accordance with GAAP, recorded as capital leases, (iv)
under reimbursement or similar agreements with respect to letters of
credit issued thereunder (except reimbursement obligations and letters
of credit that are cash collateralized), (v) under any interest rate
swap, "cap", "collar" or other hedging agreements; provided, however,
for purposes of the calculation of Debt for this clause (v) only, the
actual amount of Debt of such Person shall be determined on a net basis
to the extent such agreements permit such amounts to be calculated on a
net basis, (vi) to pay rent or other amounts under leases entered into
in connection with sale and leaseback transactions involving assets of
such Person being sold in connection therewith, (vii) arising from any
accumulated funding deficiency (as defined in Section 412(a) of the
Internal Revenue Code of 1986, as amended) for a Plan, (viii) arising
in connection with any withdrawal liability under ERISA to any
Multiemployer Plan and (ix) arising from (A) direct or indirect
guaranties in respect of, and obligations to purchase or otherwise
acquire, or otherwise to warrant or hold harmless, pursuant to a
legally binding agreement, a creditor against loss in respect of, Debt
of others referred to in clauses (i) through (viii) above and (B) other
guaranty or similar financial obligations in respect of the performance
of others, including Support Obligations. Notwithstanding the
foregoing, solely for purposes of the calculation required under
Section 7.01(j)(ii), Debt shall not include any Junior Subordinated
Debt issued by CMS Energy and owned by any Hybrid Preferred Securities
Subsidiary.
"DEBT FOR BORROWED MONEY" means, for any Person, without
duplication, the sum of (i) Debt of such Person described in clause (i)
of the definition of "Debt", plus (ii) all obligations of such Person
with respect to receivables sold or otherwise discounted with recourse,
plus (iii) all Project Finance Debt entered into by such Person on or
after the Closing Date (other than Project Finance Debt incurred
substantially contemporaneously with the acquisition or construction of
the assets securing such Project Finance Debt), but shall exclude (a)
notes, bills and checks presented in the ordinary course of business by
such Person to banks for collection or deposit, (b) with respect to CMS
Energy and its Subsidiaries, all obligations of CMS Energy and its
Subsidiaries of the character referred to in this definition to the
extent owing to CMS Energy or any of its Subsidiaries, (c) with respect
to Panhandle and its Subsidiaries, refinancings of Debt of Panhandle
and its Subsidiaries existing as of the Closing Date, and Debt incurred
or collateral delivered on or after the Closing Date with respect to
any Support Obligations of Panhandle or its Subsidiaries existing as of
the Closing Date, and (d) refinancings of Debt existing as of the
Closing Date or incurred after the Closing Date in accordance with this
Agreement, as applicable, to the extent such refinancing Debt is
otherwise permitted under this Agreement.
"DEFAULT" means an event that, with the giving of notice or
lapse of time or both, would constitute an Event of Default.
"DEFAULT RATE" means a rate per annum equal at all times to
(i) in the case of any amount of principal of any Loan that is not paid
when due, 2% per annum above the Applicable Rate required to be paid on
such Loan immediately prior to the date on which
8
such amount became due, and (ii) in the case of any amount of interest,
fees or other amounts payable hereunder that is not paid when due, 2%
per annum above the Applicable Rate for an ABR Loan in effect from time
to time.
"DESIGNATED PREPAYMENT" means each mandatory prepayment
required by clauses (i), (ii), (iii) and (iv) of Section 2.03(c).
"DIVIDEND COVERAGE RATIO" means, at any date, the ratio of (i)
Pro Forma Dividend Amounts to (ii) CMS Energy Interest Expense.
"DOLLARS" and the sign "$" each means lawful money of the
United States.
"ELIGIBLE BANKS" means each of Merrill Lynch Bank USA and
Deutsche Bank Trust Company Americas.
"ENTERPRISES 2003-A CREDIT AGREEMENT" means that certain
Credit Agreement, dated as of March 30, 2003, by and among the
Borrower, CMS Energy, as a loan party, the lenders from time to time
parties thereto and the Agents, as the same may be amended, restated,
supplemented or otherwise modified from time to time.
"ENTERPRISES SIGNIFICANT SUBSIDIARY" means CMS Generation Co.,
CMS Gas Transmission Company, Panhandle, any direct or indirect
subsidiary of Panhandle and any other direct subsidiary of the Borrower
having a net worth in excess of $50,000,000.
"ENVIRONMENTAL LAWS" means all laws, rules, regulations,
codes, ordinances, orders, decrees, judgments, injunctions, notices or
binding agreements issued, promulgated or entered into by any
governmental agency or authority, relating in any way to the
environment, preservation or reclamation of natural resources, the
management, release or threatened release of any Hazardous Substance or
to health and safety matters.
"ENVIRONMENTAL LIABILITY" means any liability, contingent or
otherwise (including any liability for damages, costs of environmental
remediation, fines, penalties or indemnities), of CMS Energy or any of
its Subsidiaries directly or indirectly resulting from or based upon
(a) violation of any Environmental Law, (b) the generation, use,
handling, transportation, storage, treatment or disposal of any
Hazardous Substances, (c) exposure to any Hazardous Substances, (d) the
release or threatened release of any Hazardous Substances into the
environment or (e) any contract, agreement or other consensual
arrangement pursuant to which liability is assumed or imposed with
respect to any of the foregoing.
"EQUITY DISTRIBUTIONS" means, for any period, the aggregate
amount of cash received by CMS Energy from its Subsidiaries during such
period that are paid out of proceeds from the sale of common equity of
Subsidiaries of CMS Energy.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
9
"ERISA AFFILIATE" means, with respect to any Person, any trade
or business (whether or not incorporated) that is a member of a
commonly controlled trade or business under Sections 414(b), (c), (m)
and (o) of the Internal Revenue Code of 1986, as amended.
"EURODOLLAR", when used in reference to any Loan or Borrowing,
refers to whether such Loan, or the Loans comprising such Borrowing,
are bearing interest at a rate determined by reference to the Adjusted
LIBO Rate.
"EURODOLLAR RATE LOAN" means a Loan that bears interest as
provided in Section 3.05(b)(ii).
"EVENT OF DEFAULT" is defined in Section 8.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXTENSION OF CREDIT" means the making of a Borrowing
(including any Conversion).
"FAIR MARKET VALUE" means, with respect to any asset, the
value of the consideration obtainable in a sale of such asset in the
open market, assuming a sale by a willing seller to a willing purchaser
dealing at arm's length and arranged in an orderly manner over a
reasonable period of time, each having reasonable knowledge of the
nature and characteristics of such asset, neither being under any
compulsion to act, and, if in excess of $50,000,000, as determined in
good faith by the Board of Directors of CMS Energy.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the
weighted average (rounded upwards, if necessary, to the next 1/100 of
1%) of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day that
is a Business Day, the average (rounded upwards, if necessary, to the
next 1/100 of 1%) of the quotations for such day for such transactions
received by the Administrative Agent from three Federal funds brokers
of recognized standing selected by it.
"FEE LETTER" is defined in Section 2.02(c).
"FITCH" means Fitch, Inc. or any successor thereto.
"FOREIGN LENDER" means any Lender that is organized under the
laws of a jurisdiction other than that in which the Borrower is
located. For purposes of this definition, the United States of America,
each State thereof and the District of Columbia shall be deemed to
constitute a single jurisdiction.
"FOREIGN SUBSIDIARY" is defined in Section 7.01(l).
"GAAP" is defined in Section 1.03.
10
"GOVERNMENTAL APPROVAL" means any authorization, consent,
approval, license, permit, certificate, exemption of, or filing or
registration with, any governmental authority or other legal or
regulatory body, required in connection with (i) the execution,
delivery, or performance of any Loan Document by any Loan Party, (ii)
the grant and perfection of any Lien in favor of the Collateral Agent
contemplated by the Loan Documents, or (iii) the exercise by any Agent
(on behalf of the Lenders) of any right or remedy provided for under
the Loan Documents.
"GRANTOR(S)" means each Guarantor and each of the following
Subsidiaries of the Borrower: CMS Capital, L.L.C., a Michigan limited
liability company, CMS Electric & Gas, L.L.C. (formerly known as CMS
Electric and Gas Company), a Michigan limited liability company, MS&T,
CMS International Ventures, L.L.C., a Michigan limited liability
company, CMS Field Services, Inc., a Michigan corporation, Dearborn
Industrial Energy, L.L.C., a Michigan limited liability company,
Dearborn Industrial Generation, L.L.C., a Michigan limited liability
company, CMS Generation Michigan Power L.L.C., a Michigan limited
liability company, CMS Gas Processing, L.L.C., an Oklahoma limited
liability company, CMS Natural Gas Gathering, L.L.C., an Oklahoma
limited liability company and CMS Field Services Holdings Company, an
Oklahoma corporation; provided that it is understood that none of the
Grantors (other than CMS Energy) shall grant Liens to secure the
Obligations unless and until the Intercreditor Agreement (Enterprises
Facility) shall be effective.
"GUARANTOR" means CMS Energy, CMS Generation Co., a Michigan
corporation, CMS Gas Transmission Company, a Michigan corporation, and
each other Restricted Subsidiary (excluding Panhandle and its
Subsidiaries) that has delivered, or shall be obligated to deliver, a
guaranty under and pursuant to the terms of Section 7.01(l).
"GUARANTY" means that certain Amended and Restated Guaranty
(and any and all supplements thereto) executed from time to time by
each Guarantor in favor of the Collateral Agent for the benefit of
itself and the Lenders, in substantially the form of Exhibit I attached
hereto, as amended, restated, supplemented or otherwise modified from
time to time.
"HAZARDOUS SUBSTANCE" means any waste, substance, or material
identified as hazardous, dangerous or toxic by any office, agency,
department, commission, board, bureau, or instrumentality of the United
States or of the State or locality in which the same is located having
or exercising jurisdiction over such waste, substance or material.
"HYBRID PREFERRED SECURITIES" means any preferred securities
issued by a Hybrid Preferred Securities Subsidiary, where such
preferred securities have the following characteristics:
(i) such Hybrid Preferred Securities Subsidiary
lends substantially all of the proceeds from the issuance of
such preferred securities to CMS Energy or a wholly-owned
direct or indirect Subsidiary of CMS Energy in exchange for
Junior Subordinated Debt issued by CMS Energy or such
wholly-owned direct or indirect Subsidiary, respectively;
11
(ii) such preferred securities contain terms
providing for the deferral of interest payments corresponding
to provisions providing for the deferral of interest payments
on the Junior Subordinated Debt; and
(iii) CMS Energy or a wholly-owned direct or
indirect Subsidiary of CMS Energy (as the case may be) makes
periodic interest payments on the Junior Subordinated Debt,
which interest payments are in turn used by the Hybrid
Preferred Securities Subsidiary to make corresponding payments
to the holders of the preferred securities.
"HYBRID PREFERRED SECURITIES SUBSIDIARY" means any Delaware
business trust (or similar entity) (i) all of the common equity
interest of which is owned (either directly or indirectly through one
or more wholly-owned Subsidiaries of CMS Energy or Consumers) at all
times by CMS Energy or a wholly-owned direct or indirect Subsidiary of
CMS Energy, (ii) that has been formed for the purpose of issuing Hybrid
Preferred Securities and (iii) substantially all of the assets of which
consist at all times solely of Junior Subordinated Debt issued by CMS
Energy or a wholly-owned direct or indirect Subsidiary of CMS Energy
(as the case may be) and payments made from time to time on such Junior
Subordinated Debt.
"INDEMNIFIED PERSON" is defined in Section 10.04(b).
"INDENTURE" means that certain Indenture, dated as of
September 15, 1992, between CMS Energy and the Trustee, as supplemented
by the First Supplemental Indenture, dated as of October 1, 1992, the
Second Supplemental Indenture, dated as of October 1, 1992, the Third
Supplemental Indenture, dated as of May 6, 1997, the Fourth
Supplemental Indenture, dated as of September 26, 1997, the Fifth
Supplemental Indenture, dated as of November 4, 1997, the Sixth
Supplemental Indenture, dated as of January 13, 1998, the Seventh
Supplemental Indenture, dated as of January 25, 1999, the Eighth
Supplemental Indenture, dated as of February 3, 1999, the Ninth
Supplemental Indenture, dated as of June 22, 1999, the Tenth
Supplemental Indenture, dated as of October 12, 2000, the Eleventh
Supplemental Indenture, dated as of March 29, 2001, and the Twelfth
Supplemental Indenture, dated as of July 2, 2001, as said Indenture may
be further amended or otherwise modified from time to time in
accordance with its terms.
"INTERCREDITOR AGREEMENT (CMS ENERGY FACILITY)" means that
certain Intercreditor and Lien Subordination Agreement, dated as of
January 8, 2003, by and among Citicorp USA, Inc., as senior collateral
agent, American Home Assurance Company, individually and as junior
collateral agent, and St. Paul Fire and Marine Insurance Company,
individually, a copy of which is attached hereto as Exhibit M, as
amended, restated, supplemented or otherwise modified from time to
time.
"INTERCREDITOR AGREEMENT (ENTERPRISES FACILITY)" means an
intercreditor and lien subordination agreement by and among the
Collateral Agent and the other parties to the AIG Pledge Agreement in
respect of the subordination of the Collateral Agent's Liens on certain
assets of the Grantors to the prior Liens under the AIG Pledge
Agreement, in form
12
and substance reasonably acceptable to the Agents, as amended,
restated, supplemented or otherwise modified from time to time.
"INTEREST PERIOD" is defined in Section 3.03.
"JUNIOR SUBORDINATED DEBT" means any unsecured Debt of CMS
Energy or a Subsidiary of CMS Energy (i) issued in exchange for the
proceeds of Hybrid Preferred Securities and (ii) subordinated to the
rights of the Lenders hereunder and under the other Loan Documents
pursuant to terms of subordination substantially similar to those set
forth in Exhibit G, or pursuant to other terms and conditions
satisfactory to the Required Lenders.
"LENDER ASSIGNMENT" is defined in Section 10.07(e).
"LENDERS" means the Bank listed on the signature pages hereof,
together with any Eligible Bank.
"LIBO RATE" means, with respect to any Eurodollar Borrowing
for any Interest Period, the greater of (i) 2.00% per annum and (ii)
the rate appearing on Page 3750 of the Telerate Service (or on any
successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to
those currently provided on such page of such Service, as determined by
the Administrative Agent from time to time for purposes of providing
quotations of interest rates applicable to dollar deposits in the
London interbank market) at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest Period, as the
rate for dollar deposits with a maturity comparable to such Interest
Period. In the event that such rate is not available at such time for
any reason, then the "LIBO RATE" with respect to such Eurodollar
Borrowing for such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such Interest
Period are offered by the principal London office of the Administrative
Agent in immediately available funds in the London interbank market at
approximately 11:00 a.m., London time, two Business Days prior to the
commencement of such Interest Period.
"LIEN" is defined in Section 7.02(a).
"LOAN" means a loan by a Lender to the Borrower, and refers to
an ABR Loan or a Eurodollar Rate Loan (each of which shall be a "TYPE"
of Loan). All Loans by a Lender of the same Type having the same
Interest Period and made or Converted on the same day shall be deemed
to be a single Loan by such Lender until repaid or next Converted.
"LOAN DOCUMENTS" means this Agreement, any Promissory Notes,
the Fee Letter, the Guaranty, the Pledge Agreements, any account
control agreement in respect of the Bond Cash Collateral Account, and
all other agreements, instruments and documents now or hereafter
executed and/or delivered pursuant hereto or thereto.
"LOAN PARTY" is defined in Section 5.01(a)(i).
13
"MATERIAL ADVERSE CHANGE" means any event, development or
circumstance that has had or could reasonably be expected to have a
material adverse effect on (a) the business, assets, property,
financial condition, results of operations or prospects of CMS Energy
and its Subsidiaries, considered as a whole, (b) the Borrower's and the
Guarantors' ability, taken as a whole, to perform their obligations
under this Agreement or any other Loan Document to which it is or will
be a party or (c) the validity or enforceability of any Loan Document
or the rights or remedies of any Agent or the Lenders thereunder;
provided that the occurrence of any Restatement Event shall not
constitute a Material Adverse Change.
"MEASUREMENT QUARTER" is defined in Section 7.01(i).
"MOODY'S" means Moody's Investors Service, Inc. or any
successor thereto.
"MS&T" means CMS Marketing, Services and Trading Company, a
Michigan corporation, all of whose capital stock is on the Closing Date
owned by the Borrower.
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA.
"NET PROCEEDS" means, with respect to any sale, assignment or
other disposition of (but not the lease or license of) any property, or
with respect to any sale or issuance of securities or incurrence of
Debt, by any Person, gross cash proceeds received by such Person or any
Subsidiary of such Person from such sale, assignment, disposition,
issuance or incurrence (including cash received as consideration for
the assumption or incurrence of liabilities incurred in connection with
or in anticipation of such transaction) after (i) provision for all
income or other taxes measured by or resulting from such transaction,
(ii) payment of all customary underwriting commissions, auditing and
legal fees, printing costs, rating agency fees and other customary and
reasonable fees and expenses incurred by such Person in connection with
such transaction, (iii) all amounts used to repay Debt (and any premium
or penalty thereon) secured by a Lien on any asset disposed of in such
sale, assignment or other disposition or which is or may be required
(by the express terms of the instrument governing such Debt or by
applicable law) to be repaid in connection with such sale, assignment,
or other disposition, and (iv) deduction of appropriate amounts to be
provided by such Person or a Subsidiary of such Person as a reserve, in
accordance with GAAP consistently applied, against any liabilities
associated with the assets sold, transferred or disposed of in such
transaction and retained by such Person or a Subsidiary of such Person
after such transaction, provided that "Net Proceeds" shall include on a
dollar-for-dollar basis all amounts remaining in such reserve after
such liability shall have been satisfied in full or terminated;
provided, however, that notwithstanding the foregoing, "Net Proceeds"
shall exclude (a) any amounts received or deemed to be received by CMS
Energy for the purchase of CMS Energy's capital stock in connection
with CMS Energy's dividend reinvestment program and (b) amounts
received by CMS Energy or any Subsidiary of CMS Energy pursuant to any
transaction with CMS Energy or any Subsidiary of CMS Energy otherwise
permitted hereunder.
14
"NET WORTH" means, with respect to any Person, the excess of
such Person's total assets over its total liabilities, total assets and
total liabilities each to be determined in accordance with GAAP
consistently applied, excluding, however, from the determination of
total assets (i) goodwill, organizational expenses, research and
development expenses, trademarks, trade names, copyrights, patents,
patent applications, licenses and rights in any thereof, and other
similar intangibles, (ii) cash held in a sinking, escrow or other
analogous fund established for the purpose of redemption, retirement or
prepayment of capital stock or Debt, and (iii) any items not included
in clauses (i) or (ii) above, that are treated as intangibles in
conformity with GAAP.
"NOTICE OF BORROWING" is defined in Section 3.01(a).
"NOTICE OF CONVERSION" is defined in Section 3.02.
"NOTICE TO CONVERT" is defined in Section 2.01(b).
"OBLIGATIONS" means all unpaid principal of and accrued and
unpaid interest on the Loans, all accrued and unpaid fees and all
expenses, reimbursements, indemnities and other obligations of the
Borrower and other Loan Parties to any of the Agents, the Arranger, the
Lenders or any other indemnified party arising under the Loan
Documents.
"OECD" means the Organization for Economic Cooperation and
Development.
"OFF-BALANCE SHEET LIABILITY" of a Person shall mean any of
the following obligations not appearing on such Person's consolidated
balance sheet: (i) all lease obligations, leveraged leases, sale and
leasebacks and other similar lease arrangements of such Person, (ii)
any liability under any so called "synthetic lease" or "tax ownership
operating lease" transaction entered into by such Person, and (iii) any
obligation arising with respect to any other transaction if and to the
extent that such obligation is the functional equivalent of borrowing
but that does not constitute a liability on the consolidated balance
sheet of such Person.
"OWNERSHIP INTEREST" of CMS Energy in any Consolidated
Subsidiary means, at any date of determination, the percentage
determined by dividing (i) the aggregate amount of Project Finance
Equity in such Consolidated Subsidiary owned or controlled, directly or
indirectly, by CMS Energy and any other Consolidated Subsidiary on such
date, by (ii) the aggregate amount of Project Finance Equity in such
Consolidated Subsidiary owned or controlled, directly or indirectly, by
all Persons (including CMS Energy and the Consolidated Subsidiaries) on
such date. Notwithstanding anything to the contrary set forth above, if
the "Ownership Interest," calculated as set forth above, is 50% or
less, such percentage shall be deemed to equal 0%.
"PANHANDLE" means Panhandle Eastern Pipe Line Company, a
Delaware corporation, all of whose capital stock is on the Closing Date
owned indirectly by the Borrower.
"PARTICIPANT" is defined in Section 10.07(b).
15
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor entity) established under ERISA.
"PERCENTAGE" means, for any Lender on any date of
determination, (a) prior to the Commitment Termination Date, the
percentage obtained by dividing such Lender's Commitment on such day by
the total of the Lenders' Commitments on such date, and multiplying the
quotient so obtained by 100%, and (b) from and after the Commitment
Termination Date, the percentage obtained by dividing the aggregate
outstanding principal amount of such Lender's Loans on such day by the
total of the Lenders' Loans on such day, and multiplying the quotient
so obtained by 100%.
"PERMITTED INVESTMENTS" means each of the following so long as
no such Permitted Investment shall have a final maturity later than six
months from the date of investment therein:
(i) direct obligations of the United States, or
of any agency thereof, or obligations guaranteed as to
principal and interest by the United States or any agency
thereof;
(ii) certificates of deposit or bankers'
acceptances issued, or time deposits held, or investment
contracts guaranteed, by any Lender, any nationally-recognized
securities dealer or any other commercial bank, trust company,
savings and loan association or savings bank organized under
the laws of the United States, or any State thereof, or of any
other country which is a member of the OECD, or a political
subdivision of any such country, and in each case having
outstanding unsecured indebtedness that (on the date of
acquisition thereof) is rated AA- or better by S&P or Aa3 or
better by Moody's (or an equivalent rating by another
nationally-recognized credit rating agency of similar standing
if neither of such corporations is then in the business of
rating unsecured bank indebtedness);
(iii) obligations with any Lender, any other bank
or trust company described in clause (ii), above, or any
nationally-recognized securities dealer, in respect of the
repurchase of obligations of the type described in clause (i),
above, provided that such repurchase obligations shall be
fully secured by obligations of the type described in said
clause (i) and the possession of such obligations shall be
transferred to, and segregated from other obligations owned
by, such Lender, such other bank or trust company or such
securities dealer;
(iv) commercial paper rated (on the date of
acquisition thereof) A-1 or P-1 or better by S&P or Moody's,
respectively (or an equivalent rating by another
nationally-recognized credit rating agency of similar standing
if neither of such corporations is then in the business of
rating commercial paper);
(v) any eurodollar certificate of deposit issued
by any Lender or any other commercial bank, trust company,
savings and loan association or savings bank organized under
the laws of the United States, or any State thereof, or of any
16
country which is a member of the OECD, or a political
subdivision of any such country, and in each case having
outstanding unsecured indebtedness that (on the date of
acquisition thereof) is rated AA- or better by S&P or Aa3 or
better by Moody's (or an equivalent rating by another
nationally-recognized credit rating agency of similar standing
if neither of such corporations is then in the business of
rating unsecured bank indebtedness); and
(vi) interests in any money market mutual fund
which at the date of investment in such fund has the highest
fund rating by each of Moody's and S&P which has issued a
rating for such fund (which, for S&P, shall mean a rating of
AAAm or AAAmg).
"PERSON" means an individual, partnership, corporation
(including a business trust), joint stock company, limited liability
company, trust, unincorporated association, joint venture or other
entity, or a government or any political subdivision or agency thereof.
"PLAN" means, with respect to any Person, an "employee benefit
plan" as defined in Section 3(3) of ERISA (other than a Multiemployer
Plan) maintained for employees of such Person or any ERISA Affiliate of
such Person that is subject to Title IV of ERISA and has "unfunded
benefit liabilities" as determined under Section 4001(a)(18) of ERISA.
"PLAN TERMINATION EVENT" means, (i) with respect to any Plan,
a "reportable event" within the meaning of Section 4043 of ERISA and
the regulations issued thereunder (other than a "reportable event" not
subject to the provision for 30-day notice to the PBGC under such
regulations or a "reportable event" for which the provision for the
30-day notice to the PBGC under such regulations has been waived), or
(ii) the withdrawal by CMS Energy or any of its ERISA Affiliates from a
Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA resulting in liability to CMS
Energy or any of its ERISA Affiliates under Section 4063 or 4064 of
ERISA, or (iii) the filing of a notice of intent to terminate a Plan or
the termination of a Plan under Section 4041 of ERISA, or (iv) the
institution of proceedings to terminate a Plan by the PBGC, or (v) any
other event or condition which is reasonably likely to constitute
grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan.
"PLATFORM" is defined in Section 10.15
"PLEDGE AGREEMENTS" means each of (i) that certain Amended and
Restated Pledge and Security Agreement, dated as of April 21, 2003, by
and between CMS Energy and the Collateral Agent, in substantially the
form of Exhibit J attached hereto, pursuant to which CMS Energy shall
grant a security interest in the capital stock of Consumers and the
Borrower and a security interest in accounts receivable and notes owed
by the Borrower or any Subsidiary of the Borrower to CMS Energy, and
(ii) that certain Pledge and Security Agreement, dated as of the
effective date of the Intercreditor Agreement (Enterprises Facility),
by and among the Grantors and the Collateral Agent in
17
substantially the form of Exhibit K hereto, pursuant to which such
Grantors shall grant a security interest in the capital stock (or
comparable interest) of each of the Subsidiaries of the Borrower
identified as owned by it on Schedule II hereto and a security interest
in accounts receivable and notes owed by CMS Energy or the Borrower or
any Subsidiary of the Borrower to such Grantor, in each case as the
same may be amended, restated, supplemented or otherwise modified from
time to time.
"PRIMARY WEB PORTAL" is defined in Section 10.15.
"PRIME RATE" means the rate of interest per annum publicly
announced from time to time by Citibank as its base rate in effect at
its principal office in New York City; each change in the Prime Rate
shall be effective from and including the date such change is publicly
announced as being effective.
"PRO FORMA DIVIDEND AMOUNT" means, from and after any date of
any Consumers Dividend Restriction, the sum of (a) the aggregate amount
which Consumers could have paid to CMS Energy during the four calendar
quarters immediately preceding such date had such Consumers Dividend
Restriction been in effect during such quarters plus (b) cash dividends
received by CMS Energy from any other Subsidiary during such quarters.
"PROJECT FINANCE DEBT" means Debt of any Person that is
non-recourse to such Person (unless such Person is a special-purpose
entity) and each Affiliate of such Person, other than with respect to
the interest of the holder of such Debt in the collateral, if any,
securing such Debt.
"PROJECT FINANCE EQUITY" means, at any date of determination,
consolidated equity of the common, preference and preferred
stockholders of CMS Energy and the Consolidated Subsidiaries relating
to any obligor with respect to Project Finance Debt.
"PROMISSORY NOTE" means any promissory note of the Borrower
payable to the order of a Lender (and, if requested, its registered
assigns) issued pursuant to Section 3.01(c); and "PROMISSORY NOTES"
means any or all of the foregoing.
"RECIPIENT" is defined in Section 10.08.
"REGISTER" is defined in Section 10.07(h).
"RELATED PARTIES" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers,
employees, agents and advisors of such Person and such Person's
Affiliates.
"REQUIRED LENDERS" means, on any date of determination,
Lenders that, collectively, on such date (i) hold more than 50% of the
then aggregate unpaid principal amount of the Loans owing to Lenders
and (ii) if no Loans are then outstanding, have Percentages in the
aggregate of more than 50%. Any determination of those Lenders
constituting the Required Lenders shall be made by the Administrative
Agent and shall be conclusive and binding on all parties absent
manifest error.
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"RESTATEMENT" means the restatement of the financial
statements of CMS Energy or its Subsidiaries for any fiscal quarter of
2001, as well as any adjustment of previously announced quarterly
results, but only if made to reflect the restatement of such quarters.
"RESTATEMENT EVENT" means (i) the Restatement, (ii) any
lawsuit or other action previously or hereafter brought against CMS
Energy, any of its Subsidiaries or any of their Affiliates or any
present or former officer or director of CMS Energy, any of its
Subsidiaries or any of their Affiliates involving or arising out of the
Restatement, and any settlement thereof, or other development with
respect thereto, or (iii) the occurrence of any default or event of
default under any indenture, instrument or other agreement or contract,
or the exercise of any remedy in respect thereof, that arises directly
or indirectly as a result of any of the matters described in any of the
foregoing clauses (i) or (ii) or this clause (iii); provided, however,
that, for purposes of the definition of "MATERIAL ADVERSE CHANGE", (a)
the foregoing clause (ii) shall be inapplicable if such lawsuit or
other action, settlement (in an amount in the aggregate together with
all other settlements of such lawsuits or actions) or other development
described in such clause (ii) could reasonably be expected, in each
case, to result in liability to such Person in excess of $6,000,000 and
(b) the foregoing clause (iii) shall be inapplicable if any such event
described in such clause (iii) would constitute an Event of Default
under Section 8.01(e).
"RESTRICTED SUBSIDIARY" means (i) the Borrowers and (ii) any
other Subsidiary of CMS Energy (other than Consumers and its
Subsidiaries) that, on a consolidated basis with any of its
Subsidiaries as of any date of determination, accounts for more than
10% of the consolidated assets of CMS Energy and its Consolidated
Subsidiaries.
"S&P" means Standard & Poor's Ratings Group, a division of The
McGraw Hill Companies, Inc., or any successor thereto.
"SECURITIZED BONDS" means any nonrecourse bonds or similar
asset-backed securities issued by a special-purpose subsidiary of
Consumers which are payable solely from specialized charges authorized
by the utility commission of the relevant state in connection with the
recovery of regulatory assets or other qualified costs.
"6.75% SENIOR NOTES" means CMS Energy's 6.75% Senior Notes due
January 2004, the aggregate outstanding principal amount of which was
equal to $287,025,000 as of February 28, 2003.
"SOLVENT", when used with respect to any Person, means that at
the time of determination:
(i) the fair market value of its assets is in
excess of the total amount of its liabilities (including,
without limitation, net contingent liabilities); and
(ii) it is then able and expects to be able to
pay its debts (including, without limitation, contingent debts
and other commitments) as they mature; and
(iii) it has capital sufficient to carry on its
business as conducted and as proposed to be conducted.
19
For purposes of this definition, the amount of contingent liabilities at any
time shall be computed as the amount that, in light of all the facts and
circumstances known to such Person at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"STATUTORY RESERVE RATE" means a fraction (expressed as a
decimal), the numerator of which is the number one and the denominator
of which is the number one minus the aggregate of the maximum reserve
percentages (including any marginal, special, emergency or supplemental
reserves) expressed as a decimal established by the Board to which the
Administrative Agent is subject for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of the
Board). Such reserve percentages shall include those imposed pursuant
to such Regulation D. Eurodollar Rate Loans shall be deemed to
constitute eurocurrency funding and to be subject to such reserve
requirements without benefit of or credit for proration, exemptions or
offsets that may be available from time to time to any Lender under
such Regulation D or any comparable regulation. The Statutory Reserve
Rate shall be adjusted automatically on and as of the effective date of
any change in any reserve percentage.
"SUBSIDIARY" means, with respect to any Person, any
corporation or unincorporated entity of which more than 50% of the
outstanding capital stock (or comparable interest) having ordinary
voting power (irrespective of whether at the time capital stock (or
comparable interest) of any other class or classes of such corporation
or entity shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by said Person
(whether directly or through one or more other Subsidiaries). In the
case of an unincorporated entity, a Person shall be deemed to have more
than 50% of interests having ordinary voting power only if such
Person's vote in respect of such interests comprises more than 50% of
the total voting power of all such interests in the unincorporated
entity.
"SUPPORT OBLIGATIONS" means, for any Person, without
duplication, any financial obligation, contingent or otherwise, of such
Person guaranteeing or otherwise supporting any Debt or other
obligation of any other Person in any manner, whether directly or
indirectly, and including any obligation of such Person, direct or
indirect (including, but not limited to, letters of credit and surety
bonds in connection therewith), (i) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Debt or to purchase
(or to advance or supply funds for the purchase of) any security for
the payment of such Debt, (ii) to purchase property, securities or
services for the purpose of assuring the owner of such Debt of the
payment of such Debt, (iii) to maintain working capital, equity
capital, available cash or other financial statement condition of the
primary obligor so as to enable the primary obligor to pay such Debt,
(iv) to provide equity capital under or in respect of equity
subscription arrangements (to the extent that such obligation to
provide equity capital does not otherwise constitute Debt), or (v) to
perform, or arrange for the performance of, any non-monetary
obligations or non-funded debt payment obligations of the primary
obligor.
"TAX SHARING AGREEMENT" means the Amended and Restated
Agreement for the Allocation of Income Tax Liabilities and Benefits,
dated as of January 1, 1994, by and
20
among CMS Energy, each of the members of the Consolidated Group (as
defined therein), and each of the corporations that become members of
the Consolidated Group.
"TERMINATION DATE" means the earlier to occur of (i) April 30,
2004 and (ii) the date of termination or reduction in whole of the
Commitments pursuant to Section 2.03 or 8.02.
"TRUSTEE" has the meaning assigned to that term in the
Indenture.
"TYPE" has the meaning assigned to such term (i) in the
definition of "Loan" when used in such context and (ii) in the
definition of "Borrowing" when used in such context.
SECTION 1.02. COMPUTATION OF TIME PERIODS; CONSTRUCTION.
(a) Unless otherwise indicated, each reference in this
Agreement to a specific time of day is a reference to New York City time. In the
computation of periods of time under this Agreement, any period of a specified
number of days or months shall be computed by including the first day or month
occurring during such period and excluding the last such day or month. In the
case of a period of time "from" a specified date "to" or "until" a later
specified date, the word "from" means "from and including" and the words "to"
and "until" each means "to but excluding".
(b) The definitions of terms herein shall apply equally
to the singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes", and "including" shall be deemed
to be followed by the phrase "without limitation". The word "will" shall be
construed to have the same meaning and effect as the word "shall". Unless the
context requires otherwise (i) any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified (subject to any restrictions on such
amendments, supplements or modifications set forth herein), (ii) any reference
herein to any Person shall be construed to include such Person's successors and
assigns, (iii) the words "herein", "hereof" and "hereunder", and words of
similar import, shall be construed to refer to this Agreement in its entirety
and not to any particular provision hereof, (iv) all references herein to
Articles, Sections, Exhibits and Schedules shall be construed to refer to
Articles and Sections of, and Exhibits and Schedules to, this Agreement and (v)
the words "asset" and "property" shall be construed to have the same meaning and
effect and to refer to any and all tangible and intangible assets and
properties, including cash, securities, accounts and contract rights.
SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 6.01(e) ("GAAP"), it being
understood that such financial statements do not reflect the Restatement. If any
changes in generally accepted accounting principles are hereafter required or
permitted and are adopted by CMS Energy or any of its Subsidiaries, or CMS
Energy or any of its Subsidiaries shall change its application of generally
accepted accounting principles with respect to any Off-
21
Balance Sheet Liabilities, in each case, with the agreement of its independent
certified public accountants, and such changes result in a change in the method
of calculation of any of the financial covenants, tests, restrictions or
standards herein or in the related definitions or terms used therein
("ACCOUNTING CHANGES"), the parties hereto agree, at the Borrower's request, to
enter into negotiations, in good faith, in order to amend such provisions in a
credit neutral manner so as to reflect equitably such changes with the desired
result that the criteria for evaluating CMS Energy's and its Subsidiaries'
financial condition shall be the same after such changes as if such changes had
not been made; provided, however, until such provisions are amended in a manner
reasonably satisfactory to the Agents, the Arranger and the Required Lenders, no
Accounting Change shall be given effect in such calculations. In the event such
amendment is entered into, all references in this Agreement to GAAP shall mean
generally accepted accounting principles as of the date of such amendment.
Notwithstanding the foregoing, all financial statements to be delivered by the
Borrower pursuant to Section 7.03 shall be prepared in accordance with generally
accepted accounting principles in effect at such time.
ARTICLE II
COMMITMENTS
SECTION 2.01. THE COMMITMENTS; CONVERSION TO TERM LOAN.
(a) Each Lender severally agrees, on the terms and
conditions hereinafter set forth to make Loans to the Borrower during the period
from the Closing Date until the Commitment Termination Date in an aggregate
outstanding amount not to exceed on any day such Lender's Available Commitment
(after giving effect to all Extensions of Credit to be made on such day and the
application of the proceeds thereof). Within the limits hereinafter set forth,
the Borrower may request Extensions of Credit hereunder, prepay Loans, and use
the resulting increase in the Available Commitments for further Extensions of
Credit in accordance with the terms hereof.
(b) At the Borrower's option prior to June 28, 2003 upon
written notice (a "NOTICE TO CONVERT") to the Administrative Agent (who shall
promptly notify each of the Lenders), or automatically on June 28, 2003 if not
converted prior to such date (such date of conversion being the "CONVERSION
DATE"), the then outstanding aggregate principal amount of the Loans hereunder
shall be converted to a term loan. Any Notice to Convert shall expressly state
the applicable Conversion Date and shall be irrevocable once given. The Borrower
shall be deemed to have represented and warranted that the conditions contained
in Section 5.03 have been satisfied as of the date of any Notice to Convert.
Upon delivery of such Notice to Convert (or if no such Notice to Convert is
given, upon the automatic Conversion Date described above), (i) the Borrower's
option to borrow and reborrow Loans shall terminate, (ii) the aggregate of the
Lenders' Commitments shall be reduced to zero, and (iii) the outstanding
principal balance of all Loans hereunder shall be due and payable on the
Termination Date. All references in this Agreement to Loans shall include such
Loans as converted hereunder.
SECTION 2.02. FEES.
(a) The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a commitment fee equal to the product of
(i) the average daily amount of such
22
Lender's Available Commitment from the Closing Date, in the case of each Bank,
and from the effective date specified in the Lender Assignment pursuant to which
it became a Lender, in the case of each other Lender, until the Commitment
Termination Date multiplied by (ii) the Commitment Fee Margin in effect as of
the date upon which such fee is payable. Such fees shall be payable quarterly in
arrears on the last day of each March, June, September and December, commencing
the first such date to occur following the Closing Date, and on the Commitment
Termination Date.
(b) In addition to the fees provided for in subsection
(a) above, the Borrower shall pay to the Administrative Agent, for the account
of CUSA and the other Persons entitled thereto, such other fees as are provided
for in that certain letter agreement, dated April 21, 2003 among the Borrower,
CMS Energy, the Agents, the Arranger and the other parties thereto (the "FEE
LETTER"), in the amounts and at the times specified therein.
SECTION 2.03. REDUCTION OF THE COMMITMENTS; MANDATORY PREPAYMENTS.
(a) The Borrower may (and shall provide notice thereof to
the Administrative Agent not later than 10:00 a.m. (New York City time) on the
date of termination or reduction, and the Administrative Agent shall promptly
distribute copies thereof to the Lenders) terminate in whole or reduce ratably
in part the unused portions of the Commitments; provided that any such partial
reduction shall be in the aggregate amount of $5,000,000 or an integral multiple
of $1,000,000 in excess thereof.
(b) Upon the occurrence of a Change of Control the
Commitments shall be reduced to zero and the principal amount outstanding
hereunder, all interest thereon and all other amounts payable under this
Agreement and the other Loan Documents shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower.
(c) The Borrower shall make the following mandatory
prepayments:
(i) Promptly and in any event within 3 Business Days
after CMS Energy's or any of its Subsidiaries' receipt of any Net
Proceeds from the sale or issuance of equity securities, the Borrower
shall make or cause to be made a mandatory prepayment of the
Obligations in an amount equal to one hundred percent (100%) of such
Net Proceeds;
(ii) Promptly and in any event within 3 Business Days
after CMS Energy's or any of its Subsidiaries' receipt of any Net
Proceeds from the incurrence of Debt For Borrowed Money, other than (a)
Debt incurred by Consumers or any Subsidiary of Consumers and (b) Debt
giving rise to a Designated Prepayment under clause (iv) below, the
Borrower shall make or cause to be made a mandatory prepayment of the
Obligations in an amount equal to one hundred percent (100%) of such
Net Proceeds; and
(iii) Promptly and in any event within 3 Business Days
after CMS Energy's or any of its Subsidiaries' receipt of any Net
Proceeds from the sale, assignment or other disposition of (but not the
lease or license of) any property, including, without limitation, any
sale of capital stock or other equity interest in any of CMS Energy's
direct or indirect Subsidiaries, in an amount, when combined with the
Net Proceeds of all other such
23
transactions since the Closing Date that have not been applied to the
prepayment of the Obligations in accordance with this clause (iii), in
excess of $10,000,000, the Borrower shall make or cause to be made a
mandatory prepayment of the Obligations in an amount equal to one
hundred percent (100%) of such aggregate Net Proceeds, provided that
such amount shall exclude Net Proceeds arising from (A) any sale,
assignment or other disposition of property by Consumers or any
Subsidiary of Consumers (other than the capital stock of Consumers),
(B) the sale of all or substantially all of the electrical power book
of MS&T and (C) any sale or other disposition by CMS Energy or any of
its Subsidiaries in the ordinary course of business consistent with
past practice, provided, further that any Designated Prepayment under
this clause (iii) arising from the sale or disposition of any
Collateral that is subject to a Lien pursuant to the AIG Pledge
Agreement shall be applied first to prepay the obligations under (and
in accordance with the terms of) the CMS Energy Credit Agreement if an
"Event of Default" under (and as defined in) the AIG Pledge Agreement
arising from the non-compliance with the terms of Section 4.5 of the
AIG Pledge Agreement has occurred and is continuing, or would result
from the transaction giving rise to such Designated Prepayment.
(iv) Promptly, and in any event within 3 Business Days
after the reissuance, remarketing, refinancing or repurchase of each of
CMS Energy's reset put securities due July 1, 2003 and CMS Energy's
general term notes due in 2003 other than with cash collateral required
to be deposited into the Bond Cash Collateral Account pursuant to
Section 5.01(c)(ii), the Borrower shall make or cause to be made a
mandatory prepayment of the Obligations in an amount equal to 100% of
the principal amount of the refinanced, reissued, remarketed or
repurchased obligations.
Nothing in this Section 2.03(c) shall be construed to constitute the Lenders'
consent to any transaction referenced in clauses (i), (ii), (iii) and (iv) above
which is not expressly permitted by Article VII. The Borrower shall give the
Administrative Agent prior written notice or telephonic notice promptly
confirmed in writing (each of which the Administrative Agent shall promptly
transmit to each Lender), when a Designated Prepayment will be made (which date
of prepayment shall be no later than the date on which such Designated
Prepayment becomes due and payable pursuant to this Section 2.03(c)).
If any Designated Prepayment shall be insufficient to pay in full all of the
Combined Obligations then due and payable, then such Designated Prepayment shall
be applied to the payment ratably (without priority of any one over any other)
of the Combined Obligations in proportion to the unpaid principal amount of the
Loans hereunder and the "Loans" under (and as defined in) the Enterprises 2003-A
Credit Agreement. Subject to the preceding sentence, (i) Designated Prepayments
shall be allocated and applied to the outstanding Loans, and shall permanently
reduce on a ratable basis the Commitment of each Lender, and (ii) all Designated
Prepayments shall be applied first to repay outstanding ABR Loans and then to
repay outstanding Eurodollar Rate Loans with those Eurodollar Rate Loans which
have earlier expiring Interest Periods being repaid prior to those which have
later expiring Interest Periods.
SECTION 2.04. COMPUTATIONS OF OUTSTANDINGS. Whenever reference is made
in this Agreement to the principal amount outstanding on any date under this
Agreement, such reference shall refer to the aggregate principal amount of all
Loans outstanding on such date under this
24
Agreement after giving effect to all Extensions of Credit to be made on such
date and the application of the proceeds thereof. At no time shall the principal
amount outstanding under this Agreement exceed the aggregate amount of the
Commitments hereunder. References to the unused portion of the Commitments under
this Agreement shall refer to the excess, if any, of the Commitments hereunder
over the principal amount outstanding hereunder; and references to the unused
portion of any Lender's Commitment under this Agreement shall refer to such
Lender's Percentage of the unused Commitments hereunder.
ARTICLE III
LOANS
SECTION 3.01. LOANS.
(a) The Borrower may request a Borrowing (other than a
Conversion) by delivering a notice (a "NOTICE OF BORROWING") to the
Administrative Agent no later than 12:00 noon (New York City time) on the third
Business Day or, in the case of ABR Loans, on the first Business Day, prior to
the date of the proposed Borrowing. The Administrative Agent shall give each
Lender prompt notice of each Notice of Borrowing. Each Notice of Borrowing shall
be in substantially the form of Exhibit A and shall specify the requested (i)
date of such Borrowing, (ii) Type of Loans to be made in connection with such
Borrowing, (iii) Interest Period, if any, for such Loans and (iv) amount of such
Borrowing. Each proposed Borrowing shall conform to the requirements of Sections
3.03 and 3.04.
(b) Each Lender shall, before 12:00 noon (New York City
time) on the date of such Borrowing, make available for the account of its
Applicable Lending Office to the Administrative Agent at the Administrative
Agent's offices at 2 Penns Way, Suite 200, New Castle, DE 19270, in same day
funds, such Lender's Percentage of such Borrowing. After the Administrative
Agent's receipt of such funds and upon fulfillment of the applicable conditions
set forth in Article V, the Administrative Agent will make such funds available
to the Borrower at the Administrative Agent's aforesaid address. Notwithstanding
the foregoing, unless the Administrative Agent shall have received notice from a
Lender prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's Percentage of such
Borrowing, the Administrative Agent may assume that such Lender has made such
Percentage available to the Administrative Agent on the date of such Borrowing
in accordance with the first sentence of this subsection (b), and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount.
(c) Any Lender may request that Loans made by it be
evidenced by a Promissory Note. In such event, the Borrower shall prepare,
execute and deliver to such Lender a Promissory Note payable to the order of
such Lender (or, if requested by such Lender, to such Lender and its registered
assigns) and in a form approved by the Administrative Agent. Thereafter, the
Loans evidenced by such Promissory Note and interest thereon shall at all times
(including after assignment pursuant to Section 10.07) be represented by one or
more Promissory Notes in such form payable to the order of the payee named
therein (or, if such Promissory Note is a registered note, to such payee and its
registered assigns).
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SECTION 3.02. CONVERSION OF LOANS. The Borrower may from time to time
Convert any Loan (or portion thereof) of any Type to one or more Loans of the
same or any other Type by delivering a notice of such Conversion (a "NOTICE OF
CONVERSION") to the Administrative Agent no later than 12:00 noon (New York City
time) on (x) the third Business Day prior to the date of any proposed Conversion
into a Eurodollar Rate Loan and (y) the first Business Day prior to the date of
any proposed Conversion into an ABR Loan. The Administrative Agent shall give
each Lender prompt notice of each Notice of Conversion. Each Notice of
Conversion shall be in substantially the form of Exhibit B and shall specify (i)
the requested date of such Conversion, (ii) the Type of, and Interest Period, if
any, applicable to, the Loans (or portions thereof) proposed to be Converted,
(iii) the requested Type of Loans to which such Loans (or portions thereof) are
proposed to be Converted, (iv) the requested initial Interest Period, if any, to
be applicable to the Loans resulting from such Conversion and (v) the aggregate
amount of Loans (or portions thereof) proposed to be Converted. Each proposed
Conversion shall be subject to the provisions of Sections 3.03 and 3.04.
SECTION 3.03. INTEREST PERIODS. The period between the date of each
Eurodollar Rate Loan and the date of payment in full of such Loan shall be
divided into successive periods of months ("INTEREST PERIODS") for purposes of
computing interest applicable thereto. The initial Interest Period for each such
Loan shall begin on the day such Loan is made, and each subsequent Interest
Period shall begin on the last day of the immediately preceding Interest Period
for such Loan. The duration of each Interest Period shall be 1, 2, 3, or 6
months, as the Borrower may, in accordance with Section 3.01 or 3.02, select;
provided, however, that:
(i) the Borrower may not select any Interest Period for a
Eurodollar Rate Loan that ends after the Termination Date;
(ii) whenever the last day of any Interest Period would
otherwise occur on a day other than a Business Day, the last day of
such Interest Period shall occur on the next succeeding Business Day,
provided that if such extension would cause the last day of such
Interest Period to occur in the next following calendar month, the last
day of such Interest Period shall occur on the next preceding Business
Day; and
(iii) any Interest Period that commences on the last
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the last calendar month of such
Interest Period) shall end on the last Business Day of the last
calendar month of such Interest Period.
SECTION 3.04. OTHER TERMS RELATING TO THE MAKING AND CONVERSION OF
LOANS.
(a) Notwithstanding anything in Section 3.01 or 3.02 to
the contrary:
(i) each Borrowing shall be in an aggregate amount not
less than $5,000,000, or an integral multiple of $1,000,000 in excess
thereof (or such lesser amount as shall be equal to the total amount of
the Available Commitments on such date, after giving effect to all
other Extensions of Credit to be made on such date), and shall consist
of Loans of the same Type, having the same Interest Period and made or
Converted on the same day by the Lenders ratably according to their
respective Percentages;
26
(ii) the Borrower may request that more than one Borrowing
be made on the same day;
(iii) at no time shall the sum of all Borrowings comprising
Eurodollar Rate Loans outstanding hereunder be greater than ten (10);
(iv) no Eurodollar Rate Loan may be Converted on a date
other than the last day of the Interest Period applicable to such Loan
unless the corresponding amounts, if any, payable to the Lenders
pursuant to Section 4.04(b) are paid contemporaneously with such
Conversion;
(v) if the Borrower shall either fail to give a timely
Notice of Conversion pursuant to Section 3.02 in respect of any Loans
or fail, in any Notice of Conversion that has been timely given, to
select the duration of any Interest Period for Loans to be Converted
into Eurodollar Rate Loans in accordance with Section 3.03, such Loans
shall, on the last day of the then existing Interest Period therefor,
automatically Convert into, or remain as, as the case may be, ABR
Loans; and
(vi) if, on the date of any proposed Conversion, any Event
of Default or Default shall have occurred and be continuing, all Loans
then outstanding shall, on such date, automatically Convert into, or
remain as, as the case may be, ABR Loans.
(b) If any Lender shall notify the Administrative Agent
that the introduction of or any change in or in the interpretation of any law or
regulation makes it unlawful, or that any central bank or other governmental
authority asserts that it is unlawful, for such Lender or its Applicable Lending
Office to perform its obligations hereunder to make, or to fund or maintain,
Eurodollar Rate Loans hereunder, (i) the obligation of such Lender to make, or
to Convert Loans into, Eurodollar Rate Loans for such Borrowing or any
subsequent Borrowing from such Lender shall be forthwith suspended until the
earlier to occur of the date upon which (A) such Lender shall cease to be a
party hereto and (B) it is no longer unlawful for such Lender to make, fund or
maintain Eurodollar Rate Loans, and (ii) if the maintenance of Eurodollar Rate
Loans then outstanding through the last day of the Interest Period therefor
would cause such Lender to be in violation of such law, regulation or assertion,
the Borrower shall either prepay or Convert all Eurodollar Rate Loans from such
Lender within five days after such notice. Promptly upon becoming aware that the
circumstances that caused such Lender to deliver such notice no longer exist,
such Lender shall deliver notice thereof to the Administrative Agent (but the
failure to do so shall impose no liability upon such Lender). Promptly upon
receipt of such notice from such Lender (or upon such Lender's assigning all of
its Commitment, Loans, participation and other rights and obligations hereunder
pursuant to Section 10.07), the Administrative Agent shall deliver notice
thereof to the Borrower and the Lenders and such suspension shall terminate.
(c) If the Required Lenders shall, at least one Business
Day before the date of any requested Borrowing, notify the Administrative Agent
that the Adjusted LIBO Rate for Eurodollar Rate Loans to be made in connection
with such Borrowing will not adequately reflect the cost to such Required
Lenders of making, funding or maintaining their respective Eurodollar Rate Loans
for such Borrowing, or that they are unable to acquire funding in a reasonable
manner so as to make available Eurodollar Rate Loans in the amount and for the
Interest Period
27
requested, or if the Administrative Agent shall determine that adequate and
reasonable means do not exist to be able to determine the Adjusted LIBO Rate,
then the right of the Borrower to select Eurodollar Rate Loans for such
Borrowing and any subsequent Borrowing shall be suspended until the
Administrative Agent shall notify the Borrower and the Lenders that the
circumstances causing such suspension no longer exist, and each Loan to be made
or Converted in connection with such Borrowing shall be an ABR Loan.
(d) If any Lender shall have delivered a notice to the
Administrative Agent described in Section 3.04(b), and if and so long as such
Lender shall not have withdrawn such notice in accordance with said Section
3.04(b), the Borrower or the Administrative Agent may demand that such Lender
assign in accordance with Section 10.07, to a Lender or, if not then a Lender
hereunder, one or more of the Eligible Banks (each a "REPLACEMENT LENDER"), all
(but not less than all) of such Lender's Commitment, Loans, participation and
other rights and obligations hereunder; provided that any such demand by the
Borrower during the continuance of an Event of Default or Default shall be
ineffective without the consent of the Required Lenders. If, within 30 days
following any such demand by the Administrative Agent or the Borrower, any such
Replacement Lender so designated shall fail to consummate such assignment on
terms reasonably satisfactory to such Lender, or the Borrower and the
Administrative Agent shall have failed to designate any such Replacement Lender,
then such demand by the Borrower or the Administrative Agent shall become
ineffective, it being understood for purposes of this provision that such
assignment shall be conclusively deemed to be on terms reasonably satisfactory
to such Lender, and such Lender shall be compelled to consummate such assignment
forthwith, if such Replacement Lender (i) shall agree to such assignment in
substantially the form of the Lender Assignment attached hereto as Exhibit F and
(ii) shall tender payment to such Lender in an amount equal to the full
outstanding dollar amount accrued in favor of such Lender hereunder (as computed
in accordance with the records of the Administrative Agent), including, without
limitation, all accrued interest and fees and, to the extent not paid by the
Borrower, any payments required pursuant to Section 4.04(b).
(e) Each Notice of Borrowing and Notice of Conversion
shall be irrevocable and binding on the Borrower. In the case of any Borrowing
which the related Notice of Borrowing or Notice of Conversion specifies is to be
comprised of Eurodollar Rate Loans, the Borrower shall indemnify each Lender
against any loss, cost or expense incurred by such Lender as a result of any
failure to fulfill, on or before the date specified in such Notice of Borrowing
or Notice of Conversion for such Borrowing, the applicable conditions (if any)
set forth in this Article III (other than failure pursuant to the provisions of
Section 3.04(b) or (c) hereof) or in Article V, including any such loss
(including loss of anticipated profits), cost or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such
Lender to fund the Loan to be made by such Lender when such Loan, as a result of
such failure, is not made on such date.
SECTION 3.05. REPAYMENT OF LOANS; INTEREST
(a) Principal. The Borrower shall repay the outstanding
principal amount of the Loans on the Termination Date (or such earlier date as
may be required pursuant to Section 2.03).
28
(b) Interest. The Borrower shall pay interest on the
unpaid principal amount of each Loan owing to each Lender from the date of such
Loan until such principal amount shall be paid in full, at the Applicable Rate
for such Loan (except as otherwise provided in this subsection (b)), payable as
follows:
(i) ABR Loans. If such Loan is an ABR Loan, interest
thereon shall be payable quarterly in arrears on the last day of each
March, June, September and December, on the date of any Conversion of
such ABR Loan and on the date such ABR Loan shall become due and
payable or shall otherwise be paid in full; provided that any amount of
principal that is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which
such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the Default Rate.
(ii) Eurodollar Rate Loans. If such Loan is a Eurodollar
Rate Loan, interest thereon shall be payable on the last day of such
Interest Period and, if the Interest Period for such Loan has a
duration of more than three months, on that day of each third month
during such Interest Period that corresponds to the first day of such
Interest Period (or, if any such month does not have a corresponding
day, then on the last day of such month); provided that any amount of
principal that is not paid when due (whether at stated maturity, by
acceleration or otherwise) shall bear interest, from the date on which
such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the Default Rate.
ARTICLE IV
PAYMENTS, COMPUTATIONS AND YIELD PROTECTION
SECTION 4.01. PAYMENTS AND COMPUTATIONS.
(a) The Borrower shall make each payment hereunder and
under the other Loan Documents not later than 2:00 p.m. (New York City time) on
the day when due in Dollars to the Administrative Agent at its offices at 2
Penns Way, Suite 200, New Castle, DE 19270, in same day funds; any payment
received after 3:00 p.m. (New York City time) shall be deemed to have been
received at the start of business on the next succeeding Business Day, unless
the Administrative Agent shall have received from, or on behalf of, the Borrower
a Federal Reserve reference number with respect to such payment before 4:00 p.m.
(New York City time). The Administrative Agent will promptly thereafter cause to
be distributed like funds relating to the payment of principal, interest, fees
or other amounts payable to the Lenders, to the respective Lenders to which the
same are payable, for the account of their respective Applicable Lending
Offices, in each case to be applied in accordance with the terms of this
Agreement. If and to the extent that any distribution of any payment from the
Borrower required to be made to any Lender pursuant to the preceding sentence
shall not be made in full by the Administrative Agent on the date such payment
was received by the Administrative Agent, the Administrative Agent shall pay to
such Lender, upon demand, interest on the unpaid amount of such distribution, at
a rate per annum equal to the Federal Funds Effective Rate, from the date of
such payment by the Borrower to the Administrative Agent to the date of payment
in full by the Administrative Agent to such Lender of such unpaid amount. Upon
the Administrative Agent's acceptance of a Lender
29
Assignment and recording of the information contained therein in the Register
pursuant to Section 10.07, from and after the effective date specified in such
Lender Assignment, the Administrative Agent shall make all payments hereunder
and under any Promissory Notes in respect of the interest assigned thereby to
the Lender assignee thereunder, and the parties to such Lender Assignment shall
make all appropriate adjustments in such payments for periods prior to such
effective date directly between themselves.
(b) The Borrower hereby authorizes the Administrative
Agent and each Lender, if and to the extent payment owed to the Administrative
Agent or such Lender, as the case may be, is not made when due hereunder (or, in
the case of a Lender, under any Promissory Note held by such Lender), to charge
from time to time against any or all of the Borrower's accounts with the
Administrative Agent or such Lender, as the case may be, any amount so due.
(c) All computations of interest based on the Alternate
Base Rate (when the Alternate Base Rate is based on the Prime Rate) shall be
made by the Administrative Agent on the basis of a year of 365 or 366 days, as
the case may be. All other computations of interest and fees hereunder
(including computations of interest based on the Adjusted LIBO Rate and the
Federal Funds Effective Rate) shall be made by the Administrative Agent on the
basis of a year of 360 days. In each such case, such computation shall be made
for the actual number of days (including the first day but excluding the last
day) occurring in the period for which such interest or fees are payable. Each
such determination by the Administrative Agent or a Lender shall be conclusive
and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under any other
Loan Document shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day, and such extension of
time shall in such case be included in the computation of payment of interest
and fees hereunder; provided, however, that if such extension would cause
payment of interest on or principal of Eurodollar Rate Loans to be made in the
next following calendar month, such payment shall be made on the next preceding
Business Day and such reduction of time shall in such case be included in the
computation of payment of interest hereunder.
(e) Unless the Administrative Agent shall have received
notice from the Borrower prior to the date on which any payment is due to the
Lenders hereunder that the Borrower will not make such payment in full, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date, and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Lender on such
due date an amount equal to the amount then due such Lender. If and to the
extent the Borrower shall not have so made such payment in full to the
Administrative Agent, such Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender, together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Administrative
Agent, at the Federal Funds Effective Rate.
(f) Any amount payable by the Borrower hereunder or under
any of the Promissory Notes that is not paid when due (whether at stated
maturity, by acceleration or
30
otherwise) shall (to the fullest extent permitted by law) bear interest, from
the date when due until paid in full, at a rate per annum equal at all times to
the Default Rate, payable on demand.
(g) If at any time insufficient funds are received by and
available to the Administrative Agent to pay fully all amounts of principal,
interest and fees then due hereunder, such funds shall be applied, subject to
Section 4.07, (i) first, toward payment of interest and fees then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
interest and fees then due to such parties, and (ii) second, toward payment of
principal then due hereunder, ratably among the parties entitled thereto.
SECTION 4.02. INTEREST RATE DETERMINATION. The Administrative Agent
shall give prompt notice to the Borrower and the Lenders of the applicable
interest rate determined by the Administrative Agent for purposes of Section
3.05(b)(i) or (ii).
SECTION 4.03. PREPAYMENTS. The Borrower shall have no right to prepay
any principal amount of any Loans other than as provided in subsections (a) and
(b) below.
(a) The Borrower may (and shall provide notice thereof to
the Administrative Agent not later than 10:00 a.m. (New York City time) on the
date of prepayment, and the Administrative Agent shall promptly distribute
copies thereof to the Lenders), and if such notice is given, the Borrower shall,
prepay the outstanding principal amounts of Loans made as part of the same
Borrowing, in whole or ratably in part, together with (i) accrued interest to
the date of such prepayment on the principal amount prepaid and (ii) in the case
of Eurodollar Rate Loans, any amount payable to the Lenders pursuant to Section
4.04(b); provided, however, that each partial prepayment shall be in an
aggregate principal amount of not less than $5,000,000 or an integral multiple
of $1,000,000 in excess thereof.
(b) On the date of any termination or optional or
mandatory reduction of the Commitments pursuant to Section 2.03, the Borrower
shall pay or prepay the principal outstanding on the Loans in full in cash in an
amount equal to the excess of (i) the sum of the aggregate principal amount of
the Loans outstanding (after giving effect to all Extensions of Credit to be
made on such date and the application of the proceeds thereof) over (ii) the
aggregate amount of the Commitments (following such termination or reduction, if
any), together with (x) accrued interest to the date of such prepayment on the
principal amount repaid and (y) in the case of prepayments of Eurodollar Rate
Loans, any amount payable to the Lenders pursuant to Section 4.04(b). Any
payments and prepayments required by this subsection (b) shall be applied to
outstanding ABR Loans up to the full amount thereof before they are applied to
outstanding Eurodollar Rate Loans.
SECTION 4.04. YIELD PROTECTION.
(a) Increased Costs. If, due to either (i) the
introduction of or any change in or in the interpretation of any law or
regulation after the Closing Date, or (ii) the compliance with any guideline or
request from any central bank or other governmental authority (whether or not
having the force of law) issued or made after the Closing Date, there shall be
reasonably incurred any increase in the cost to any Lender of agreeing to make
or making, funding or maintaining Eurodollar Rate Loans, then the Borrower shall
from time to time, upon demand by
31
such Lender (with a copy of such demand to the Administrative Agent), pay to the
Administrative Agent for the account of such Lender additional amounts
sufficient to compensate such Lender for such increased cost. A certificate as
to the amount of such increased cost and giving a reasonable explanation
thereof, submitted to the Borrower and the Administrative Agent by such Lender
shall constitute such demand and shall be conclusive and binding for all
purposes, absent manifest error.
(b) Breakage. If, due to any prepayment pursuant to
Section 4.03, an acceleration of maturity of the Loans pursuant to Section 8.02,
or any other reason, any Lender receives payments of principal of any Eurodollar
Rate Loan other than on the last day of the Interest Period relating to such
Loan or if the Borrower shall Convert any Eurodollar Rate Loans on any day other
than the last day of the Interest Period therefor, or if the Borrower shall fail
to prepay a Eurodollar Rate Loan on the date specified in a notice of
prepayment, the Borrower shall, promptly after demand by such Lender (with a
copy of such demand to the Administrative Agent), pay to the Administrative
Agent for the account of such Lender any amounts required to compensate such
Lender for additional losses, costs, or expenses (including anticipated lost
profits) that such Lender may reasonably incur as a result of such payment,
Conversion or failure to prepay, including any loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such Lender to fund or maintain such Loan. For purposes of this subsection (b),
a certificate setting forth the amount of such additional losses, costs, or
expenses and giving a reasonable explanation thereof, submitted to the Borrower
and the Administrative Agent by such Lender, shall constitute such demand and
shall be conclusive and binding for all purposes, absent manifest error.
(c) Capital. If any Lender determines that (i) compliance
with any law or regulation or any guideline or request from any central bank or
other governmental authority (whether or not having the force of law) affects or
would affect the amount of capital required or expected to be maintained by such
Lender, whether directly, or indirectly as a result of commitments of any Person
controlling such Lender (but without duplication), and (ii) the amount of such
capital is increased by or based upon (A) the existence of such Lender's
commitment to lend hereunder, or (B) the issuance or maintenance of any Loan and
(C) other similar such commitments, then, upon demand by such Lender, the
Borrower shall immediately pay to the Administrative Agent for the account of
such Lender from time to time as specified by such Lender additional amounts
sufficient to compensate such Lender in the light of such circumstances, to the
extent that such Lender reasonably determines such increase in capital to be
allocable to the transactions contemplated hereby. A certificate as to such
amounts and giving a reasonable explanation thereof (to the extent permitted by
law), submitted to the Borrower and the Administrative Agent by such Lender,
shall be conclusive and binding for all purposes, absent manifest error.
(d) Notices. Each Lender hereby agrees to use its best
efforts to notify the Borrower of the occurrence of any event referred to in
subsection (a), (b) or (c) of this Section 4.04 promptly after becoming aware of
the occurrence thereof. The failure of any Lender to provide such notice or to
make demand for payment under said subsection shall not constitute a waiver of
such Lender's rights hereunder; provided that, notwithstanding any provision to
the contrary contained in this Section 4.04, the Borrower shall not be required
to reimburse any Lender for any amounts or costs incurred under subsection (a),
(b) or (c) above, more than 90
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days prior to the date that such Lender notifies the Borrower in writing
thereof, in each case unless, and to the extent that, any such amounts or costs
so incurred shall relate to the retroactive application of any event notified to
the Borrower which entitles such Lender to such compensation. If any Lender
shall subsequently determine that any amount demanded and collected under this
Section 4.04 was done so in error, such Lender will promptly return such amount
to the Borrower.
(e) Survival of Obligations. Subject to subsection (d)
above, the Borrower's obligations under this Section 4.04 shall survive the
repayment of all other amounts owing to the Lenders and the Agents under the
Loan Documents and the termination of the Commitments. If and to the extent that
the obligations of the Borrower under this Section 4.04 are unenforceable for
any reason, the Borrower agrees to make the maximum contribution to the payment
and satisfaction thereof which is permissible under applicable law.
SECTION 4.05. SHARING OF PAYMENTS, ETC. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Loans owing to it (other than pursuant
to Section 4.04 or Section 4.06) in excess of its ratable share of payments
obtained by all the Lenders on account of the Loans of such Lenders, such Lender
shall forthwith purchase from the other Lenders such participation in the Loans
owing to them as shall be necessary to cause such purchasing Lender to share the
excess payment ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share (according to the
proportion of (i) the amount of such Lender's required repayment to (ii) the
total amount so recovered from the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 4.05 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
Notwithstanding the foregoing, if any Lender shall obtain any such excess
payment involuntarily, such Lender may, in lieu of purchasing participations
from the other Lenders in accordance with this Section 4.05, on the date of
receipt of such excess payment, return such excess payment to the Administrative
Agent for distribution in accordance with Section 4.01(a).
SECTION 4.06. TAXES.
(a) All payments by the Borrower hereunder and under the
other Loan Documents shall be made in accordance with Section 4.01, free and
clear of and without deduction for all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding, in the case of each Lender and each Agent, taxes imposed on its
overall net income, and franchise taxes imposed on it by the jurisdiction under
the laws of which such Lender or Agent (as the case may be) is organized or any
political subdivision thereof and, in the case of each Lender, taxes imposed on
its overall net income, and franchise taxes imposed on it by the jurisdiction of
such Lender's Applicable Lending Office or any political subdivision thereof
(all such non-excluded taxes, levies, imposts, deductions,
33
charges, withholdings and liabilities being hereinafter referred to as "TAXES").
If the Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder or under any other Loan Document to any Lender or
Agent, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 4.06) such Lender or Agent (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
(b) In addition, the Borrower agrees to pay any present
or future stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder or under
any other Loan Document or from the execution, delivery or registration of, or
otherwise with respect to, this Agreement or any other Loan Document
(hereinafter referred to as "OTHER TAXES").
(c) The Borrower will indemnify each Lender and Agent for
the full amount of Taxes and Other Taxes (including any Taxes and any Other
Taxes imposed by any jurisdiction on amounts payable under this Section 4.06)
paid by such Lender or Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
This indemnification shall be made within thirty (30) days from the date such
Lender or Agent (as the case may be) makes written demand therefor; provided,
that such Lender or Agent (as the case may be) shall not be entitled to demand
payment under this Section 4.06 for an amount if such demand is not made within
one year following the date upon which such Lender or Agent (as the case may be)
shall have been required to pay such amount.
(d) Within thirty (30) days after the date of any payment
of Taxes, the Borrower will furnish to the Administrative Agent, at its address
referred to in Section 10.02, the original or a certified copy of a receipt
evidencing payment thereof.
(e) Each Bank represents and warrants that either (i) it
is organized under the laws of a jurisdiction within the United States or (ii)
it has delivered to the Borrower or the Administrative Agent duly completed
copies of such form or forms prescribed by the United States Internal Revenue
Service indicating that such Bank is entitled to receive payments without
deduction or withholding of any United States federal income taxes, as permitted
by the Internal Revenue Code of 1986, as amended. Each other Lender agrees that,
on or prior to the date upon which it shall become a party hereto, and upon the
reasonable request from time to time of the Borrower or the Administrative
Agent, such Lender will deliver to the Borrower and the Administrative Agent (to
the extent that it is not prohibited by law from doing so) either (A) a
statement that it is organized under the laws of a jurisdiction within the
United States or (B) duly completed copies of such form or forms as may from
time to time be prescribed by the United States Internal Revenue Service,
indicating that such Lender is entitled to receive payments without deduction or
withholding of any United States federal income taxes, as permitted by the
Internal Revenue Code of 1986, as amended. Each Bank that has delivered, and
each other Lender that hereafter delivers, to the Borrower and the
Administrative Agent the form or forms referred to in the two preceding
sentences further undertakes to deliver to the Borrower and the
34
Administrative Agent, to the extent that it is not prohibited by law from doing
so, further copies of such form or forms, or successor applicable form or forms,
as the case may be, as and when any previous form filed by it hereunder shall
expire or shall become incomplete or inaccurate in any respect. Each Lender
represents and warrants that each such form supplied by it to the Administrative
Agent and the Borrower pursuant to this subsection (e), and not superseded by
another form supplied by it, is or will be, as the case may be, complete and
accurate.
SECTION 4.07. APPORTIONMENT OF PAYMENTS.
(a) Subject to the provisions of Section 2.03 and Section
4.07(b), all payments of principal and interest in respect of outstanding Loans,
all payments of fees and all other payments in respect of any other Obligations
hereunder, shall be allocated among such of the Lenders as are entitled thereto,
ratably or otherwise as expressly provided herein. Except as provided in Section
4.07(b) with respect to payments and proceeds of Collateral received after the
occurrence of an Event of Default, all such payments and any other amounts
received by the Administrative Agent from or for the benefit of the Borrower
shall be applied
(i) first, to pay principal of and interest on any
portion of the Loans which the Administrative Agent may have advanced
on behalf of any Lender other than CUSA for which the Administrative
Agent has not then been reimbursed by such Lender or the Borrower,
(ii) second, to pay interest on the Loans and then the
principal of the Loans, in each case, then due and payable (in the
order described hereinbelow),
(iii) third, to pay all other Obligations of any Loan Party
under any Loan Document then due and payable, ratably, and
(iv) fourth, as the Borrower so designates.
All such principal and interest payments in respect of the Loans shall be
applied first to repay outstanding ABR Loans and then to repay outstanding
Eurodollar Rate Loans with those Eurodollar Rate Loans which have earlier
expiring Interest Periods being repaid prior to those which have later expiring
Interest Periods
(b) During the continuance of an Event of Default and
after declaration thereof by written notice from the Administrative Agent to the
Borrower, the Administrative Agent shall apply all payments in respect of any
Loans, and the Collateral Agent shall deliver all proceeds of Collateral to the
Administrative Agent for application, in the following order:
(i) first, to pay principal of and interest on any
portion of the Loans which the Administrative Agent may have advanced
on behalf of any Lender other than CUSA for which the Administrative
Agent has not then been reimbursed by such Lender or the Borrower;
(ii) second, to pay any fees, expense reimbursements or
indemnities then due to the Agents under any of the Loan Documents;
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(iii) third, to pay ratably any fees, expense
reimbursements or indemnities then due to the Lenders under any of the
Loan Documents;
(iv) fourth, to pay interest due in respect of the Loans
ratably in accordance with the Lenders' respective Percentages;
(v) fifth, to the ratable payment or prepayment of
principal outstanding on all Loans;
(vi) sixth, to the ratable payment of all other
Obligations of the Loan Parties then outstanding under the Loan
Documents.
Notwithstanding the foregoing, the Collateral Agent shall apply the proceeds of
any voluntary sale of Collateral that is subject to a Lien pursuant to the AIG
Pledge Agreement to prepay the obligations under (and in accordance with the
terms of) the CMS Energy Credit Agreement if an "Event of Default" under (and as
defined in) the AIG Pledge Agreement arising from the noncompliance with the
terms of Section 4.5 of the AIG Pledge Agreement has occurred and is continuing,
or would result from the transaction giving rise to such proceeds. If proceeds
of Collateral shall be insufficient to pay in full all of the Combined
Obligations then due and payable, then such proceeds of Collateral shall be
applied to the payment ratably (without priority of any one over any other) of
the Combined Obligations in proportion to the unpaid principal amount of the
Loans hereunder and the "Loans" under (and as defined in) the Enterprises 2003-A
Credit Agreement. The order of priority set forth in this Section 4.07(b) and
the related provisions of this Agreement are set forth solely to determine the
rights and priorities of the Agents and the Lenders as among themselves.
SECTION 4.08. Proceeds of Collateral. During the continuance of an
Event of Default and after declaration thereof by written notice from the
Administrative Agent to the Borrower, the Borrower shall cause all proceeds of
Collateral to be deposited pursuant to arrangements for the collection of such
amounts established by the Borrower, the Administrative Agent (or the Collateral
Agent, as applicable) and the "Administrative Agent" (or the "Collateral Agent",
as applicable) under (and as defined in) the Enterprises 2003-A Credit Agreement
for application pursuant to Section 4.07 (other than proceeds in respect of
Collateral that is subject to a Lien pursuant to the AIG Pledge Agreement if an
"Event of Default" under (and as defined in) the AIG Pledge Agreement arising
from the non-compliance with the terms of Section 4.5 of the AIG Pledge
Agreement has occurred and is continuing, or would result from the transaction
giving rise to such proceeds, which proceeds shall then be applied to prepay the
obligations under (and in accordance with the terms of) the CMS Energy Credit
Agreement). All collections of proceeds of Collateral which are received
directly by the Borrower or any Subsidiary of the Borrower shall be deemed to
have been received by the Borrower or such Subsidiary of the Borrower as the
Collateral Agent's trustee and, during the continuance of an Event of Default
and after declaration thereof by written notice from the Administrative Agent to
the Borrower, upon the Borrower's or such Subsidiary's receipt thereof, the
Borrower shall immediately transfer or cause to be transferred all such amounts
to the Administrative Agent and to the "Administrative Agent" under (and as
defined in) the Enterprises 2003-A Credit Agreement, as applicable, ratably in
proportion to the unpaid principal amount of the Loans hereunder and the "Loans"
under (and as defined in) the Enterprises 2003-A Credit Agreement for
application
36
pursuant to Section 4.07 (other than proceeds in respect of Collateral that is
subject to a Lien pursuant to the AIG Pledge Agreement if an "Event of Default"
under (and as defined in) the AIG Pledge Agreement arising from the
non-compliance with the terms of Section 4.5 of the AIG Pledge Agreement has
occurred and is continuing, or would result from the transaction giving rise to
such proceeds, which proceeds shall then be applied to prepay the obligations
under (and in accordance with the terms of) the CMS Energy Credit Agreement).
All other proceeds of Collateral received by the Collateral Agent and/or the
Administrative Agent, whether through direct payment or otherwise, will be
deemed received by such Agent, will be the sole property of such Agent, and will
be held by such Agent, for the benefit of the Lenders and the "Lenders" under
(and as defined in) the Enterprises 2003-A Credit Agreement for application
pursuant to Section 4.07 (other than proceeds in respect of Collateral that is
subject to a Lien pursuant to the AIG Pledge Agreement if an "Event of Default"
under (and as defined in) the AIG Pledge Agreement arising from the
non-compliance with the terms of Section 4.5 of the AIG Pledge Agreement has
occurred and is continuing, or would result from the transaction giving rise to
such proceeds, which proceeds shall then be applied to prepay the obligations
under (and in accordance with the terms of) the CMS Energy Credit Agreement).
ARTICLE V
CONDITIONS PRECEDENT
SECTION 5.01. CONDITIONS PRECEDENT TO THE EFFECTIVENESS OF THIS
AGREEMENT. The effectiveness of this Agreement is subject to the fulfillment of
the following conditions precedent:
(a) The Administrative Agent shall have received, on or
before the Closing Date, the following, in form and substance satisfactory to
each Lender (except where otherwise specified below) and (except for any
Promissory Notes) in sufficient copies for each Lender:
(i) Certified copies of the resolutions of the Board of
Directors, or of the Executive Committee of the Board of Directors (or
persons performing similar functions), of the Borrower, each Guarantor
and each other Grantor (each a "LOAN PARTY") authorizing each such Loan
Party to enter into each Loan Document to which it is, or is to be, a
party, and of all documents evidencing other necessary corporate or
other action and Governmental Approvals, if any, with respect to each
such Loan Document.
(ii) A certificate of the Secretary or an Assistant
Secretary of each Loan Party certifying the names, true signatures and
incumbency of (A) the officers of such Loan Party authorized to sign
the Loan Documents to which it is, or is to be, a party, and the other
documents to be delivered hereunder and thereunder and (B) the
representatives of such Loan Party authorized to sign notices to be
provided under the Loan Documents to which it is, or is to be, a party,
which representatives shall be acceptable to the Administrative Agent.
(iii) Copies of the Certificate of Incorporation and
by-laws (or comparable constitutive documents) of each Loan Party,
together with all amendments thereto, certified by the Secretary or an
Assistant Secretary of each such Loan Party.
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(iv) Good Standing Certificates (or other similar
certificate) for each of the Loan Parties, issued by the Secretary of
State of the jurisdiction of organization of each such Loan Party as of
a recent date.
(v) The Guaranty, duly executed by each Guarantor.
(vi) The Pledge Agreement described in clause (i) of the
definition of "Pledge Agreements", duly executed by CMS Energy.
(vii) A certified copy of Schedule I hereto, in form and
substance reasonably satisfactory to the Administrative Agent setting
forth:
(A) all Project Finance Debt of the Consolidated
Subsidiaries, together with the Borrower's Ownership Interest
in each such Consolidated Subsidiary, as of February 28, 2003;
and
(B) debt (as such term is construed in
accordance with GAAP) of the Loan Parties as of February 28,
2003.
(viii) Favorable opinions of:
(A) Belinda Foxworth, Esq., Deputy General
Counsel of the Borrower and counsel for the other Loan
Parties, in substantially the form of Exhibit C and as to such
other matters as the Required Lenders, through the
Administrative Agent, may reasonably request; and
(B) Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel to the Loan Parties in substantially the form
of Exhibit D and as to such other matters as the
Administrative Agent may reasonably request.
(b) The following statements shall be true and the
Administrative Agent shall have received a certificate of a duly authorized
officer of the Borrower, dated the Closing Date and in sufficient copies for
each Lender stating that:
(i) the representations and warranties set forth in
Section 6.01 of this Agreement are true and correct on and as of the
Closing Date as though made on and as of such date,
(ii) no event has occurred and is continuing that
constitutes a Default or an Event of Default, and
(iii) all Governmental Approvals necessary in connection
with the Loan Documents and the transactions contemplated thereby have
been obtained and are in full force and effect, and all third party
approvals necessary or advisable in connection with the Loan Documents
and the transactions contemplated thereby have been obtained and are in
full force and effect, other than filings necessary to create or
perfect security interests in the Collateral or as may be required
under applicable energy, antitrust or
38
securities laws in connection with the exercise of remedies with
respect to certain Collateral.
(c) The Borrower shall have paid all fees under or
referenced in Section 2.02 and all expenses referenced in Section 10.04(a), in
each case, to the extent then due and payable.
(d) The Administrative Agent shall have received evidence
satisfactory to it that:
(i) all financing statements relating to the Collateral
have been completed for filing or recording and/or filed, and all
certificates representing capital stock or other ownership interests
included in the Collateral have been delivered to the Collateral Agent
(with duly executed stock powers); and
(ii) the Borrower has deposited cash into a cash
collateral account (the "BOND CASH COLLATERAL ACCOUNT") in respect of
which the Collateral Agent shall have a first priority security
interest, which cash collateral shall be used as further described in
Section 7.01(n).
SECTION 5.02. CONDITIONS PRECEDENT TO EACH EXTENSION OF CREDIT. The
obligation of each Lender to make an Extension of Credit (including the initial
Extension of Credit, but excluding the Conversion of a Eurodollar Rate Loan into
an ABR Loan) shall be subject to the further conditions precedent that, on the
date of such Extension of Credit and after giving effect thereto:
(a) The following statements shall be true (and each of
the giving of the applicable notice or request with respect thereto and the
making of such Extension of Credit without prior correction by the Borrower
shall (to the extent that such correction has been previously consented to by
the Lenders) constitute a representation and warranty by the Borrower that, on
the date of such Extension of Credit, such statements are true):
(i) the representations and warranties contained in
Section 6.01 of this Agreement (other than those contained in
subsections (e)(iii) and (f) thereof) are correct on and as of the date
of such Extension of Credit, before and after giving effect to such
Extension of Credit and to the application of the proceeds thereof, as
though made on and as of such date; and
(ii) no Default or Event of Default has occurred and is
continuing, or would result from such Extension of Credit or the
application of the proceeds thereof.
(b) The Administrative Agent shall have received such
other approvals, opinions and documents as any Lender, through the
Administrative Agent, may reasonably request as to the legality, validity,
binding effect or enforceability of the Loan Documents or the business, assets,
property, financial condition, results of operations or prospects of CMS Energy
and its Consolidated Subsidiaries.
SECTION 5.03. CONDITIONS PRECEDENT TO CERTAIN EXTENSIONS OF CREDIT.
The obligation of each Lender to make an Extension of Credit (including the
initial Extension of Credit) that
39
would (after giving effect to all Extensions of Credit on such date and the
application of proceeds thereof) increase the principal amount outstanding
hereunder, shall be subject to the further conditions precedent that, on the
date of such Extension of Credit and after giving effect thereto:
(a) the following statements shall be true (and each of
the giving of the applicable notice or request with respect thereto and the
making of such Extension of Credit without prior correction by the Borrower
shall (to the extent that such correction has been previously consented to by
the Lenders) constitute a representation and warranty by the Borrower that, on
the date of such Extension of Credit, such statements are true):
(i) the representations and warranties contained in
subsections (e)(iii) and (f) of Section 6.01 of this Agreement are
correct on and as of the date of such Extension of Credit, before and
after giving effect to such Extension of Credit and to the application
of the proceeds thereof, as though made on and as of such date; and
(ii) no Default or Event of Default has occurred and is
continuing, or would result from such Extension of Credit or the
application of the proceeds thereof; and
(b) the Administrative Agent shall have received such
other approvals, opinions and documents as any Lender, through the
Administrative Agent, may reasonably request.
SECTION 5.04. RELIANCE ON CERTIFICATES. The Lenders and each Agent
shall be entitled to rely conclusively upon the certificates delivered from time
to time by officers of the Borrower as to the names, incumbency, authority and
signatures of the respective persons named therein until such time as the
Administrative Agent may receive a replacement certificate, in form acceptable
to the Administrative Agent, from an officer of such Person identified to the
Administrative Agent as having authority to deliver such certificate, setting
forth the names and true signatures of the officers and other representatives of
such Person thereafter authorized to act on behalf of such Person.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants as follows:
(a) Each of CMS Energy, Consumers and each of the
Restricted Subsidiaries is duly organized, validly existing and in good standing
under the laws of the state of its organization and is duly qualified to do
business in, and is in good standing in, all other jurisdictions where the
nature of its business or the nature of property owned or used by it makes such
qualification necessary.
(b) The execution, delivery and performance by each Loan
Party of each Loan Document to which it is or will be a party (i) are within
such Loan Party's powers, (ii) have been duly authorized by all necessary
corporate or other organizational action or proceedings and (iii) do not and
will not (A) require any consent or approval of the stockholders (or other
applicable holder of equity) of such Loan Party (other than such consents and
approvals which have been
40
obtained and are in full force and effect), (B) violate any provision of the
charter or by-laws (or other comparable constitutive documents) of such Loan
Party or of law, (C) violate any legal restriction binding on or affecting such
Loan Party, (D) result in a breach of, or constitute a default under, any
indenture or loan or credit agreement or any other agreement, lease or
instrument to which such Loan Party is a party or by which it or its properties
may be bound or affected, or (E) result in or require the creation of any Lien
(other than pursuant to the Loan Documents and pursuant to the "Loan Documents"
as defined in each of the Enterprises 2003-A Credit Agreement and the CMS Energy
Credit Agreement) upon or with respect to any of its respective properties.
(c) No Governmental Approval is required, other than
filings necessary to create or perfect security interests in the Collateral or
as may be required under applicable energy, antitrust or securities laws in
connection with the exercise of remedies with respect to certain Collateral.
(d) Each Loan Document executed on the Closing Date is,
and each other Loan Document to which any Loan Party will be a party when
executed and delivered hereunder will (i) where applicable, create valid and,
upon filing of the financing statements delivered on the Closing Date and
described in Section 5.01(c)(i), perfected Liens in the Collateral covered
thereby securing the payment of all of the Loans purported to be secured
thereby, which Liens (x) with respect to all Collateral subject to a Lien under
the AIG Pledge Agreement shall be perfected Liens from and after the effective
date of the Intercreditor Agreement (Enterprises Facility) and (y) with respect
to all other Collateral shall be pari-passu with any Liens thereon in favor of
the collateral agents under each of the Enterprises 2003-A Credit Agreement and
the CMS Energy Credit Agreement, and (ii) be, legal, valid and binding
obligations of such Loan Party enforceable against such Loan Party in accordance
with their respective terms; subject to the qualification, however, that the
enforcement of the rights and remedies herein and therein is subject to
bankruptcy and other similar laws of general application affecting rights and
remedies of creditors and the application of general principles of equity
(regardless of whether considered in a proceeding in equity or at law).
(e) (i) The consolidated balance sheets of CMS Energy and
its Consolidated Subsidiaries as at December 31, 2001 and December 31, 2002, and
the related consolidated statements of income, retained earnings and cash flows
of CMS Energy and its Consolidated Subsidiaries for the fiscal years then ended,
included in CMS Energy's Annual Report on Form 10-K for the fiscal years ended
December 31, 2001 and December 31, 2002, in each case as such financial
statements are proposed to be restated in connection with the Restatement,
copies of each of which have been furnished to each Lender, fairly present the
financial condition of CMS Energy and its Consolidated Subsidiaries as at such
dates and the results of operations of CMS Energy and its Consolidated
Subsidiaries for the periods ended on such dates (it being understood that such
financial statements do not give effect to any Restatement Event), all in
accordance with generally accepted accounting principles consistently applied
(except for changes resulting from any Restatement Event); (ii) the consolidated
balance sheets of Consumers and its consolidated Subsidiaries as at December 31,
2001 and December 31, 2002, and the related consolidated statements of income,
retained earnings and cash flows of Consumers and its consolidated Subsidiaries
for the fiscal years then ended, included in CMS Energy's Annual Report on Form
10-K for the fiscal years ended December 31, 2001 and
41
December 31, 2002, in each case as such financial statements are proposed to be
restated in connection with the Restatement, copies of each of which have been
furnished to each Lender, fairly present the financial condition of Consumers
and its consolidated Subsidiaries as at such dates and the results of operations
of Consumers and its consolidated Subsidiaries for the periods ended on such
dates (it being understood that such financial statements do not give effect to
any Restatement Event), all in accordance with generally accepted accounting
principles consistently applied (except for changes resulting from any
Restatement Event); (iii) since December 31, 2002, except as disclosed in CMS
Energy's Annual Report on Form 10-K for the fiscal year ended December 31, 2002,
there has been no Material Adverse Change; and (iv) except as a result of any
Restatement Event, no Loan Party has any material liabilities or obligations
except as reflected in the foregoing financial statements and in Schedule I, as
evidenced by the Loan Documents and as may be incurred, in accordance with the
terms of this Agreement, in the ordinary course of business (as presently
conducted) following the Closing Date.
(f) Except (i) as disclosed in CMS Energy's Annual
Report on Form 10-K for the fiscal year ended December 31, 2002, and (ii) such
other similar actions, suits and proceedings predicated on the occurrence of the
same events giving rise to any actions, suits and proceedings described in the
Annual Report filed with the Securities and Exchange Commission set forth in
clause (i) above (all such matters in clauses (i) and (ii) being the "Disclosed
Matters") and (iii) any Restatement Event, there are no pending or threatened
actions, suits or proceedings against or, to the knowledge of CMS Energy,
affecting CMS Energy or any of its Subsidiaries or the properties of CMS Energy
or any of its Subsidiaries before any court, governmental agency or arbitrator,
that would, if adversely determined, reasonably be expected to materially
adversely affect the financial condition, properties, business or operations of
CMS Energy and its Subsidiaries, considered as a whole, or affect the legality,
validity or enforceability of this Agreement or any other Loan Document. There
have been no adverse developments with respect to the Disclosed Matters that
have had or could reasonably be expected to result in a Material Adverse Change.
(g) All insurance required by Section 7.01(b) is in full
force and effect.
(h) No Plan Termination Event has occurred nor is
reasonably expected to occur with respect to any Plan of CMS Energy or any of
its ERISA Affiliates which would result in a material liability to CMS Energy,
except as disclosed and consented to by the Required Lenders in writing from
time to time. Except as disclosed in CMS Energy's Annual Report on Form 10-K for
the period ended December 31, 2002, since the date of the most recent Schedule B
(Actuarial Information) to the annual report of CMS Energy (Form 5500 Series),
if any, there has been no material adverse change in the funding status of the
Plans referred therein and no "prohibited transaction" has occurred with respect
thereto which is reasonably expected to result in a material liability to CMS
Energy. Neither CMS Energy nor any of its ERISA Affiliates has incurred nor
reasonably expects to incur any material withdrawal liability under ERISA to any
Multiemployer Plan, except as disclosed and consented to by the Required Lenders
in writing from time to time.
(i) No fire, explosion, accident, strike, lockout or
other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of
the public enemy or other casualty (except for any such circumstance, if any,
which is covered by insurance which coverage has been
42
confirmed and not disputed by the relevant insurer) affecting the properties,
business or operations of CMS Energy, Consumers or any Restricted Subsidiary has
occurred that could reasonably be expected to have a material adverse effect on
the business, assets, property, financial condition, results of operations or
prospects of (A) CMS Energy and its Subsidiaries, considered as a whole, or (B)
Consumers and its Subsidiaries, considered as a whole.
(j) CMS Energy and its Subsidiaries have filed all tax
returns (Federal, state and local) required to be filed and paid all taxes shown
thereon to be due, including interest and penalties, or, to the extent CMS
Energy or any of its Subsidiaries is contesting in good faith an assertion of
liability based on such returns, has provided adequate reserves for payment
thereof in accordance with GAAP.
(k) No extraordinary judicial, regulatory or other legal
constraints exist which limit or restrict Consumers' ability to declare or pay
cash dividends with respect to its capital stock, other than pursuant to the
Consumers Credit Facility.
(l) CMS Energy owns not less than 80% of the outstanding
shares of common stock of the Borrower.
(m) CMS Energy owns not less than 80% of the outstanding
shares of common stock of Consumers.
(n) The Consolidated 2002-2007 Projections of Consumers,
CMS Energy and the Borrower (the "PROJECTIONS") are based upon assumptions that
CMS Energy believed were reasonable at the time the Projections were delivered,
and all other financial information delivered by the Borrower to the
Administrative Agent and the Banks on and after March 30, 2003 is true and
correct in all material respects as at the dates and for the periods indicated
therein (it being understood that such Projections and financial information do
not give effect to any Restatement Event).
(o) No Loan Party is engaged in the business of extending
credit for the purpose of buying or carrying margin stock (within the meaning of
Regulation U issued by the Board), and no proceeds of any Loan will be used to
buy or carry any margin stock or to extend credit to others for the purpose of
buying or carrying any margin stock.
(p) No Loan Party is an investment company (within the
meaning of the Investment Company Act of 1940, as amended).
(q) No proceeds of any Extension of Credit will be used
to acquire any security in any transaction without the approval of the board of
directors of the Person issuing such security if (i) the acquisition of such
security would cause CMS Energy to own, directly or indirectly, 5.0% or more of
any outstanding class of securities issued by such Person, or (ii) such security
is being acquired in connection with a tender offer.
(r) Following application of the proceeds of each
Extension of Credit, not more than 25 percent of the value of the assets of the
Borrower and its Subsidiaries on a consolidated basis will be margin stock
(within the meaning of Regulation U issued by the Board).
43
(s) No Loan Party is a registered "holding company" or a
"subsidiary" or an "affiliate" of a registered "holding company," as such terms
are defined in the Public Utility Holding Company Act of 1935, as amended, 15
USC 79 et seq.
(t) The Borrower has not withheld any fact from the
Administrative Agent or the Lenders in regard to the occurrence of any Material
Adverse Change.
(u) After giving effect to the Loans to be made on the
Closing Date or such other date as Loans requested hereunder are made, and the
disbursement of the proceeds of such Loans pursuant to the Borrower's
instructions, CMS Energy and its Subsidiaries, taken as a whole, are Solvent.
(v) Schedule I sets forth as of February 28, 2003 (i) all
Project Finance Debt of the Consolidated Subsidiaries, and (ii) debt (as such
term is construed in accordance with GAAP) of the Loan Parties, and, as of the
Closing Date, there are no defaults in the payment of principal or interest on
any such Debt and no payments thereunder have been deferred or extended beyond
their stated maturity (except as disclosed on such Schedule).
ARTICLE VII
COVENANTS OF THE BORROWER
SECTION 7.01. AFFIRMATIVE COVENANTS. So long as any Loan or any
other amount payable hereunder or under any Promissory Note shall remain unpaid,
or any Lender shall have any Commitment:
(a) Payment of Taxes, Etc. CMS Energy shall pay and
discharge, and each of its Subsidiaries shall pay and discharge, before the same
shall become delinquent, all taxes, assessments and governmental charges,
royalties or levies imposed upon it or upon its property except, in the case of
taxes, to the extent CMS Energy or any Subsidiary, as the case may be, is
contesting the same in good faith and by appropriate proceedings and has set
aside adequate reserves for the payment thereof in accordance with GAAP.
(b) Maintenance of Insurance. CMS Energy shall maintain,
and each of its Restricted Subsidiaries and Consumers shall maintain, insurance
covering CMS Energy, each of its Restricted Subsidiaries, Consumers and their
respective properties in effect at all times in such amounts and covering such
risks as is usually carried by companies engaged in similar businesses and
owning similar properties in the same general geographical area in which CMS
Energy, its Restricted Subsidiaries and Consumers operates, either with
reputable insurance companies or, in whole or in part, by establishing reserves
of one or more insurance funds, either alone or with other corporations or
associations.
(c) Preservation of Existence, Etc. Except as otherwise
permitted by Section 7.02, CMS Energy shall preserve and maintain, and each of
its Restricted Subsidiaries and Consumers shall preserve and maintain, its
corporate or limited liability company existence, material rights (statutory and
otherwise) and franchises, and take such other action as may be necessary or
advisable to preserve and maintain its right to conduct its business in the
states where it shall be conducting its business.
44
(d) Compliance with Laws, Etc. CMS Energy shall comply,
and each of its Restricted Subsidiaries and Consumers shall comply, in all
material respects with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, including any such laws,
rules, regulations and orders relating to zoning, environmental protection, use
and disposal of Hazardous Substances, land use, construction and building
restrictions, and employee safety and health matters relating to business
operations.
(e) Inspection Rights. Subject to the requirements of
laws or regulations applicable to CMS Energy or its Subsidiaries, as the case
may be, and in effect at the time, at any time and from time to time upon
reasonable notice, CMS Energy shall permit (i) each Agent and its agents and
representatives to examine and make copies of and abstracts from the records and
books of account of, and the properties of, CMS Energy or any of its
Subsidiaries and (ii) each Agent, each of the Lenders, and their respective
agents and representatives to discuss the affairs, finances and accounts of CMS
Energy and its Subsidiaries with CMS Energy and its Subsidiaries and their
respective officers, directors and accountants. Each such visitation and
inspection described in the preceding sentence by or on behalf of any Lender
shall, unless occurring at a time when a Default or Event of Default shall be
continuing, be at such Lender's expense; all other such inspections and
visitations shall be at the Borrower's expense.
(f) Keeping of Books. From and after December 31, 2002,
CMS Energy shall keep, and each of its Subsidiaries shall keep, proper records
and books of account, in which full and correct entries shall be made of all
financial transactions of CMS Energy and its Subsidiaries and the assets and
business of CMS Energy and its Subsidiaries, in accordance with GAAP (except as
related to the Restatement).
(g) Maintenance of Properties, Etc. CMS Energy shall
maintain, and each of its Restricted Subsidiaries shall maintain, in substantial
conformity with all laws and material contractual obligations, good and
marketable title to all of its properties which are used or useful in the
conduct of its business; provided, however, that the foregoing shall not
restrict the sale of any asset of CMS Energy or any Restricted Subsidiary to the
extent not prohibited by Section 7.02(i). In addition, CMS Energy shall
preserve, maintain, develop, and operate, and each of its Subsidiaries shall
preserve, maintain, develop and operate, in substantial conformity with all laws
and material contractual obligations, all of its material properties which are
used or useful in the conduct of its business in good working order and
condition, ordinary wear and tear excepted.
(h) Use of Proceeds. The Borrower shall use all
Extensions of Credit for general corporate purposes (subject to the terms and
conditions of this Agreement).
(i) Consolidated Leverage Ratio. CMS Energy shall
maintain, as of the last day of each fiscal quarter (in each case, the
"MEASUREMENT QUARTER"), a maximum ratio of (i) Consolidated Debt for the
immediately preceding four-fiscal-quarter period ending on the last day of such
Measurement Quarter (calculated exclusive of Panhandle and its Subsidiaries), to
(ii) Consolidated EBITDA for such period (calculated exclusive of Panhandle and
its Subsidiaries), of not more than 7.00 to 1.00, commencing with the period
ending June 30, 2003.
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(j) Cash Dividend Coverage Ratio. CMS Energy shall
maintain, as of the last day of each Measurement Quarter, a minimum ratio of (i)
the sum of (A) Cash Dividend Income for the four-fiscal-quarter period ending on
such day, plus (B) 25% of the amount of Equity Distributions received by CMS
Energy during such period but in no event in excess of $10,000,000 to (ii) an
amount equal to (A) interest expense (excluding all arrangement, underwriting
and other similar fees payable in connection with this Agreement, the
Enterprises 2003-A Credit Agreement and the CMS Energy Credit Agreement) accrued
by CMS Energy in respect of all Debt during such period, minus (B) cash interest
income received by CMS Energy and its Subsidiaries from Persons other than CMS
Energy or any of its Subsidiaries, minus (C) all amounts received by CMS Energy
from its Subsidiaries and Affiliates during such period constituting
reimbursement of interest expense and commitment, guaranty and letter of credit
charges of CMS Energy to such Subsidiary or Affiliate, of not less than 1.20 to
1.00, commencing with the Measurement Quarter ending on June 30, 2003; provided,
that CMS Energy shall be deemed not to be in breach of the foregoing covenant
if, during the Measurement Quarter, it has permanently reduced the Commitments
and the principal amount outstanding under this Agreement and the Promissory
Notes, the principal amount outstanding under the Enterprises 2003-A Credit
Agreement and the "Promissory Notes" thereunder (as such term is defined
therein) and/or the principal amount outstanding under the CMS Energy Credit
Agreement and the "Promissory Notes" thereunder (and as such term is defined
therein), such that the amount determined pursuant to clause (ii) above, when
recalculated on a pro forma basis assuming that the amount of such reduced
commitments and principal amount outstanding under such agreements and
promissory notes were in effect at all times during such four-fiscal-quarter
period, would result in CMS Energy being in compliance with such ratio.
(k) Further Assurances. The Borrower shall promptly
execute and deliver all further instruments and documents, and take all further
action, that may be necessary or that any Lender through the Administrative
Agent may reasonably request in order to give effect to the transactions
contemplated by this Agreement and the other Loan Documents. In addition, the
Borrower will use all reasonable efforts to duly obtain or make Governmental
Approvals required from time to time on or prior to such date as the same may
become legally required.
(l) Subsidiary Guarantees. CMS Energy will (i) with
respect to each Person that becomes a Restricted Subsidiary after the Closing
Date (other than (a) any Subsidiary of CMS Energy organized under the laws of a
jurisdiction located other than in the United States (each a "FOREIGN
SUBSIDIARY") if the execution of the Guaranty by such Subsidiary would result in
any materially adverse tax consequences to CMS Energy, (b) Panhandle and its
Subsidiaries, and (c) MS&T), subject to any limitations under contractual
restrictions as in effect as of the Closing Date or applicable law with respect
to each Foreign Subsidiary, cause each such Restricted Subsidiary to execute the
Guaranty pursuant to which it agrees to be bound by the terms and provisions of
the Guaranty, and (ii) cause such Persons identified in clause (i) above to
deliver resolutions, opinions of counsel and such other constitutive
documentation as the Administrative Agent may reasonably request, all in form
and substance reasonably satisfactory to the Administrative Agent.
(m) Compliance with Fee Letter. Each of the Borrower and
CMS Energy shall comply with its obligations under the Fee Letter.
46
(n) Bond Cash Collateral Account. The Borrower shall at
all times maintain the Bond Cash Collateral Account, and shall promptly execute
and deliver all further instruments and documents, and take all further action,
that the Administrative Agent may reasonably request such that the Collateral
Agent shall have a first priority security interest therein and shall use the
cash collateral therein solely to repay in full in cash all amounts owing in
respect of CMS Energy's reset put securities due July 1, 2003 and CMS Energy's
general term notes due in 2003 or to repay the Obligations hereunder in
accordance with the terms of Section 2.03(c)(iv).
(o) Payment of Declared Dividend. CMS Energy shall cause
each of its direct Subsidiaries to pay all dividends within 30 days after
declaration thereof.
(p) Securities Demand. Unless (x) the "Loans" and
"Commitments" under (and as defined in) each of the Enterprises 2003-A Credit
Agreement and the CMS Energy Credit Agreement and the Loans and Commitments
hereunder shall have been permanently reduced in an aggregate principal amount
of $550,000,000 or more on or before January 2, 2004, or (y) CMS Energy's reset
put securities due July 1, 2003 shall have been reissued or remarketed pursuant
to the terms thereof or refinanced and a mandatory prepayment of the Obligations
shall have occurred in accordance with the terms of Section 2.03(c)(iv), or (z)
a definitive purchase agreement satisfying the requirements of Section
7.02(i)(H) shall be in effect with respect to the sale of substantially all of
the capital stock and assets of Panhandle and all authorizations, consents,
approvals, licenses, permits, certificates, exemptions of or filings or
registrations with, any governmental authority or other legal or regulatory body
necessary in connection with the consummation of such sale shall have been
obtained and are in full force and effect, then, upon notice from the
Administrative Agent (at the direction of the Required Lenders) at any time on
or after January 2, 2004 (a "SECURITIES DEMAND"), to the extent permitted under
each of CMS Energy's indentures (and each supplement issued thereunder), CMS
Energy will cause the issuance and sale of debt and/or equity securities
("SECURITIES") the proceeds of which shall be used to repay the 6.75% Senior
Notes on their maturity date upon such terms and conditions specified in the
Securities Demand; provided that (i) the interest rate (whether floating or
fixed) shall be determined by Administrative Agent in light of the then
prevailing market conditions for comparable securities, (ii) the Administrative
Agent in its reasonable discretion and after consultation with CMS Energy, shall
determine whether the Securities shall be issued through a public offering or a
private placement; (iii) the Securities will be issued pursuant to an indenture
or indentures, which shall contain such terms, conditions, and covenants as are
typical and customary for similar financings and are reasonably satisfactory in
all respects to the Administrative Agent; and (iv) all other arrangements with
respect to the Securities shall be reasonably satisfactory in all respects to
the Administrative Agent in light of the then prevailing market conditions.
SECTION 7.02. NEGATIVE COVENANTS. So long as any Loan or any other
amount payable hereunder or under any Promissory Note shall remain unpaid or any
Lender shall have any Commitment, CMS Energy shall not, without the written
consent of the Required Lenders:
(a) Liens, Etc. (1) Create, incur, assume or suffer to
exist, or permit any of the Loan Parties to create, incur, assume or suffer to
exist, any lien, security interest, or other charge or encumbrance (including
the lien or retained security title of a conditional vendor) of any kind, or any
other type of arrangement intended or having the effect of conferring upon a
47
creditor a preferential interest upon or with respect to any of its properties
of any character (including capital stock and other ownership interests of CMS
Energy's directly-owned Subsidiaries, intercompany obligations and accounts)
(any of the foregoing being referred to herein as a "LIEN"), whether now owned
or hereafter acquired, or (2) file, or permit any of the other Loan Parties to
file, under the Uniform Commercial Code of any jurisdiction a financing
statement which names CMS Energy or any other Loan Party as debtor (other than
financing statements that do not evidence a Lien), or (3) sign, or permit any of
the other Loan Parties to sign, any security agreement authorizing any secured
party thereunder to file such financing statement, or (4) assign, or permit any
of the other Loan Parties to assign, accounts, excluding, however, from the
operation of the foregoing restrictions the Liens created under the Loan
Documents and the following:
(i) Liens for taxes, assessments or governmental charges
or levies to the extent not past due;
(ii) cash pledges or deposits to secure (A) obligations
under workmen's compensation laws or similar legislation, (B) public or
statutory obligations of CMS Energy or any of the other Loan Parties,
(C) Support Obligations of CMS Energy or any Loan Party, or (D)
obligations of the Borrower or MS&T in respect of hedging arrangements
and commodity purchases and sales (including any cash margins with
respect thereto); provided that with respect to clauses (C) and (D)
above the aggregate amount of cash pledges or deposits securing such
Support Obligations and such obligations of the Borrower or MS&T shall
not exceed $400,000,000 at any one time outstanding;
(iii) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's liens and other
similar Liens arising in the ordinary course of business securing
obligations which are not overdue or which have been fully bonded and
are being contested in good faith;
(iv) Liens securing the obligations under the Loan
Documents and under the "Loan Documents" as defined in each of the
Enterprises 2003-A Credit Agreement and the CMS Energy Credit Agreement
(and subordinated Liens securing the refinancing of all or any portion
of such obligations, which Liens shall be subordinated on terms and
conditions acceptable to the Administrative Agent and the Collateral
Agent);
(v) Liens securing Off-Balance Sheet Liabilities (and all
refinancings and recharacterizations thereof permitted under Section
7.02(b)(iv)) in an aggregate amount not to exceed $775,000,000;
(vi) purchase money Liens or purchase money security
interests upon or in property acquired or held by CMS Energy or any of
the other Loan Parties in the ordinary course of business to secure the
purchase price of such property or to secure indebtedness incurred
solely for the purpose of financing the acquisition of any such
property to be subject to such Liens or security interests, or Liens or
security interests existing on any such property at the time of
acquisition, or extensions, renewals or replacements of any of the
foregoing for the same or a lesser amount, provided that no such Lien
or security
48
interest shall extend to or cover any property other than the property
being acquired and no such extension, renewal or replacement shall
extend to or cover property not theretofore subject to the Lien or
security interest being extended, renewed or replaced, and provided,
further, that the aggregate principal amount of the Debt at any one
time outstanding secured by Liens permitted by this clause (vi) shall
not exceed $15,000,000;
(vii) Utility easements, building restrictions and such
other encumbrances or charges against real property as are of a nature
generally existing with respect to properties of a similar character
and which do not in any material way affect the marketability of the
same or interfere with the use thereof in the business of CMS Energy or
any other Loan Party;
(viii) Liens existing on any capital asset of any Person at
the time such Person is merged or consolidated with or into, or
otherwise acquired by, CMS Energy or any other Loan Party and not
created in contemplation of such event, provided that such Liens do not
encumber any other property or assets and such merger, consolidation or
acquisition is otherwise permitted under this Agreement;
(ix) Liens existing on any capital asset prior to the
acquisition thereof by CMS Energy or any other Loan Party and not
created in contemplation thereof; provided that such Liens do not
encumber any other property or assets;
(x) Liens existing as of the Closing Date;
(xi) Liens securing Project Finance Debt otherwise
permitted under this Agreement;
(xii) Liens arising out of the refinancing, extension,
renewal or refunding of any Debt secured by any Lien permitted by any
of the foregoing clauses (v), (viii), (ix), (x) or (xi); provided that
(a) such Debt is not secured by any additional assets, and (b) the
amount of such Debt secured by any such Lien is otherwise permitted
under this Agreement;
(xiii) Liens on accounts receivable (other than intercompany
receivables) and other contract rights of MS&T and its Subsidiaries
arising on or after the Closing Date in favor of any Person (other than
an Affiliate of CMS Energy or any of its Subsidiaries) that facilitates
the origination of such accounts receivable or other contract rights;
(xiv) subordinated Liens granted pursuant to the terms of
the AIG Pledge Agreement, which Liens shall be subordinated pursuant to
the terms of the Intercreditor Agreement (CMS Energy Facility), to
secure certain surety bond obligations as described in the AIG Pledge
Agreement; and
(xv) subordinated Liens arising out of the refinancing,
extension, renewal or refunding of the 6.75% Senior Notes, CMS Energy's
reset put securities due July 1, 2003 and CMS Energy's general term
notes due in 2003, which Liens shall be subordinated on terms and
conditions acceptable to the Administrative Agent and the Collateral
Agent.
49
(b) Borrower Debt. Permit the Borrower or any Subsidiary
of the Borrower (other than Panhandle and its Subsidiaries) to create, incur,
assume or suffer to exist any debt (as such term is construed in accordance with
GAAP) other than:
(i) debt arising by reason of the endorsement of
negotiable instruments for deposit or collection or similar
transactions in the ordinary course of the Borrower's or its
Subsidiaries' business;
(ii) in the form of indemnities in respect of unfiled
mechanics' liens and Liens affecting the Borrower's or its
Subsidiaries' properties permitted under Section 7.02(a)(iii);
(iii) debt arising under (a) the Loan Documents, (b) the
"Loan Documents" as defined in the CMS Energy Credit Agreement in a
principal amount not to exceed $409,000,000 minus any principal
payments (but with respect to principal payments of revolving loans
prior to the "Conversion Date" thereunder, only to the extent of any
concurrent reduction or termination of the "Commitments" as defined
therein) made from time to time thereunder, and (c) the "Loan
Documents" as defined in the Enterprises 2003-A Credit Agreement in a
principal amount not to exceed $441,000,000 minus any principal
payments (but with respect to principal payments of revolving loans
prior to the "Conversion Date" thereunder, only to the extent of any
concurrent reduction or termination of the "Commitments" as defined
therein) made from time to time thereunder;
(iv) debt constituting Off-Balance Sheet Liabilities
(including any recharacterization thereof as debt pursuant to any
changes in generally accepted accounting principles hereafter required
or permitted and which are adopted by CMS Energy or any of its
Subsidiaries with the agreement of its independent certified public
accountants) to the extent permitted by Section 7.02(o), and any
extensions, renewals, refundings or replacements thereof, provided that
any such extension, renewal, refunding or replacement is in an
aggregate principal amount not greater than the principal amount of, is
an obligation of the same Person that is the obligor in respect of, and
has a weighted average life to maturity not less than the weighted
average life to maturity of, the debt so extended, renewed, refunded or
replaced;
(v) other debt of the Borrower and its Subsidiaries
outstanding on the Closing Date (including the debt of the Loan Parties
as of February 28, 2003 as set forth on Schedule I), and any
extensions, renewals, refundings or replacements thereof, provided that
any such extension, renewal, refunding or replacement is in an
aggregate principal amount not greater than the principal amount of, is
an obligation of the same Person that is the obligor in respect of, and
has a weighted average life to maturity not less than the weighted
average life to maturity of, the debt so extended, renewed, refunded or
replaced;
(vi) (a) unsecured, subordinated debt owed (i) to CMS
Energy by the Borrower, (ii) to the Borrower or CMS Capital, L.L.C. (or
any successor by merger to CMS Capital, L.L.C.) and (iii) to any
Grantor by any Loan Party, and (b) unsecured debt owed to any
Subsidiary of the Borrower (other than a Grantor) by CMS Capital,
L.L.C.
50
(or any successor by merger to CMS Capital, L.L.C.), and (c) unsecured
debt of any Foreign Subsidiary of the Borrower owed to another Foreign
Subsidiary of the Borrower provided that the proceeds of any repayment
of such debt are remitted to a Loan Party;
(vii) Project Finance Debt of any Loan Party or any of its
Subsidiaries incurred on or after the Closing Date, provided that the
Net Proceeds thereof shall be applied in accordance with Section
2.03(c) if required to be so applied; and
(viii) capital lease obligations and other Debt secured by
purchase money Liens to the extent such Liens shall be permitted under
Section 7.02(a)(vi).
(c) Lease Obligations. Create, incur, assume or suffer to
exist, or permit any of the other Loan Parties to create, incur, assume or
suffer to exist, any obligations as lessee for the rental or hire of real or
personal property of any kind under leases or agreements to lease (other than
leases which constitute Debt) having an original term of one year or more which
would cause the aggregate direct or contingent liabilities of CMS Energy and the
other Loan Parties in respect of all such obligations payable in any period of
12 consecutive calendar months to exceed $50,000,000.
(d) Investments in Other Persons. Make, or permit any of
the other Loan Parties to make, any loan or advance to any Person, or purchase
or otherwise acquire any capital stock, obligations or other securities of, make
any capital contribution to, or otherwise invest in, any Person, other than (i)
Permitted Investments, (ii) pursuant to the contractual or contingent
obligations of CMS Energy or any other Loan Party as in effect as of the Closing
Date and in amounts not to exceed the estimated amounts as set forth on Schedule
I hereto (whether such obligation is conditioned upon a change in the ratings of
the securities issued by such Person or otherwise) and, in each case, in an
amount not to exceed such contractual or contingent obligation as in effect on
the Closing Date, (iii) investments, directly or indirectly, by any Loan Party
(x) in the capital of any Subsidiary of CMS Energy that is a Loan Party and (y)
in assets contributed to such Loan Party, provided that if any such assets
constitute Collateral prior to such contribution, such assets shall remain
Collateral after giving effect to such contribution and prior to such
contribution CMS Energy shall, and shall cause each applicable Subsidiary to,
execute and deliver to the Administrative Agent all agreements, instruments and
documents as may be necessary or reasonably requested by the Administrative
Agent to perfect its security interest in such Collateral, (iv) investments in
the capital stock or other ownership interests of any of CMS Energy's
Subsidiaries arising from the conversion of intercompany indebtedness to equity,
(v) intercompany loans and advances to the extent the corresponding debt is
permitted under Section 7.02(b)(vi), (vi) investments constituting non-cash
consideration received in connection with the sale of any asset permitted under
Section 7.02(i), and (vii) additional loans, advances, purchases, contributions
and other investments in an amount not to exceed $340,000,000 in the aggregate
at any time; provided, however, that investments described in clauses (iv)
(solely with respect to investments made in any Subsidiary that is not a Loan
Party) and (vii) above shall not be permitted to be made at a time when either a
Default or an Event of Default shall be continuing or would result therefrom;
provided, further, that, notwithstanding the foregoing, neither CMS Energy nor
any Loan Party shall make any loans or advances to any of CMS Energy's
Subsidiaries other than, to the extent otherwise permitted hereunder,
Enterprises or any Subsidiary of Enterprises.
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(e) Restricted Payments. Declare or pay, or permit any
other Loan Party to declare or pay, directly or indirectly, any dividend,
payment or other distribution of assets, properties, cash, rights, obligations
or securities on account of any share of any class of capital stock or other
ownership interests of CMS Energy or any of the other Loan Parties (other than
(1) stock splits and dividends payable solely in nonconvertible equity
securities of CMS Energy (other than Redeemable Stock or Exchangeable Stock (as
such terms are defined in the Indenture on the Closing Date)) and (2) dividends
and distributions made to CMS Energy or a Loan Party), or purchase, redeem,
retire, or otherwise acquire for value, or permit any of the other Loan Parties
to purchase, redeem, retire, or otherwise acquire for value, any shares of any
class of capital stock or other ownership interests of CMS Energy or any of the
other Loan Parties or any warrants, rights, or options to acquire any such
shares, now or hereafter outstanding, or make, or permit any of the other Loan
Parties to make, any distribution of assets to any of its shareholders (other
than distributions to CMS Energy or any other Loan Party) (any such dividend,
payment, distribution, purchase, redemption, retirement or acquisition being
hereinafter referred to as a "RESTRICTED PAYMENT") other than (i) pursuant to
the terms of any class of capital stock of CMS Energy issued and outstanding
(and as in effect on) the Closing Date, any purchase or redemption of capital
stock of CMS Energy made by exchange for, or out of the proceeds of the
substantially concurrent sale of, capital stock of CMS Energy (other than
Redeemable Stock or Exchangeable Stock (as such terms are defined in the
Indenture on the Closing Date)); and (ii) payments made by CMS Energy or any
other Loan Party pursuant to the Tax Sharing Agreement.
(f) Compliance with ERISA. (i) Permit to exist any
"accumulated funding deficiency" (as defined in Section 412(a) of the Internal
Revenue Code of 1986, as amended), (ii) terminate, or permit any ERISA Affiliate
to terminate, any Plan or withdraw from, or permit any ERISA Affiliate to
withdraw from, any Multiemployer Plan, so as to result in any material (in the
opinion of the Required Lenders) liability of CMS Energy, any other Loan Party
or Consumers to such Plan, Multiemployer Plan or the PBGC, or (iii) permit to
exist any occurrence of any Reportable Event (as defined in Title IV of ERISA),
or any other event or condition, which presents a material (in the opinion of
the Required Lenders) risk of such a termination by the PBGC of any Plan or
withdrawal from any Multiemployer Plan so as to result in a material liability
to CMS Energy, any other Loan Party or Consumers.
(g) Transactions with Affiliates. Enter into, or permit
any of its Subsidiaries to enter into, any transaction with any of its
Affiliates unless such transaction is on terms no less favorable to CMS Energy
or such Subsidiary than if the transaction had been negotiated in good faith on
an arm's-length basis with a non-Affiliate; provided that (x) the purchase by,
or other transfer to, Trunkline Field Services Company of certain assets of CMS
Field Services, Inc. as described to the Administrative Agent and the Lenders
prior to the date hereof shall be permitted hereunder and (y) any transaction
permitted under Sections 7.02(b), 7.02(e) or 7.02(h) shall be permitted
hereunder.
(h) Mergers, Etc. Merge with or into or consolidate with
or into, or permit any of the other Loan Parties or Consumers to merge with or
into or consolidate with or into, any other Person, except that (i) (x) any Loan
Party may merge with or into any other Loan Party, (y) any Subsidiary of a Loan
Party that is not a Loan Party may merge into such Loan Party or with or into
any other Subsidiary of any Loan Party, provided that (a) in any such merger
into a
52
Loan Party under clause (y) above, the Loan Party is the survivor thereof, (b)
no Default or Event of Default shall be continuing or result therefrom and (c)
such Loan Party shall not be liable with respect to any Debt or allow its
property to be subject to any Lien which it could not become liable with respect
to or allow its property to become subject to under this Agreement or any other
Loan Document on the date of such transaction, and (ii) any Loan Party may merge
with or into any other Person, provided that (a) the Loan Party is the survivor
thereof, or, in the case of any Loan Party that is a corporation reconstituting
itself as limited liability company, such limited liability company shall be the
survivor thereof and shall be thereafter deemed to be a Loan Party hereunder,
(b) no Default or Event of Default shall be continuing or result therefrom, (c)
such Loan Party shall not be liable with respect to any Debt or allow its
property to be subject to any Lien which it could not become liable with respect
to or allow its property to become subject to under this Agreement or any other
Loan Document on the date of such transaction, and (d) immediately after giving
effect to such merger, the Net Worth of such Loan Party shall be equal to or
greater than the Net Worth of such Loan Party as of the last day of the fiscal
quarter immediately preceding the date of such merger.
(i) Sales, Etc., of Assets. Sell, lease, transfer,
assign, or otherwise dispose of all or any substantial part of its assets, or
permit any of the other Loan Parties (other than MS&T) to sell, lease, transfer,
or otherwise dispose of all or any substantial part of its assets, except to
give effect to a transaction permitted by subsection (h) above or subsection (j)
below; provided, further, that neither CMS Energy nor any of the other Loan
Parties (other than MS&T) shall sell, assign, transfer, lease, convey or
otherwise dispose of any property, whether now owned or hereafter acquired, or
any income or profits therefrom, or enter into any agreement to do so, except:
(A) the sale of property for consideration not less than
the Fair Market Value thereof so long as (i) any non-cash consideration
resulting from such sale shall be pledged or assigned to the Collateral
Agent, for the benefit of the Lenders, pursuant to an instrument in
form and substance reasonably acceptable to the Collateral Agent, (ii)
cash consideration resulting from such sale shall be (x) in an amount
determined by the Borrower for any sale the consideration of which is
$10,000,000 or less, or, together with all other such sales under this
clause (x), $25,000,000 or less, (y) in the case of the sale of
substantially all or any portion of the capital stock and assets of CMS
Field Services, Inc. and its Subsidiaries, not less than 60% of the
aggregate consideration resulting from such sale, (z) for all other
sales, not less than 90% of the aggregate consideration resulting from
such sale, and (iii) the Borrower complies with the mandatory
prepayment provisions set forth in Section 2.03(c);
(B) the transfer of property from a Loan Party to any
other Loan Party;
(C) the transfer of property constituting an investment
otherwise permitted under Section 7.02(d);
(D) the sale of electricity and natural gas and other
property in the ordinary course of Borrower's and its Subsidiaries
respective businesses consistent with past practice;
53
(E) any transfer of an interest in receivables and
related security, accounts or notes receivable on a limited recourse
basis in connection with the incurrence of Off-Balance Sheet
Liabilities, provided that such transfer qualifies as a legal sale and
as a sale under GAAP and the incurrence of such Off-Balance Sheet
Liabilities is permitted under Section 7.02(o);
(F) the transfer of property constituting not more than
two percent (2%) of the ownership interests held by CMS Energy and its
Subsidiaries as of the Closing Date in CMS International Ventures,
L.L.C. to CMS Energy Foundation and/or Consumers Foundation and/or any
other third-party 501(c)(3) charitable organization;
(G) the disposition of equipment if such equipment is
obsolete or no longer useful in the ordinary course of CMS Energy's or
such Subsidiary's business;
(H) the sale of substantially all of the capital stock
and assets of Panhandle; provided that such sale shall be consummated
substantially in accordance with, and on terms not materially more
adverse to the interests of the Agents and the Lenders than the terms
and conditions set forth in, that certain Stock Purchase Agreement,
dated as of December 21, 2002, by and among CMS Gas Transmission
Company, AIG Highstar Capital, L.P., AIG Highstar II Funding Corp.,
Southern Union Company and Southern Union Panhandle Corp. (the
"PANHANDLE SALE AGREEMENT"); provided that any modifications to the
Panhandle Sale Agreement to reflect purchase price adjustments in the
aggregate not to exceed $50,000,000 and otherwise on terms and
conditions reasonably acceptable to the Administrative Agent shall be
deemed to be permitted hereunder.
(j) Maintenance of Ownership of Subsidiaries. Sell,
transfer, assign or otherwise dispose of any shares of capital stock or other
ownership interests of any of the Loan Parties or Consumers (other than
preferred or preference stock of Consumers) or any warrants, rights or options
to acquire such capital stock or other ownership interests, or permit any other
Loan Party or Consumers to issue, sell, transfer, assign or otherwise dispose of
any shares of its capital stock (other than preferred or preference stock of
Consumers) or other ownership interests or the capital stock or other ownership
interests of any other Loan Party or any warrants, rights or options to acquire
such capital stock or other ownership interests, except (i) to give effect to a
transaction permitted by subsection (d), (h) or (i) above, and (ii) in
connection with the foreclosure of any Liens permitted under Section
7.02(a)(iv).
(k) Amendment of Tax Sharing Agreement. Directly or
indirectly, amend, modify, supplement, waive compliance with, seek a waiver
under, or assent to noncompliance with, any term, provision or condition of the
Tax Sharing Agreement if the effect of such amendment, modification, supplement,
waiver or assent is to (i) reduce materially any amounts otherwise payable to,
or increase materially any amounts otherwise owing or payable by, CMS Energy
thereunder, or (ii) change materially the timing of any payments made by or to
CMS Energy thereunder.
(l) Prepayments of Indebtedness. Make or agree to pay or
make, or permit any of the other Loan Parties to make or agree to pay or make,
directly or indirectly, any
54
payment or other distribution (whether in cash, securities or other property) of
or in respect of principal of or interest on any Debt, or any payment or other
distribution (whether in cash, securities or other property), including any
sinking fund or similar deposit, on account of the purchase, redemption,
retirement, acquisition, cancellation or termination of any Debt (other than the
obligations of the Loan Parties under the Loan Documents and under the "Loan
Documents" as defined in each of the Enterprises 2003-A Credit Agreement and the
CMS Energy Credit Agreement), other than (i) any payments on account of (a) any
Debt when and as such payment was due (including at the maturity thereof if the
initial stated maturity thereof is on or prior to the Termination Date) pursuant
to the mandatory payment provisions applicable to such Debt at the time it was
incurred (including, without limitation, regularly scheduled payment dates for
principal, interest, fees and other amounts due thereon) or any extension
thereof thereafter granted by the holder of such Debt, (b) refinancings of Debt
otherwise permitted under this Agreement, (c) any Debt owed to CMS Energy or any
of its Subsidiaries, (d) Debt secured by a Lien on assets subject to an asset
sale permitted by Section 7.02(i) and (e) the extinguishment of any intercompany
Debt in connection with a dividend or distributions permitted under Section
7.02(e), (ii) payments constituting the exchange of CMS Energy's common stock
(other than Redeemable Stock or Exchangeable Stock (as such terms are defined in
the Indenture on the Closing Date)) for CMS Energy's outstanding Debt (and any
cash payments made in lieu of the issuance of fractional shares) to the extent
such exchange is permitted under the Securities and Exchange Act of 1934, as
amended and (iii) prepayments of CMS Energy's reset put securities due July 1,
2003 and CMS Energy's general term notes due in 2003.
(m) Conduct of Business. Engage, or permit any Restricted
Subsidiary to engage, in any business other than (a) the business engaged in by
CMS Energy and its Subsidiaries on the date hereof, and (b) any business or
activities which are substantially similar, related or incidental thereto.
(n) Organizational Documents. Amend, modify or otherwise
change, or permit any Restricted Subsidiary to amend, modify or otherwise change
any of the terms or provisions in any of their respective certificate of
incorporation and by-laws (or comparable constitutive documents) as in effect on
the Closing Date in any manner adverse to the interests of the Lenders.
(o) Off-Balance Sheet Liabilities. Create, incur, assume
or suffer to exist, or permit any Subsidiary (other than Consumers and its
Subsidiaries) to create, incur, assume or suffer to exist, Off-Balance Sheet
Liabilities (exclusive of lease obligations otherwise permitted under Section
7.02(c)) in the aggregate in excess of $775,000,000 at any time.
(p) Intercreditor Agreement (Enterprises Facility). Fail
to use its best efforts to cause the parties to the AIG Pledge Agreement to
execute and deliver the Intercreditor Agreement (Enterprises Facility), together
with all further instruments and documents, or fail to take all further action
that may be necessary or that any Lender through the Administrative Agent may
reasonably request in order to give effect to such Intercreditor Agreement
(Enterprises Facility), or fail to deliver to the Administrative Agent, promptly
following the execution of such Intercreditor Agreement, the Pledge Agreement
described in clause (ii) of the definition of "Pledge Agreements" duly executed
by each Loan Party party thereto.
55
SECTION 7.03. REPORTING OBLIGATIONS. So long as any Loan or any other
amount payable hereunder or under any Promissory Note shall remain unpaid or any
Lender shall have any Commitment, CMS Energy will, unless the Required Lenders
shall otherwise consent in writing, furnish to the Administrative Agent (with
sufficient copies for each Lender), the following:
(a) as soon as possible and in any event within five days
after the Borrower knows or should have reason to know of the occurrence of each
Default or Event of Default continuing on the date of such statement, a
statement of the chief financial officer or chief accounting officer of the
Borrower setting forth details of such Default or Event of Default and the
action that the Borrower proposes to take with respect thereto;
(b) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal year of CMS
Energy, commencing with the fiscal quarter ending on March 31, 2003, a
consolidated balance sheet and consolidated statements of income and retained
earnings and of cash flows of CMS Energy and its Subsidiaries as at the end of
such quarter and for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter (which requirement shall be deemed
satisfied by the delivery of CMS Energy's quarterly report on Form 10-Q for such
quarter), all in reasonable detail and duly certified (subject to year-end audit
adjustments) by the chief financial officer or chief accounting officer of CMS
Energy as having been prepared in accordance with GAAP, together with (A) a
schedule (substantially in the form of Exhibit E appropriately completed) of (1)
for the periods ending June 30, 2003 and thereafter, the computations used by
CMS Energy in determining compliance with the covenants contained in Sections
7.01(i) and 7.01(j) and the ratio set forth in Section 8.01(j), (2) all Project
Finance Debt of the Consolidated Subsidiaries, together with CMS Energy's
Ownership Interest in each such Consolidated Subsidiary and (3) all Support
Obligations of CMS Energy of the types described in clauses (iv) and (v) of the
definition of Support Obligations (whether or not each such Support Obligation
or the primary obligation so supported is fixed, conclusively determined or
reasonably quantifiable) to the extent such Support Obligations have not been
previously disclosed as "Consolidated Debt" pursuant to clause (1) above, and
(B) a certificate of said officer stating that no Default or Event of Default
has occurred and is continuing or, if a Default or Event of Default has occurred
and is continuing, a statement as to the nature thereof and the action that CMS
Energy proposes to take with respect thereto;
(c) as soon as available and in any event within 120 days
after the end of each fiscal year of CMS Energy and its Subsidiaries, commencing
with the fiscal year ending on December 31, 2003, a copy of the Annual Report on
Form 10-K (or any successor form) for CMS Energy and its Subsidiaries for such
year, including therein a consolidated balance sheet of CMS Energy and its
Subsidiaries as of the end of such fiscal year and consolidated statements of
income and retained earnings and of cash flows of CMS Energy and its
Subsidiaries for such fiscal year, accompanied by a report thereon of a
nationally-recognized independent public accounting firm, together with (1) a
schedule in form satisfactory to the Required Lenders of (A) the computations
used by such accounting firm in determining, as of the end of such fiscal year,
compliance with the covenants contained in Sections 7.01(i) and 7.01(j) and the
ratio set forth in Section 8.01(j), (B) all Project Finance Debt of the
Consolidated Subsidiaries, together with CMS Energy's Ownership Interest in each
such Consolidated Subsidiary and (C) all
56
Support Obligations of CMS Energy of the types described in clauses (iv) and (v)
of the definition of Support Obligations (whether or not each such Support
Obligation or the primary obligation so supported is fixed, conclusively
determined or reasonably quantifiable) to the extent such Support Obligations
have not been previously disclosed as "Consolidated Debt" pursuant to clause (A)
above, and (2) a certificate of the chief financial officer or chief accounting
officer of CMS Energy stating that no Default or Event of Default has occurred
and is continuing or, if a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action that CMS Energy
proposes to take with respect thereto;
(d) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal year of CMS
Energy, commencing with the fiscal quarter ending on March 31, 2003, a balance
sheet and statements of income and retained earnings and of cash flows of CMS
Energy as at the end of such quarter and for the period commencing at the end of
the previous fiscal year and ending with the end of such quarter, all in
reasonable detail and duly certified (subject to year-end audit adjustments) by
the chief financial officer or chief accounting officer of CMS Energy as having
been prepared in accordance with GAAP;
(e) as soon as available and in any event within 120 days
after the end of each fiscal year of CMS Energy, commencing with the fiscal year
ending on December 31, 2003, a balance sheet of CMS Energy as at the end of such
fiscal year and statements of income and retained earnings and of cash flows of
CMS Energy for such fiscal year, all in reasonable detail and duly certified
(subject to year end audit adjustments) by the chief financial officer or chief
accounting officer of CMS Energy as having been prepared in accordance with
GAAP;
(f) as soon as available and in any event within 60 days
after the end of each of the first three quarters of each fiscal year of the
Borrower, commencing with the fiscal quarter ending on March 31, 2003, a balance
sheet and statements of income and retained earnings and of cash flows of the
Borrower as at the end of such quarter and for the period commencing at the end
of the previous fiscal year and ending with the end of such quarter, all in
reasonable detail and duly certified (subject to year-end audit adjustments) by
the chief financial officer or chief accounting officer of the Borrower as
having been prepared in accordance with GAAP;
(g) as soon as available and in any event within 120 days
after the end of each fiscal year of the Borrower, commencing with the fiscal
year ending on December 31, 2003, a balance sheet of the Borrower as at the end
of such fiscal year and statements of income and retained earnings and of cash
flows of the Borrower for such fiscal year, all in reasonable detail and duly
certified (subject to year end audit adjustments) by the chief financial officer
or chief accounting officer of the Borrower as having been prepared in
accordance with GAAP;
(h) as soon as possible and in any event (A) within 30
days after CMS Energy knows or has reason to know that any Plan Termination
Event described in clause (i) of the definition of Plan Termination Event with
respect to any Plan of CMS Energy or any ERISA Affiliate of CMS Energy has
occurred and could reasonably be expected to result in a material liability to
CMS Energy and (B) within 10 days after CMS Energy knows or has reason to know
that any other Plan Termination Event with respect to any Plan of CMS Energy or
any ERISA Affiliate of CMS Energy has occurred and could reasonably be expected
to result in a material liability to CMS Energy, a statement of the chief
financial officer or chief accounting officer of
57
CMS Energy describing such Plan Termination Event and the action, if any, which
CMS Energy proposes to take with respect thereto;
(i) except as may arise in connection with the sale of
Panhandle, promptly after receipt thereof by CMS Energy or any of its ERISA
Affiliates from the PBGC copies of each notice received by CMS Energy or any
such ERISA Affiliate of the PBGC's intention to terminate any Plan or to have a
trustee appointed to administer any Plan;
(j) except as may arise in connection with the sale of
Panhandle, promptly and in any event within 30 days after the filing thereof
with the Internal Revenue Service, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to each Plan
(if any) to which CMS Energy is a contributing employer;
(k) promptly after receipt thereof by CMS Energy or any
of its ERISA Affiliates from a Multiemployer Plan sponsor, a copy of each notice
received by CMS Energy or any of its ERISA Affiliates concerning the imposition
or amount of withdrawal liability in an aggregate principal amount of at least
$250,000 pursuant to Section 4202 of ERISA in respect of which CMS Energy is
reasonably expected to be liable;
(l) promptly after CMS Energy becomes aware of the
occurrence thereof, notice of all actions, suits, proceedings or other events of
the type described in Section 6.01(f);
(m) promptly after the sending or filing thereof, notice
to the Administrative Agent and each Lender of any sending or filing of all
proxy statements, financial statements and reports which CMS Energy sends to its
public security holders (if any), all regular, periodic and special reports
which CMS Energy files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or with any national
securities exchange, pursuant to the Exchange Act, and all final prospectuses
with respect to any securities issued or to be issued by CMS Energy or any of
its Subsidiaries;
(n) as soon as possible and in any event within five days
after the occurrence of any material default under any material agreement to
which CMS Energy or any of its Subsidiaries is a party, which default would
materially adversely affect the business, assets, property, financial condition,
results of operations or prospects of CMS Energy and its Subsidiaries,
considered as a whole, any of which is continuing on the date of such
certificate, a certificate of the chief financial officer of CMS Energy setting
forth the details of such material default and the action which CMS Energy or
any such Subsidiary proposes to take with respect thereto; and
(o) promptly after requested, such other information
respecting the business, properties, condition or operations, financial or
otherwise, of CMS Energy and its Subsidiaries as any Agent or the Required
Lenders may from time to time reasonably request in writing.
The Borrower and CMS Energy, as applicable, shall be deemed to have fulfilled
its obligations pursuant to clauses (b), (c), (d), (e), (f), (g) and (m) above
to the extent the Administrative Agent (and the Lenders, if applicable) receives
an electronic copy of the requisite document or documents in a format reasonably
acceptable to the Administrative Agent, provided that (1) an executed, tangible
copy of any report required pursuant to clause (e) above is delivered to the
58
Administrative Agent at the time of any such electronic delivery, and (2) a
tangible copy of each requisite document delivered electronically is made
available by the Borrower or CMS Energy, as applicable, promptly upon request by
any Agent or Lender.
ARTICLE VIII
DEFAULTS
SECTION 8.01. EVENTS OF DEFAULT. If any of the following events (each
an "EVENT OF DEFAULT") shall occur and be continuing, the Administrative Agent
and the Lenders shall be entitled to exercise the remedies set forth in Section
8.02:
(a) The Borrower shall fail to pay (i) any principal of
any Loan when due or (ii) any interest thereon, fees or other amounts (other
than any principal of any Loan) payable hereunder within two Business Days after
such interest, fees or other amounts shall have become due; or
(b) Any representation or warranty made by or on behalf
of the Borrower in any Loan Document or certificate or other writing delivered
pursuant thereto shall prove to have been incorrect in any material respect when
made or deemed made; or
(c) CMS Energy or any of its Subsidiaries shall fail to
perform or observe any term or covenant on its part to be performed or observed
contained in Section 7.01(c), (h), (i), (j), (l), (o) or (p) or in Section 7.02
hereof (and CMS Energy, the Borrower, each Lender and each Agent hereby agrees
that an Event of Default under this subsection (c) shall be given effect as if
the defaulting Subsidiary were a party to this Agreement); or
(d) CMS Energy or any of its Subsidiaries shall fail to
perform or observe any other term or covenant on its part to be performed or
observed contained in any Loan Document and any such failure shall remain
unremedied, after written notice thereof shall have been given to the Borrower
by the Administrative Agent, for a period of 10 Business Days (and CMS Energy,
the Borrower, each Lender and each Agent hereby agrees that an Event of Default
under this subsection (d) shall be given effect as if the defaulting Subsidiary
were a party to this Agreement); or
(e) CMS Energy, any Restricted Subsidiary or Consumers
shall fail to pay any of its Debt (including any interest or premium thereon but
excluding Debt incurred under this Agreement) (i) under the CMS Energy Credit
Agreement, (ii) the Enterprises 2003-A Credit Agreement, or (iii) otherwise
aggregating, in the case of CMS Energy and each Restricted Subsidiary,
$6,000,000 or more or, in the case of Consumers, $25,000,000 or more, when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace period, if
any, specified in any agreement or instrument relating to such Debt; or any
other default under any agreement or instrument relating to any such Debt
(including any "amortization event" or event of like import in connection with
any Off-Balance Sheet Liabilities), or any other event, shall occur and shall
continue after the applicable grace period, if any, specified in such agreement
or instrument, if the effect of such default or event is (i) to accelerate, or
to permit the acceleration of, the maturity of such Debt; or any such Debt shall
be declared to be due and payable, or required to be prepaid (other than by a
59
regularly scheduled required prepayment) prior to the stated maturity thereof;
unless in each such case the obligee under or holder of such Debt shall have
waived in writing such circumstance so that such circumstance is no longer
continuing, or (ii) with respect to any such event occurring in connection with
any Off-Balance Sheet Liabilities aggregating $6,000,000 or more, to terminate
the reinvestment of collections or proceeds of receivables and related security
under any agreements or instruments related thereto (other than a termination
resulting solely from the request of CMS Energy or its Subsidiaries); or
(f) (i) CMS Energy, any Restricted Subsidiary or
Consumers shall generally not pay its debts as such debts become due, or shall
admit in writing its inability to pay its debts generally, or shall make an
assignment for the benefit of creditors; or (ii) any proceeding shall be
instituted by or against CMS Energy, any Restricted Subsidiary or Consumers
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of its debts under any law relating to bankruptcy, insolvency, or
reorganization or relief of debtors, or seeking the entry of an order for relief
or the appointment of a receiver, trustee, or other similar official for it or
for any substantial part of its property and, in the case of a proceeding
instituted against CMS Energy, either such proceeding shall remain undismissed
or unstayed for a period of 60 days or any of the actions sought in such
proceeding (including the entry of an order for relief against CMS Energy, a
Restricted Subsidiary or Consumers or the appointment of a receiver, trustee,
custodian or other similar official for CMS Energy, such Restricted Subsidiary
or Consumers or any of its property) shall occur; or (iii) CMS Energy, any
Restricted Subsidiary or Consumers shall take any corporate or other action to
authorize any of the actions set forth above in this subsection (f); or
(g) Any judgment or order for the payment of money in
excess of $6,000,000 shall be rendered against the Borrower, any Guarantor or
any of their respective properties and either (i) enforcement proceedings shall
have been commenced by any creditor upon such judgment or order or (ii) there
shall be any period of 30 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect; or
(h) Any material provision of any Loan Document, after
execution hereof or delivery thereof under Article V, shall for any reason other
than the express terms hereof or thereof cease to be valid and binding on any
party thereto; or any Loan Party shall so assert in writing; or any Guarantor
shall terminate or revoke any of its obligations under the applicable Guaranty;
or
(i) Any "Event of Default" shall occur under and as
defined in the AIG Pledge Agreement as in effect on January 8, 2003 (and without
giving effect to any amendment or other modification thereto); or
(j) There shall be imposed or enacted any Consumers
Dividend Restriction, the result of which is that the Dividend Coverage Ratio
shall be less than 1.15 to 1.0 at any time after the imposition of such
Consumers Dividend Restriction; or
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(k) At any time, for any reason (except to the extent
permitted by the terms of the Loan Documents or due to any failure by the
Collateral Agent to take any action on its part to be performed under applicable
law in order to maintain the perfection or priority of any such Liens), (i) the
Liens intended to be created under any of the Loan Documents with respect to
Collateral having a Fair Market Value of $6,000,000 or more become, or the
Borrower or any such Subsidiary seeks to render such Liens, invalid or
unperfected, or (ii) Liens in favor of the Collateral Agent for the benefit of
the Lenders contemplated by the Loan Documents with respect to Collateral having
a Fair Market Value of $6,000,000 or more shall, at any time, for any reason, be
invalidated or otherwise cease to be in full force and effect, or such Liens
shall not have the priority contemplated by this Agreement or the Loan
Documents.
SECTION 8.02. REMEDIES. If any Event of Default has occurred and is
continuing, then the Administrative Agent or the Collateral Agent, as
applicable, shall at the request, or may with the consent, of the Required
Lenders, upon notice to the Borrower (i) declare the Commitments and the
obligation of each Lender to make or Convert Loans to be terminated, whereupon
the same shall forthwith terminate, (ii) declare the principal amount
outstanding hereunder, all interest thereon and all other amounts payable under
this Agreement and the other Loan Documents to be forthwith due and payable,
whereupon the principal amount outstanding hereunder, all such interest and all
such amounts shall become and be forthwith due and payable, without presentment,
demand, protest or further notice of any kind, all of which are hereby expressly
waived by the Borrower, and (iii) exercise in respect of any and all collateral,
in addition to the other rights and remedies provided for herein or otherwise
available to the Administrative Agent, the Collateral Agent or the Lenders
(including the delivery of instructions and entitlement orders in respect of the
Bond Cash Collateral Account, provided that the Collateral Agent hereby agrees
that it shall not issue such instructions or entitlement orders concerning the
assets held in the Bond Cash Collateral Account unless an Event of Default shall
have occurred and is continuing), all the rights and remedies of a secured party
on default under the Uniform Commercial Code in effect in the State of New York
and in effect in any other jurisdiction in which collateral is located at that
time; provided, however, that in the event of an actual or deemed entry of an
order for relief with respect to the Borrower or any Guarantor under the Federal
Bankruptcy Code, (A) the Commitments and the obligation of each Lender to make
or Convert Loans shall automatically be terminated and (B) the principal amount
outstanding hereunder, all such interest and all such amounts shall
automatically become and be due and payable, without presentment, demand,
protest or any notice of any kind, all of which are hereby expressly waived by
the Borrower.
ARTICLE IX
THE AGENTS
SECTION 9.01. AUTHORIZATION AND ACTION.
(a) Each of the Lenders hereby irrevocably appoints each
Agent as its agent and authorizes each such Agent to take such actions on its
behalf and to exercise such powers as are delegated to such Agent by the terms
of the Loan Documents, together with such actions and powers as are reasonably
incidental thereto.
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(b) Any Lender serving as an Agent hereunder shall have
the same rights and powers in its capacity as a Lender as any other Lender and
may exercise the same as though it were not an Agent, and such Lender and its
Affiliates may accept deposits from, lend money to and generally engage in any
kind of business with CMS Energy or any of its Subsidiaries or other Affiliate
thereof as if it were not an Agent hereunder.
(c) No Agent shall have any duties or obligations except
those expressly set forth in the Loan Documents. Without limiting the generality
of the foregoing, (i) no Agent shall be subject to any fiduciary or other
implied duties, regardless of whether a Default or an Event of Default has
occurred and is continuing, (ii) no Agent shall have any duty to take any
discretionary action or exercise any discretionary powers, except discretionary
rights and powers expressly contemplated by the Loan Documents that such Agent
is required to exercise in writing by the Required Lenders (or such other number
or percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 10.01), and (iii) except as expressly set forth in the Loan
Documents, no Agent shall have any duty to disclose, or shall be liable for the
failure to disclose, any information relating to CMS Energy or any of its
Subsidiaries or Affiliates that is communicated to or obtained by the Lender
serving as such Agent or any of its Affiliates in any capacity. No Agent shall
be liable for any action taken or not taken by it with the consent or at the
request of the Required Lenders (or such other number or percentage of the
Lenders as shall be necessary under the circumstances as provided in Section
10.01 or any other provision of this Agreement) or in the absence of its own
gross negligence or willful misconduct. Each Agent shall be deemed not to have
knowledge of any Default or Event of Default unless and until written notice
thereof is given to such Agent by the Borrower or a Lender (in which case such
Agent shall promptly give a copy of such written notice to the Lenders and the
other Agents). No Agent shall be responsible for or have any duty to ascertain
or inquire into (A) any statement, warranty or representation made in or in
connection with any Loan Document, (B) the contents of any certificate, report
or other document delivered thereunder or in connection therewith, (C) the
performance or observance of any of the covenants, agreements or other terms or
conditions set forth in any Loan Document, (D) the validity, enforceability,
effectiveness or genuineness of any Loan Document or any other agreement,
instrument or document, or (E) the satisfaction of any condition set forth in
Article V or elsewhere in any Loan Document, other than to confirm receipt of
items expressly required to be delivered to such Agent.
(d) Each Agent shall be entitled to rely upon, and shall
not incur any liability for relying upon, any notice, request, certificate,
consent, statement, instrument, document or other writing believed by it to be
genuine and to have been signed or sent by the proper Person. Each Agent also
may rely upon any statement made to it orally or by telephone and believed by it
to be made by the proper Person, and shall not incur any liability for relying
thereon. Each Agent may consult with legal counsel (who may be counsel for the
Borrower), independent accountants and other experts selected by it, and shall
not be liable for any action taken or not taken by it in accordance with the
advice of any such counsel, accountants or experts.
(e) Each Agent may perform any and all its duties and
exercise its rights and powers by or through one or more sub-agents appointed by
such Agent. Each Agent and any such sub-agent may perform any and all its duties
and exercise its rights and powers through their respective Related Parties. The
exculpatory provisions of the preceding subsections of this Section 9.01 shall
apply to any such sub-agent and to the Related Parties of each Agent and any
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such sub-agent, and shall apply to their respective activities in connection
with the syndication, if any, of the credit facilities provided for herein as
well as activities as an Agent.
(f) Subject to the appointment and acceptance of a
successor Agent as provided in this subsection (f), any Agent may resign at any
time by notifying the Lenders and the Borrower. Upon any such resignation, the
Required Lenders shall have the right, in consultation with the Borrower, to
appoint a successor. If no successor shall have been so appointed by the
Required Lenders and shall have accepted such appointment within 30 days after
the retiring Agent gives notice of its resignation, then the retiring Agent may,
on behalf of the Lenders, appoint a successor Agent which shall be a Lender with
an office in New York, New York, or an Affiliate of any such Lender. Upon the
acceptance of its appointment as an Agent hereunder by a successor, such
successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations hereunder. The fees payable by the
Borrower to a successor Agent shall be the same as those payable to its
predecessor unless otherwise agreed between the Borrower and such successor.
After an Agent's resignation hereunder, the provisions of this Article and
Section 10.04 shall continue in effect for the benefit of such retiring Agent,
its sub-agents and their respective Related Parties in respect of any actions
taken or omitted to be taken by any of them while it was acting as an Agent.
(g) Each Lender acknowledges that it has independently
and without reliance upon any Agent or any other Lender and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon any Agent or
any other Lender and based on such documents and information as it shall from
time to time deem appropriate, continue to make its own decisions in taking or
not taking action under or based upon this Agreement, any other Loan Document or
any related agreement or any document furnished hereunder or thereunder. Each
Lender agrees (except as provided in Section 10.05) that it will not take any
legal action, nor institute any actions or proceedings, against the Borrower or
any other obligor hereunder or with respect to any Collateral, without the prior
written consent of the Required Lenders. Without limiting the generality of the
foregoing, no Lender may accelerate or otherwise enforce its portion of the
Loans, or unilaterally terminate its Commitment except in accordance with
Section 8.02.
SECTION 9.02. INDEMNIFICATION. The Lenders agree to indemnify each
Agent (to the extent not reimbursed by the Borrower), ratably according to the
respective Percentages of the Lenders, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or asserted against such Agent in any way relating to or
arising out of this Agreement or any action taken or omitted by such Agent under
this Agreement, provided that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct. Without limitation of the foregoing, each Lender agrees to
reimburse the Agents and the Arranger promptly upon demand for its ratable share
of any out-of-pocket expenses (including counsel fees) incurred by the Agents in
connection with the preparation, syndication (if applicable), execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or
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legal advice in respect of rights or responsibilities under, this Agreement to
the extent that the Agents are entitled to reimbursement for such expenses
pursuant to Section 10.04 but are not reimbursed for such expenses by the
Borrower.
SECTION 9.03. CONCERNING THE COLLATERAL AND THE LOAN DOCUMENTS.
(a) Each Lender authorizes and directs the Collateral
Agent to enter into the Loan Documents relating to the Collateral for the
benefit of the Lenders. Each Lender agrees that any action taken by any Agent or
the Required Lenders (or, where required by the express terms of this Agreement,
a greater proportion of the Lenders) in accordance with the provisions of this
Agreement or the other Loan Documents, and the exercise by any Agent or the
Required Lenders (or, where so required, such greater proportion) of the powers
set forth herein or therein, together with such other powers as are reasonably
incidental thereto, shall be authorized and binding upon all of the Lenders.
Without limiting the generality of the foregoing, the Collateral Agent shall
have the sole and exclusive right and authority to (i) act as the disbursing and
collecting agent for the Lenders with respect to all payments and collections
arising in connection with this Agreement and the Loan Documents relating to the
Collateral; (ii) execute and deliver each Loan Document relating to the
Collateral and accept delivery of each such agreement delivered by the Borrower
or any other Loan Party a party thereto; (iii) act as collateral agent for the
Lenders for purposes of the perfection of all Liens created by such agreements
and all other purposes stated therein; provided, however, the Collateral Agent
hereby appoints, authorizes and directs the other Agents and the Lenders to act
as collateral sub-agent for the Collateral Agent and the Lenders for purposes of
the perfection of all Liens with respect to any property of the Borrower or any
of its Subsidiaries at any time in the possession of such Lender, including,
without limitation, deposit accounts maintained with, and cash held by, such
Lender; (iv) manage, supervise and otherwise deal with the Collateral; (v) take
such action as is necessary or desirable to maintain the perfection and priority
of the Liens created or purported to be created by the Loan Documents; and (vi)
except as may be otherwise specifically restricted by the terms of this
Agreement or any other Loan Document, exercise all remedies given to the
Collateral Agent or the Lenders with respect to the Collateral under the Loan
Documents relating thereto, applicable law or otherwise.
(b) The Administrative Agent and each Lender hereby
directs, in accordance with the terms of this Agreement, the Collateral Agent to
release any Lien held by the Collateral Agent for the benefit of the Lenders:
(i) against all of the Collateral, upon payment in full
of the Obligations of all of the Loan Parties under the Loan Documents
and termination of this Agreement;
(ii) against any part of the Collateral sold or disposed
of by the Borrower or any of its Subsidiaries, if such sale or
disposition is otherwise permitted under this Agreement, as certified
to the Collateral Agent by the Borrower, or is otherwise consented to
by the Required Lenders;
(iii) against any part of the Collateral consisting of a
promissory note, upon payment in full of the Debt evidenced thereby;
and/or
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(iv) against any of the Collateral and any Grantor upon
the occurrence of any event described in Section 8.10 of the Pledge
Agreements.
The Administrative Agent and each Lender hereby directs the Collateral Agent to
execute and deliver or file such termination and partial release statements and
do such other things as are necessary to release Liens to be released pursuant
to this Section 9.03(b) promptly upon the effectiveness of any such release.
SECTION 9.04. RELEASE OF GUARANTORS. Upon (x) the liquidation or
dissolution of any Guarantor, or sale of all of the capital stock or other
ownership interests of any Guarantor, in each case which is permitted pursuant
to the terms of any Loan Document or consented to in writing by the Required
Lenders or all of the Lenders, as applicable, and upon at least five (5)
Business Days' prior written request by the Borrower or (y) the occurrence of
any event described in Section 11 of the Guaranty, the Collateral Agent shall
(and is hereby irrevocably authorized by the Lenders to) execute such documents
as may be necessary to evidence the release of the applicable Guarantor from its
obligations under the Guaranty; provided, however, that (i) the Collateral Agent
shall not be required to execute any such document on terms which, in the
Collateral Agent's opinion, would expose the Collateral Agent to liability or
create any obligation or entail any consequence other than the release of such
Guarantor without recourse or warranty, and (ii) such release shall not in any
manner discharge, affect or impair the Loans, any other Guarantor's obligations
under the Guaranty, or, if applicable, any obligations of CMS Energy or any
Subsidiary in respect of the proceeds of any such sale retained by CMS Energy or
any Subsidiary.
ARTICLE X
MISCELLANEOUS
SECTION 10.01. AMENDMENTS, ETC. No amendment or waiver of any provision
of any Loan Document, nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Required Lenders, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given; provided,
however, that no amendment, waiver or consent shall, unless in writing and
signed by all the Lenders, do any of the following: (i) waive, modify or
eliminate any of the conditions specified in Article V, (ii) increase the
Commitments of the Lenders that may be maintained hereunder, (iii) reduce or
forgive the principal of, or interest on, any Loan, any Applicable Margin, any
Commitment Fee Margin or any fees or other amounts payable hereunder (other than
fees payable to the Administrative Agent pursuant to Section 2.02(b)), (iv)
postpone any date fixed for any payment of principal of, or interest on, any
Loan or any fees or other amounts payable hereunder (other than fees payable to
the Administrative Agent pursuant to Section 2.02(b)) (except with respect to
any modifications of the provisions relating to amounts, timing or application
of prepayments of Loans and other Obligations which modification shall require
only the approval of the Required Lenders), (v) change the definition of
"Required Lenders" contained in Section 1.01 or change any other provision that
specifies the percentage of the Commitments or of the aggregate unpaid principal
amount of the Loans or the number of Lenders which shall be required for the
Lenders or any of them to take any action hereunder, (vi) (vi) amend, waive or
modify Section 2.03(b) or this Section 10.01, (vii) release the Collateral
Agent's Lien on all of the Collateral or any portion of the Collateral in excess
of
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$50,000,000 (except as provided in Section 9.03(b)), (viii) extend the
Commitment Termination Date or the Termination Date or (ix) amend any provision
of Section 4.01(g), 4.05 or 4.07 that provides for or ensures ratable
distributions to the Lenders; and provided, further, that no amendment, waiver
or consent shall, unless in writing and signed by each Agent in addition to the
Lenders required above to take such action, affect the rights or duties of any
Agent under this Agreement or any other Loan Document; and provided, further,
that, without the consent of the "Required Lenders" under the Enterprises 2003-A
Credit Agreement (as such term is defined in the Enterprises 2003-A Credit
Agreement as in effect on the date hereof), neither the Borrower nor any Lender
shall enter into, consent to or approve any amendment, modification or waiver of
any provision of this Agreement or any other Loan Document if, as a result of
such amendment, modification or waiver, the "Lenders" under the Enterprises
2003-A Credit Agreement (as such term is defined in the Enterprises 2003-A
Credit Agreement as in effect on the date hereof) would no longer be entitled to
the pro rata sharing requirements of Sections 2.03(c), 4.07(b) or 4.08, and any
such attempted amendment, modification or waiver shall be null and void (it
being understood and agreed that each "Lender" under the Enterprises 2003-A
Credit Agreement shall be entitled to enforce the provisions of this proviso).
Any request from the Borrower for any amendment, waiver or consent under this
Section 10.01 shall be addressed to the Administrative Agent.
SECTION 10.02. NOTICES, ETC. All notices and other communications
provided for hereunder and under the other Loan Documents shall be in writing
(including telegraphic, facsimile, telex or cable communication) and mailed,
telegraphed, telecopied, telexed, cabled or delivered, (i) if to the Borrower or
CMS Energy, at its address at c/o CMS Energy Corporation, Fairlane Plaza South,
330 Town Center Drive, Suite 1100, Dearborn, Michigan 48126, Attention: S.
Kinnie Smith, Jr., General Counsel, with a copy to Laura L. Mountcastle, Vice
President, Investor Relations and Treasurer, 330 Town Center Drive, Suite 1100,
Dearborn, Michigan 48126; (ii) if to any Bank, at the address set forth on its
signature page hereto; (iii) if to any Lender other than a Bank, at its
Applicable Lending Office specified in the Lender Assignment pursuant to which
it became a Lender; (iv) if to the Administrative Agent with respect to funding
or payment of any amounts hereunder, at its address at 2 Penns Way, Suite 200,
New Castle, DE 19270, Attn: Dawn Conover, Telephone No. (302) 894-6063, Telecopy
No. (302) 894-6120; (v) if to the Administrative Agent for any other reason or
to the Collateral Agent, at its address at 388 Greenwich Street, New York, New
York 10003, Attn: Nick McKee, Telephone No. (212) 816-8592, Telecopy No. (212)
816-8098; or, as to each party, at such other address as shall be designated by
such party in a written notice to the other parties. All such notices and
communications shall, when mailed, telegraphed, telecopied, telexed or cabled,
be effective five days after when deposited in the mails, or when delivered to
the telegraph company, telecopied, confirmed by telex answerback or delivered to
the cable company, respectively, except that notices and communications to any
Agent pursuant to Article II, III, or IX shall not be effective until received
by such Agent.
SECTION 10.03. NO WAIVER OF REMEDIES. No failure on the part of the
Borrower, any Lender or any Agent to exercise, and no delay in exercising, any
right hereunder or under any other Loan Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
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SECTION 10.04. COSTS, EXPENSES AND INDEMNIFICATION.
(a) The Borrower agrees to (i) reimburse on demand all
reasonable costs and expenses of each Agent and the Arranger (including
reasonable fees and expenses of counsel to the Agents) in connection with (A)
the preparation, syndication (if applicable), negotiation, execution and
delivery of the Loan Documents and (B) the care and custody of any and all
collateral, and any proposed modification, amendment, or consent relating to any
Loan Document, and (ii) to pay on demand all reasonable costs and expenses of
each Agent and, on and after the date upon which the principal amount
outstanding hereunder becomes or is declared to be due and payable pursuant to
Section 8.02 or an Event of Default specified in Section 8.01(a) shall have
occurred and be continuing, each Lender (including fees and expenses of counsel
to the Agents, special Michigan counsel to the Lenders and, from and after such
date, counsel for each Lender (including the allocated costs and expenses of
in-house counsel)) in connection with the workout, restructuring or enforcement
(whether through negotiations, legal proceedings or otherwise) of this
Agreement, the other Loan Documents and the other documents to be delivered
hereunder.
(b) The Borrower shall indemnify each Agent, the
Arranger, each Lender, and each Related Party of any of the foregoing Persons
(each such Person being called an "INDEMNIFIED PERSON") against, and hold each
Indemnified Person harmless from, any and all losses, claims, damages,
liabilities and related expenses, including the reasonable fees, charges and
disbursements of any counsel for any Indemnified Person, incurred by or asserted
against any Indemnified Person arising out of, in connection with, or as a
result of (i) the execution or delivery of any Loan Document or any other
agreement or instrument contemplated hereby or thereby, the performance by the
parties to the Loan Documents of their respective obligations thereunder or the
consummation of the transactions contemplated hereby or thereby, (ii) any Loan
or other Extension of Credit or the use or proposed use of the proceeds
therefrom, (iii) any actual or alleged presence or release of any Hazardous
Substance on or from any property owned or operated by CMS Energy or any of its
Subsidiaries, or any Environmental Liability related in any way to CMS Energy or
any of its Subsidiaries, or (iv) any actual or prospective claim, litigation,
investigation or proceeding relating to any of the foregoing, whether based on
contract, tort or any other theory and regardless of whether any Indemnified
Person is a party thereto; provided that such indemnity shall not, as to any
Indemnified Person, be available to the extent that such losses, claims,
damages, liabilities or related expenses are determined by a court of competent
jurisdiction by final and nonappealable judgment to have resulted from the gross
negligence or willful misconduct of such Indemnified Person.
(c) The Borrower's other obligations under this Section
10.04 shall survive the repayment of all amounts owing to the Lenders and the
Agents under the Loan Documents and the termination of the Commitments. If and
to the extent that the obligations of the Borrower under this Section 10.04 are
unenforceable for any reason, the Borrower agrees to make the maximum
contribution to the payment and satisfaction thereof which is permissible under
applicable law.
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SECTION 10.05. RIGHT OF SET-OFF.
(a) Upon (i) the occurrence and during the continuance of
any Event of Default and (ii) the making of the request or the granting of the
consent specified by Section 8.02 to authorize the Administrative Agent to
declare the principal amount outstanding hereunder to be due and payable
pursuant to the provisions of Section 8.02, each Lender is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by such Lender to or for the credit or the account of the Borrower, against any
and all of the obligations of the Borrower now or hereafter existing under this
Agreement and the Promissory Notes held by such Lender, irrespective of whether
or not such Lender shall have made any demand under this Agreement or such
Promissory Notes, as the case may be, and although such obligations may be
unmatured. Each Lender agrees to notify promptly the Borrower after any such
set-off and application made by such Lender, provided that the failure to give
such notice shall not affect the validity of such set-off and application. The
rights of each Lender under this Section 10.05 are in addition to other rights
and remedies (including other rights of set-off) which such Lender may have.
(b) The Borrower agrees that it shall have no right of
off-set, deduction or counterclaim in respect of its obligations hereunder, and
that the obligations of the Lenders hereunder are several and not joint. Nothing
contained herein shall constitute a relinquishment or waiver of the Borrower's
rights to any independent claim that the Borrower may have against any Agent or
any Lender for such Agent's or such Lender's, as the case may be, gross
negligence or willful misconduct, but no Lender shall be liable for any such
conduct on the part of any Agent or any other Lender, and no Agent shall be
liable for any such conduct on the part of any Lender.
SECTION 10.06. BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrower and the Agents and when the
Administrative Agent shall have been notified by each Bank that such Bank has
executed it and thereafter shall be binding upon and inure to the benefit of the
Borrower, the Agents and each Lender and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lenders.
SECTION 10.07. ASSIGNMENTS AND PARTICIPATION.
(a) Any Lender may sell participations in all or a
portion of its rights and obligations under this Agreement pursuant to
subsection (b) below and any Lender may assign all or any part of its rights and
obligations under this Agreement pursuant to subsection (c) below.
(b) Any Lender may sell participations to one or more
banks or other entities (each a "PARTICIPANT") in all or a portion of its rights
and obligations under this Agreement (including, without limitation, all or a
portion of its Commitment and its outstanding Loan), provided that (i) such
Lender's obligations under this Agreement (including, without limitation, its
Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) such Lender shall remain the holder of the Loans of
such Lender for all purposes of this Agreement and (iv) the Borrower shall
continue to deal solely and directly with such Lender in
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connection with such Lender's rights and obligations under this Agreement. Each
Lender shall retain the sole right to approve, without the consent of any
Participant, any amendment, modification or waiver of any provision of the Loan
Documents other than any amendment, modification or waiver with respect to any
Loan or Commitment in which such Participant has an interest which would require
consent of all of the Lenders pursuant to the terms of Section 10.01 or of any
other Loan Document. The Borrower agrees that each Participant shall be deemed
to have the right of set-off provided in Section 10.05 in respect of its
participating interest in amounts owing under the Loan Documents to the same
extent as if the amount of its participating interest were owing directly to it
as a Lender under the Loan Documents, provided that each Lender shall retain the
right of set-off provided in Section 10.05 with respect to the amount of
participating interests sold to each Participant. The Lenders agree to share
with each Participant, and each Participant, by exercising the right of set-off
provided in Section 10.05, agrees to share with each Lender, any amount received
pursuant to the exercise of its right of set-off, such amounts to be shared in
accordance with Section 10.05 as if each Participant were a Lender. The Borrower
further agrees that each Participant shall be entitled to the benefits of
Sections 4.04 and 4.06 to the same extent as if it were a Lender and had
acquired its interest by assignment pursuant to Section 10.07(c); provided that
(i) a Participant shall not be entitled to receive any greater payment under
Section 4.04 or 4.06 than the Lender who sold the participating interest to such
Participant would have received had it retained such interest for its own
account, unless the sale of such interest to such Participant is made with the
prior written consent of the Borrower, and (ii) any Participant not incorporated
under the laws of the United States of America or any State thereof agrees to
comply with the provisions of Section 4.06 to the same extent as if it were a
Lender.
(c) Any Lender may, in the ordinary course of its
business and in accordance with applicable law, with the consent of the
Administrative Agent (such consent not to be unreasonably withheld or delayed),
at any time assign to any other Lender or to any Eligible Bank all or any part
of its rights and obligations under this Agreement, provided that the minimum
principal amount of any such assignment (other than assignments to a Federal
Reserve Bank, or to any other Lender, or to any direct or indirect contractual
counterparties in swap agreements relating to the Loans to the extent required
in connection with the physical settlement of any Lender's obligations pursuant
thereto) shall be $1,000,000 (or such lesser amount consented to by the
Administrative Agent); provided that, unless such Lender is assigning all of its
rights and obligations hereunder, after giving effect to such assignment the
assigning Lender shall have Loans in the aggregate of not less than $1,000,000
(unless otherwise consented to by the Administrative Agent).
(d) Any Lender may, in connection with any sale or
participation or proposed sale or participation pursuant to this Section 10.07
disclose to the purchaser or Participant or proposed purchaser or Participant
any information relating to the Borrower furnished to such Lender by or on
behalf of the Borrower, provided that prior to any such disclosure of non-public
information, the purchaser or Participant or proposed purchaser or Participant
(which Participant is not an affiliate of a Lender) shall agree to preserve the
confidentiality of any confidential information (except any such disclosure as
may be required by law or regulatory process) relating to the Borrower received
by it from such Lender.
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(e) Assignments under this Section 10.07 shall be made
pursuant to an agreement (a "LENDER ASSIGNMENT") substantially in the form of
Exhibit F hereto or in such other form as may be agreed to by the parties
thereto and shall not be effective until a $3,500 fee has been paid to the
Administrative Agent by the assignee, which fee shall cover the cost of
processing such assignment, provided, that such fee shall not be incurred in the
event of an assignment by any Lender of all or a portion of its rights under
this Agreement to (i) a Federal Reserve Bank or (ii) a Lender or an Eligible
Bank or (iii) to any direct or indirect contractual counterparties in swap
agreements relating to the Loans to the extent required in connection with the
physical settlement of any Lender's obligations pursuant thereto.
(f) Notwithstanding anything to the contrary contained
herein, any Lender (a "GRANTING LENDER") may grant to a special purpose funding
vehicle (an "SPC"), identified as such in writing from time to time by the
Granting Lender to the Administrative Agent and the Borrower, the option to
provide to the Borrower all or any part of any Loan that such Granting Lender is
obligated to make to the Borrower pursuant to this Agreement; provided that (i)
nothing herein shall constitute a commitment by any SPC to make any Loan, (ii)
if an SPC elects not to exercise such option or otherwise fails to provide all
or any part of such Loan, the Granting Lender shall remain obligated to make
such Loan pursuant to the terms hereof, (iii) the Borrower shall not be required
to pay any amount under Section 4.06 that is greater than the amount which it
would have been required to pay had there been no grant to an SPC and (iv) any
SPC (or assignee of an SPC) will comply, if applicable, with the provisions
contained in Section 4.06. No grant by any Granting Lender to an SPC agreeing to
provide a Loan or the making of such Loan by such SPC shall operate to relieve
such Granting Lender of its liabilities and obligations hereunder, except to the
extent of the making of such Loan by such SPC. The making of a Loan by an SPC
hereunder shall utilize the Commitment of the Granting Lender to the same
extent, and as if, such Loan were made by such Granting Lender. Each party
hereto hereby agrees that no SPC shall be liable for any indemnity or similar
payment obligation under this Agreement (all liability for which shall remain
with the Granting Lender). In addition, each party hereto hereby agrees (which
agreement shall survive the termination of this Agreement) that any SPC may (i)
with notice to, but without the prior written consent of, the Borrower and the
Administrative Agent and without paying any processing fee therefor, assign all
or a portion of its interests in any Loans to the Granting Lender or to any
financial institutions (consented to by the Administrative Agent in its sole
discretion) providing liquidity and/or credit support to or for the account of
such SPC to support the funding or maintenance of Loans and (ii) disclose on a
confidential basis any non-public information relating to its Loans to any
rating agency, commercial paper dealer or provider of any surety, guarantee or
credit or liquidity enhancement to such SPC. This Section 10.07(f) may not be
amended without the written consent of any SPC that holds an option to provide
Loans. No recourse under any obligation, covenant, or agreement of the SPC
contained in this Agreement shall be had against any shareholder, officer, agent
or director of the SPC as such, by the enforcement of any assessment or by any
proceeding, by virtue of any statute or otherwise; it being expressly agreed and
understood that this Agreement is a corporate obligation of the SPC and no
personal liability shall attach to or be incurred by any officer, agent or
member of the SPC as such, or any of them under or by reason of any of the
obligations, covenants or agreements of the SPC contained in this Agreement, or
implied therefrom, and that any and all personal liability for breaches by the
SPC of any such obligations, covenants or agreements, either at law or by
statute or constitution, of every such shareholder, officer, agent or director
is hereby expressly waived by all parties to this Agreement as a
70
condition of and consideration for the SPC entering into this Agreement;
provided, however, that the foregoing shall not relieve any such person or
entity of any liability they might otherwise have as a result of fraudulent
actions or omissions taken by them. All parties to this Agreement acknowledge
and agree that the SPC shall only be liable for any claims that each of them may
have against the SPC only to the extent of the SPC's assets. The provisions of
this clause shall survive the termination of this Agreement.
(g) Any Lender may at any time pledge or assign a
security interest in all or any portion of its rights under this Agreement to
secure obligations of such Lender, including without limitation any pledge or
assignment to secure obligations to a Federal Reserve Bank; provided that no
such pledge or assignment shall release such Lender from any of its obligations
hereunder or substitute any such pledgee or assignee for such Lender as a party
hereto.
(h) The Administrative Agent shall maintain at its
address referred to in Section 10.02 a copy of each Lender Assignment delivered
to and accepted by it and a register for the recordation of the names and
addresses of the Lenders and the Commitment of, and principal amount of the
Loans owing to, each Lender from time to time (the "REGISTER"). The entries in
the Register shall be conclusive and binding for all purposes, absent manifest
error, and the Borrower, the Agents and the Lenders may treat each Person whose
name is recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
SECTION 10.08. CONFIDENTIALITY. In connection with the negotiation and
administration of this Agreement and the other Loan Documents, the Borrower has
furnished and will from time to time furnish to the Agents and the Lenders
(each, a "RECIPIENT") written information which is identified to the Recipient
when delivered as confidential (such information, other than any such
information which (i) was publicly available, or otherwise known to the
Recipient, at the time of disclosure, (ii) subsequently becomes publicly
available other than through any act or omission by the Recipient or (iii)
otherwise subsequently becomes known to the Recipient other than through a
Person whom the Recipient knows to be acting in violation of his or its
obligations to the Borrower, being hereinafter referred to as "CONFIDENTIAL
INFORMATION"). The Recipient will not knowingly disclose any such Confidential
Information to any third party (other than to those persons who have a
confidential relationship with the Recipient), and will take all reasonable
steps to restrict access to such information in a manner designed to maintain
the confidential nature of such information, in each case until such time as the
same ceases to be Confidential Information or as the Borrower may otherwise
instruct. It is understood, however, that the foregoing will not restrict the
Recipient's ability to freely exchange such Confidential Information with its
Affiliates or with prospective Participants in or assignees of the Recipient's
position herein, but the Recipient's ability to so exchange Confidential
Information shall be conditioned upon any such Affiliate's or prospective
Participant's (as the case may be) entering into an agreement as to
confidentiality similar to this Section 10.08. It is further understood that the
foregoing will not prohibit the disclosure of any or all Confidential
Information if and to the extent that such disclosure may be required (1) by a
regulatory agency or otherwise in connection with an examination of the
Recipient's records by appropriate authorities, (2) pursuant to court order,
subpoena or other legal process or in connection with any proceeding, suit or
other action relating to any Loan Document or (3) otherwise, as required by law;
in the
71
event of any required disclosure under clause (2) or (3), above, the Recipient
agrees to use reasonable efforts to inform the Borrower as promptly as
practicable to the extent not prohibited by law. Notwithstanding any other
provision of this Agreement, each party (and each Participant pursuant to
Section 10.07) (and each employee, representative or other agent of such party
(or Participant)) may disclose to any and all persons, without limitation of any
kind, the U.S. tax treatment and U.S. tax structure of the transactions
contemplated by the Loan Documents and all materials of any kind (including
opinions or other tax analyses) that are provided to such party relating to such
U.S. tax treatment and U.S. tax structure, other than any information for which
nondisclosure is reasonably necessary in order to comply with applicable
securities laws.
SECTION 10.09. Waiver of Jury Trial. THE BORROWER, CMS ENERGY, THE
AGENTS AND THE LENDERS EACH HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OTHER INSTRUMENT OR DOCUMENT
DELIVERED HEREUNDER OR THEREUNDER.
SECTION 10.10. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS
AGREEMENT AND THE PROMISSORY NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF
THE GENERAL OBLIGATIONS LAWS OF THE STATE OF NEW YORK, BUT OTHERWISE WITHOUT
REGARD TO CONFLICTS OF LAW PRINCIPLES). THE BORROWER, CMS ENERGY, THE LENDERS
AND THE AGENTS, EACH (I) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY NEW YORK
STATE COURT OR FEDERAL COURT SITTING IN NEW YORK CITY IN ANY ACTION ARISING OUT
OF ANY LOAN DOCUMENT, (II) AGREES THAT ALL CLAIMS IN SUCH ACTION MAY BE DECIDED
IN SUCH COURT, (III) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO, THE
DEFENSE OF AN INCONVENIENT FORUM AND (IV) CONSENTS TO THE SERVICE OF PROCESS BY
MAIL. A FINAL JUDGMENT IN ANY SUCH ACTION SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY
PARTY TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW OR AFFECT ITS RIGHT
TO BRING ANY ACTION IN ANY OTHER COURT. EACH OF THE BORROWER AND CMS ENERGY
AGREES THAT THE AGENTS SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER, CMS
ENERGY OR ITS RESPECTIVE PROPERTY IN A COURT IN ANY LOCATION TO ENABLE THE
AGENTS AND THE LENDERS TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR
THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR
OF THE AGENTS OR ANY LENDER. EACH OF THE BORROWER AND CMS ENERGY AGREES THAT IT
WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY ANY
AGENT OR ANY LENDER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF ANY AGENT
OR ANY LENDER. EACH OF THE BORROWER AND CMS ENERGY WAIVES ANY OBJECTION THAT IT
MAY HAVE TO THE LOCATION OF THE COURT IN WHICH ANY AGENT OR ANY LENDER MAY
COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION.
72
SECTION 10.11. RELATION OF THE PARTIES; NO BENEFICIARY. No term,
provision or requirement, whether express or implied, of any Loan Document, or
actions taken or to be taken by any party thereunder, shall be construed to
create a partnership, association, or joint venture between such parties or any
of them. No term or provision of the Loan Documents shall be construed to confer
a benefit upon, or grant a right or privilege to, any Person other than the
parties hereto. The Borrower hereby acknowledges that neither any Agent nor any
Lender has any fiduciary relationship with or fiduciary duty to the Borrower
arising out of or in connection with this Agreement or any of the other Loan
Documents, and the relationship between the Agents and the Lenders, on the one
hand, and the Borrower, on the other hand, in connection herewith or therewith
is solely that of debtor and creditor.
SECTION 10.12. EXECUTION IN COUNTERPARTS. This Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
Agreement.
SECTION 10.13. SURVIVAL OF AGREEMENT. All covenants, agreements,
representations and warranties made herein and in the certificates pursuant
hereto shall be considered to have been relied upon by the Agents and the
Lenders and shall survive the making by the Lenders of the Extensions of Credit
and the execution and delivery to the Lenders of any Promissory Notes evidencing
the Extensions of Credit and shall continue in full force and effect so long as
any Promissory Note or any amount due hereunder is outstanding and unpaid or any
Commitment of any Lender has not been terminated.
SECTION 10.14. LIMITATION OF LIABILITY: COMMUNICATIONS. WITH RESPECT TO
COMMUNICATIONS DELIVERED PURSUANT TO SECTION 10.15 OF THIS AGREEMENT, SUCH
COMMUNICATIONS AND THE PLATFORM ARE PROVIDED "AS IS" AND "AS AVAILABLE". THE
CITIGROUP PARTIES DO NOT WARRANT THE ACCURACY, ADEQUACY OR COMPLETENESS OF THE
COMMUNICATIONS OR THE PLATFORM AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS OR
OMISSIONS IN THE COMMUNICATIONS OR THE PLATFORM. NO WARRANTY OF ANY KIND,
EXPRESS, IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD
PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE
CITIGROUP PARTIES IN CONNECTION WITH THE COMMUNICATIONS OR THE PLATFORM. THE
BORROWER HEREBY ACKNOWLEDGES THAT ALTHOUGH THE PRIMARY WEB PORTAL IS SECURED
WITH A DUAL FIREWALL AND A USER IDENTIFICATION/PASSWORD AUTHORIZATION SYSTEM AND
THE PLATFORM IS SECURED THROUGH A SINGLE USER PER DEAL AUTHORIZATION METHOD
WHEREBY EACH USER MAY ACCESS THE PLATFORM ONLY ON A DEAL-BY-DEAL BASIS, THE
DISTRIBUTION OF MATERIAL THROUGH AN ELECTRONIC MEDIUM IS NOT NECESSARILY SECURE
AND THAT THERE ARE CONFIDENTIALITY AND OTHER RISKS ASSOCIATED WITH SUCH
DISTRIBUTION. THE PROVISIONS OF THIS SECTION 10.14 SHALL SURVIVE THE MAKING OF
ANY LOAN, THE REPAYMENT THEREOF AND THE TERMINATION OF THIS AGREEMENT AND ANY
LOAN DOCUMENT.
73
SECTION 10.15. PLATFORM AND PRIMARY WEB PORTAL.
(a) The Borrower shall use its commercially reasonable
best efforts to transmit to the Administrative Agent all information, documents
and other materials that it is obligated to furnish to the Administrative Agent
pursuant to this Agreement and the other Loan Documents, including, without
limitation, all notices, requests, financial statements, financial and other
reports, certificates and other information materials, but excluding any such
communication that (i) relates to a notice of borrowing or other extension of
credit or a conversion of an existing interest rate on any Loan or borrowing
(including, without limitation, any Notice of Conversion), (ii) relates to the
payment of any principal or other amount due hereunder prior to the scheduled
date therefor, (iii) provides notice of any Default or Event of Default
hereunder or (iv) is required to be delivered to satisfy any condition precedent
to the effectiveness of this Agreement and/or any extension of credit hereunder
(all such non-excluded communications being referred to herein collectively as
"COMMUNICATIONS"), in an electronic/soft medium in a format reasonably
acceptable to the Administrative Agent to oploanswebadmin@citigroup.com. In
addition, the Borrower shall continue to provide the Communications to the
Administrative Agent in the manner specified in this Agreement but only to the
extent requested by the Administrative Agent. Each Lender and the Borrower
further agree that the Administrative Agent may make the Communications
available to the Lenders by posting the Communications on "e-Disclosure" (the
"PLATFORM"), the Administrative Agent's internet delivery system that is part of
SSB Direct, Global Fixed Income's primary web portal (the "PRIMARY WEB PORTAL").
(b) The Administrative Agent agrees that the receipt of
the Communications by the Administrative Agent at its e-mail address set forth
in clause (a) above shall constitute effective delivery of the Communications to
the Administrative Agent for purposes of this Agreement and under the Loan
Documents. Each Lender agrees that notice to it at its e-mail address provided
in clause (a) above specifying that Communications have been posted to the
Platform shall constitute effective delivery of the Communications to such
Lender under this Agreement and under the Loan Documents.
(c) Nothing in this Agreement or any other Loan Document
shall prejudice the right of the Administrative Agent or any Lender to give any
notice or other communication pursuant hereto or to any other Loan Document in
any other manner specified herein or therein.
(d) The provisions of Section 10.15(a) and (b) shall
terminate on the date that neither CUSA nor any of the Citigroup Parties is the
Administrative Agent.
[Signature pages follow.]
74
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
CMS ENTERPRISES COMPANY
By: Laura L. Montcastle
---------------------------
Name:
Title:
CMS ENERGY CORPORATION
By: Laura L. Montcastle
---------------------------
Name:
Title:
Signature Page to
Credit Agreement
(Enterprises 2003-B)
CITICORP USA, INC., as Collateral Agent and
as Administrative Agent
By: /s/ Dale R. Goncher
---------------------------
Name: Dale R. Goncher
Title: Director
CITIBANK, N.A., as a Lender
By: /s/ Dale R. Goncher
---------------------------
Name: Dale R. Goncher
Title: Director
Address: 388 Greenwich St.
New York, NY 10013
Attn: Nicholas McKee
Telephone: (212) 816-8592
Fax: (212) 816-8098
Signature Page to
Credit Agreement
(Enterprises 2003-B)
EXHIBIT 10(b)
- --------------------------------------------------------------------------------
AMENDED AND RESTATED STOCK PURCHASE AGREEMENT
BY AND AMONG
CMS GAS TRANSMISSION COMPANY,
SOUTHERN UNION COMPANY
AND
SOUTHERN UNION PANHANDLE CORP.
DATED AS OF
MAY 12, 2003
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS
Section 1.1 Specific Definitions........................................................2
ARTICLE II SALE AND PURCHASE
Section 2.1 Agreement to Sell and Purchase.............................................17
Section 2.2 Time and Place of Closing..................................................17
Section 2.3 Pre-Closing Matters........................................................17
Section 2.4 Estimated Purchase Price...................................................18
Section 2.5 Post-Closing Adjustment....................................................19
Section 2.6 Deliveries by Seller at the Closing........................................21
Section 2.7 Deliveries by Buyer at the Closing.........................................21
Section 2.8 Cooperation with Respect to Like-Kind Exchange.............................22
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1 Corporate Organization; Qualification......................................23
Section 3.2 Authority Relative to this Agreement.......................................23
Section 3.3 Panhandle Shares...........................................................24
Section 3.4 Consents and Approvals.....................................................25
Section 3.5 No Conflict or Violation...................................................25
Section 3.6 Financial Information......................................................26
Section 3.7 Contracts..................................................................26
Section 3.8 Compliance with Law........................................................27
Section 3.9 Permits....................................................................27
Section 3.10 Litigation................................................................27
Section 3.11 Title to Properties.......................................................28
Section 3.12 Employee Matters..........................................................28
Section 3.13 Labor Relations...........................................................30
Section 3.14 Intellectual Property.....................................................30
Section 3.15 Representations with Respect to Environmental Matters.....................31
Section 3.16 Tax Matters...............................................................32
Section 3.17 Absence of Certain Changes or Events......................................32
Section 3.18 Absence of Undisclosed Liabilities........................................33
Section 3.19 Brokerage and Finders' Fees...............................................33
Section 3.20 Affiliated Transactions...................................................33
Section 3.21 Insurance.................................................................33
Section 3.22 Regulatory Matters........................................................34
Section 3.23 Opinions of Financial Advisors............................................34
Section 3.24 Investment Representations................................................35
Section 3.25 Recent Transfers..........................................................35
Section 3.26 Date of Certain Representations...........................................35
Section 3.27 No Other Representations or Warranties....................................35
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER AND SOUTHERN UNION
Section 4.1 Corporate Organization; Qualification......................................36
Section 4.2 Authority Relative to this Agreement.......................................36
Section 4.3 Consents and Approvals.....................................................37
Section 4.4 No Conflict or Violation...................................................37
Section 4.5 Litigation.................................................................37
Section 4.6 Availability of Funds......................................................38
Section 4.7 Brokerage and Finders' Fees................................................38
Section 4.8 Investment Representations.................................................38
Section 4.9 Buyer Capitalization; Other Interests......................................39
Section 4.10 Compliance with Law.......................................................39
Section 4.11 Southern Union Shares.....................................................40
Section 4.12 Southern Union Financial Information......................................41
Section 4.13 Absence of Certain Changes or Events......................................41
Section 4.14 Absence of Undisclosed Liabilities........................................41
Section 4.15 Southern Union Subsidiaries...............................................41
Section 4.16 SEC Filings...............................................................42
Section 4.17 Date of Certain Representations...........................................42
Section 4.18 No Other Representations or Warranties....................................42
ARTICLE V COVENANTS OF THE PARTIES
Section 5.1 Conduct of Business........................................................42
Section 5.2 Access to Properties and Records...........................................45
Section 5.3 Southern Union Conduct of Business.........................................45
Section 5.4 Consents and Approvals.....................................................47
Section 5.5 Further Assurances.........................................................49
Section 5.6 Employee Matters...........................................................49
Section 5.7 Tax Covenants..............................................................53
Section 5.8 Intercompany Accounts......................................................60
Section 5.9 Related Agreements.........................................................61
Section 5.10 Maintenance of Insurance Policies.........................................61
Section 5.11 Preservation of Records...................................................62
Section 5.12 Public Statements.........................................................62
Section 5.13 Certain Transactions......................................................62
Section 5.14 CMS Panhandle Holdings, LLC...............................................63
Section 5.15 Change of Corporate Name..................................................63
Section 5.16 Transitional Use of Seller's Trademarks...................................63
Section 5.17 Reasonable Best Efforts...................................................65
Section 5.18 No Shopping...............................................................65
Section 5.19 Southern Union Covenants..................................................65
Section 5.20 Restated Financials.......................................................65
Section 5.21 1935 Act Jurisdiction.....................................................66
Section 5.22 Registration of Southern Union Shares.....................................66
ARTICLE VI CONDITIONS
Section 6.1 Mutual Conditions to the Closing...........................................66
Section 6.2 Buyer's Conditions to the Closing..........................................67
Section 6.3 Seller's Conditions to the Closing.........................................69
ARTICLE VII TERMINATION AND ABANDONMENT
Section 7.1 Termination................................................................70
Section 7.2 Procedure and Effect of Termination........................................71
ARTICLE VIII SURVIVAL; INDEMNIFICATION
Section 8.1 Survival...................................................................71
Section 8.2 Indemnification............................................................72
Section 8.3 Calculation of Damages.....................................................75
Section 8.4 Procedures for Third-Party Claims..........................................75
Section 8.5 Procedures for Inter-Party Claims..........................................76
ARTICLE IX MISCELLANEOUS PROVISIONS
Section 9.1 Interpretation.............................................................77
Section 9.2 Disclosure Letters.........................................................77
Section 9.3 Payments...................................................................77
Section 9.4 Expenses...................................................................77
Section 9.5 Choice of Law..............................................................78
Section 9.6 Assignment.................................................................78
Section 9.7 Notices....................................................................78
Section 9.8 Consent to Jurisdiction....................................................79
Section 9.9 Resolution of Disputes.....................................................79
Section 9.10 Waiver of Jury Trial......................................................80
Section 9.11 No Right of Setoff........................................................80
Section 9.12 Time is of the Essence....................................................81
Section 9.13 Specific Performance......................................................81
Section 9.14 Entire Agreement..........................................................81
Section 9.15 Third Party Beneficiaries.................................................81
Section 9.16 Counterparts..............................................................81
Section 9.17 Severability..............................................................81
Section 9.18 Headings..................................................................82
Section 9.19 Waiver....................................................................82
Section 9.20 Amendment.................................................................82
STOCK PURCHASE AGREEMENT
This AMENDED AND RESTATED STOCK PURCHASE AGREEMENT, dated as of May 12,
2003 (this "Agreement"), is made and entered into by and among CMS Gas
Transmission Company, a Michigan corporation (the "Seller"), Southern Union
Company, a Delaware corporation ("Southern Union"), and Southern Union Panhandle
Corp., a Delaware corporation (the "Buyer").
W I T N E S S E T H:
WHEREAS, Panhandle Eastern Pipe Line Company, a Delaware corporation
("Panhandle"), itself and through its subsidiaries, owns and operates a network
of integrated natural gas and condensate pipeline and is engaged in the business
of the interstate transportation of natural gas, natural gas storage services,
the storage and regasification of liquefied natural gas and the separation and
measurement of condensate;
WHEREAS, Seller owns all of the issued and outstanding shares of
Panhandle (the "Panhandle Shares");
WHEREAS, Southern Union has formed Buyer for the purpose of effecting
the transactions contemplated in this Agreement;
WHEREAS, Seller desires to sell all of the Panhandle Shares;
WHEREAS, Southern Union desires to cause Buyer to purchase all of the
Panhandle Shares;
WHEREAS, each of the Boards of Directors or other governing body of
each of Seller, Buyer and Southern Union has approved, and deems it advisable
and in the best interests of their respective shareholders and partners to
consummate the transactions contemplated by, this Agreement upon the terms and
subject to the conditions set forth herein;
WHEREAS, Seller, Buyer, Southern Union, AIG Highstar Capital, L.P.
("Highstar"), AIG Highstar II Funding Corp. ("Funding," and together with
Highstar, the "AIG Parties") entered into that certain Stock Purchase Agreement
(the "Original Purchase Agreement"), dated as of December 21, 2002 (the
"Original Date");
WHEREAS, Seller, Buyer, Southern Union and the AIG Parties entered into
that certain Amendment Agreement, dated as of May 12, 2003 (the "Amendment
Agreement"), amending the Original Purchase Agreement to remove the AIG Parties
as parties to the Original Purchase Agreement and terminating the AIG Parties'
participation in the sale of Panhandle; and
WHEREAS, in accordance with the terms of the Amendment Agreement,
Seller, Buyer and Southern Union shall enter into this Agreement for the sale by
Seller of Panhandle to Buyer pursuant to terms that will differ from those set
forth in the Original Purchase Agreement;
1
NOW, THEREFORE, for and in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, Seller,
Buyer and Southern Union, intending to be legally bound hereby, hereby agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.1 Specific Definitions. For purposes of this
Agreement, the following terms shall have the meanings set forth below:
"1935 Act" shall have the meaning set forth in Section 3.22.
"743 Schedule" shall have the meaning set forth in Section 5.7 (f).
"Access and Support shall mean the access and support agreement to be
Agreement" entered into on the Closing Date between Seller and
Buyer, substantially in the form of the agreement
attached hereto as Exhibit B.
"Action" shall mean any administrative, regulatory, judicial
or other formal proceeding, action, Claim, suit,
investigation or inquiry by or before any
Governmental Authority, arbitrator or mediator.
"Affected Employees" shall mean Panhandle Employees on the Closing Date.
"Affiliate" shall have the meaning set forth in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act.
"Agreement" shall mean this Stock Purchase Agreement, together
with the Seller Disclosure Letter, Buyer Disclosure
Letter and Exhibits hereto, as the same may be
amended or supplemented from time to time in
accordance with the provisions hereof.
"AIG Parties" shall have the meaning set forth in the recitals.
"Amendment Agreement" shall have the meaning set forth in the recitals.
"Annual Financial shall have the meaning set forth in Section 6.2 (i).
Statements"
"Applicable Law" shall mean any statute, law, ordinance, executive
order, rule or regulation (including a regulation
that has been formally promulgated in a rule-making
proceeding but, pending final adoption, is in
proposed or temporary form having the force of law);
guideline or notice having the force of law; or
approval,
2
permit, license, franchise, judgment, order, decree,
injunction or writ of any Governmental Authority
applicable to a specified Person or specified
property, as in effect from time to time.
"Assumption shall mean the agreement between Buyer and CMS
Agreement" Capital, L.L.C. whereby Buyer shall assume CMS
Capital L.L.C.'s obligation pursuant to its note
payable to Panhandle dated as of January 1, 2002,
substantially in the form of the agreement attached
hereto as Exhibit C.
"Auditor" shall have the meaning set forth in Section 2.5 (b).
"Base Net Working shall have the meaning set forth in Section 2.4.
Capital"
"Base Total Debt" shall have the meaning set forth in Section 2.4.
"Bonus Accrual" shall have the meaning set forth in Section 5.6 (e).
"Burdensome shall have the meaning set forth in Section 5.4 (b).
Condition"
"Business Day" shall mean a day other than a Saturday, Sunday or
other day on which banks located in New York City are
authorized or required by law to close.
"Business Materials" shall have the meaning set forth in Section 5.16 (a).
"Buyer" shall have the meaning set forth in the preamble to
this Agreement.
"Buyer Account Plan" shall have the meaning set forth in Section 5.6 (a).
"Buyer Adjustment" shall have the meaning set forth in Section 2.5 (c).
"Buyer Indemnified shall have the meaning set forth in Section 8.2 (a).
Parties"
"Buyer Plans" shall have the meaning set forth in Section 5.6 (d).
"Cap Amount" shall have the meaning set forth in Section 8.2 (d).
"Casualty Insurance shall have the meaning set forth in Section 5.10 (a).
Claims"
"Centennial" shall mean Centennial Pipeline, L.L.C., a Delaware
limited liability company.
3
"Claims" shall mean any and all claims, lawsuits, demands,
causes of action, investigations and other
proceedings (whether or not before a Governmental
Authority).
"Closing" shall have the meaning set forth in Section 2.2.
"Closing Adjustment shall have the meaning set forth in Section 2.5 (a).
Amount"
"Closing Balance Sheet" shall have the meaning set forth in Section 2.5 (a).
"Closing Date" shall have the meaning set forth in Section 2.2.
"CMSGCFS" shall mean CMS Gulf Coast Field Service, L.L.C., a
Michigan limited liability company.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Comparable shall have the meaning ascribed to such term in the
Employment" applicable Separation Plan.
"Confidentiality shall mean the confidentiality agreement entered
Agreement" into by and between AIG Highstar Capital, L.P., a
Delaware limited partnership, and CMS Energy
Corporation ("Parent"), dated September 20, 2002, as
modified by the letter agreement dated December 6,
2002, and the confidentiality agreement entered into
by and among Parent, Southern Union and Buyer, dated
as of the date hereof.
"Consolidated Income shall have the meaning set forth in Section 5.7
Tax Return" (b)(ix) hereof.
"Corporate Name shall have the meaning set forth in Section 5.15.
Change Transition
Period"
"Damages" shall mean all demands, Claims, causes of action,
suits, judgments, damages, amounts paid in settlement
(with the approval of the Indemnifying Party where
applicable), penalties, Liabilities, losses or
deficiencies, costs and expenses, including
reasonable attorney's fees, court costs, expenses of
arbitration or mediation, and other out-of-pocket
expenses incurred in investigating or preparing the
foregoing. "Damages" does not include incidental,
indirect or consequential damages, damages for lost
profits or other special damages or punitive or
exemplary damages; provided, however, that in the
case of Third-Party Claims, "Damages" shall be deemed
to include all forms of relief, monetary and
4
otherwise, asserted therein, without any of the
foregoing exceptions.
"Determination Date" shall have the meaning set forth in Section 2.5 (b).
"Disabled Employee" shall have the meaning set forth in Section 5.6
(b)(i).
"Dispute" shall have the meaning set forth in Section 9.9.
"Election" shall have the meaning set forth in Section 5.7
(a)(i).
"Employee Benefit shall have the meaning set forth in Section 3.12 (c).
Plans"
"Encumbrances" shall mean any Claims, mortgages, pledges, liens,
security interests, conditional and installment sale
agreements or other title retention agreements,
activity and use limitations, easements, deed
restrictions, title defects, reservations,
encumbrances and charges of any kind, options,
subordination agreements or adverse claim of any
kind.
"Environmental Laws" shall mean all foreign, federal, state and local
laws, regulations, rules and ordinances relating to
pollution or protection of human health or the
environment, including laws relating to releases or
threatened releases of Hazardous Substances into the
environment (including ambient air, surface water,
groundwater, land, surface and subsurface strata).
"Environmental Permit" shall mean any Permit, formal exemption,
identification number or other authorization issued
by a Governmental Authority pursuant to an applicable
Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended, and the regulations
promulgated thereunder.
"ERISA Plan(s)" shall have the meaning set forth in Section 3.12(a).
"Estimated shall have the meaning set forth in Section 2.4.
Adjustment Amount"
"Estimated Closing shall have the meaning set forth in Section 2.3.
Debt"
5
"Estimated Closing Net shall have the meaning set forth in Section 2.3.
Working Capital
Amount"
"Estimated Purchase shall have the meaning set forth in Section 2.4.
Price"
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Final 743 Schedule" Shall have the meaning set forth in Section 5.7
(f)(i).
"Final Form 8023" shall have the meaning set forth in Section 5.7
(a)(ii).
"Financial Statements" shall mean the Year-End Financial Statements and the
Interim Financial Statements.
"Funding" shall have the meaning set forth in the recitals.
"GAAP" shall mean United States generally accepted
accounting principles as in effect from time to time,
applied on a consistent basis.
"Governmental shall mean any executive, legislative, judicial,
Authority" tribal, regulatory, taxing or administrative agency,
body, commission, department, board, court, tribunal,
arbitrating body or authority of the United States or
any foreign country, or any state, local or other
governmental subdivision thereof.
"Guardian" shall mean Guardian Pipeline, L.L.C., a Delaware
limited liability company.
"Hazardous Substances" shall mean any chemicals, materials or substances
defined as or included in the definition of
"hazardous substances," "hazardous wastes,"
"hazardous materials," "hazardous constituents,"
"restricted hazardous materials," "extremely
hazardous substances," "toxic substances,"
"contaminants" "pollutants," "toxic pollutants," or
words of similar meaning and regulatory effect under
any applicable Environmental Law.
"Highstar" shall have the meaning set forth in the recitals.
"HSR Act" shall have the meaning set forth in Section 6.1 (a).
"Indemnified Party" shall have the meaning set forth in Section 8.2 (c).
"Indemnifying Party" shall have the meaning set forth in Section 8.2 (c).
6
"Initial Termination shall have the meaning set forth in Section 7.1 (b).
Date"
"Insurance Policies" shall have the meaning set forth in Section 3.21 (a).
"Intellectual Property shall mean the Intellectual Property Agreement to be
Agreement" entered into between Seller and Buyer, as of the
Closing Date, attached hereto as Exhibit A.
"Interim Financial shall mean the unaudited balance sheet and statement
Statements" of income as of and for (i) the three months ended
March 31, 2002, (ii) the six months ended June 30,
2002, and (iii) the nine months ended September 30,
2002, in each case for Panhandle and the Panhandle
Subsidiaries (other than CMSGCFS, but including
Centennial and Guardian) on a consolidated basis.
"Kansas Site shall have the meaning set forth in Section 1.1(a) of
Adjustment" the Seller Disclosure Letter.
"Knowledge" shall mean, as to each of Seller, Panhandle and the
Panhandle Subsidiaries, the actual knowledge, after
due inquiry, of the persons listed on Section 1.1(b)
of the Seller Disclosure Letter, or any Person who
replaces any of such listed persons between the date
of this Agreement and the Closing Date, and in the
case of Buyer and Southern Union, the actual
knowledge, after due inquiry, of those persons listed
on Section 1.1(b) of the Buyer Disclosure Letter,
applicable to Buyer or Southern Union, as the case
may be, or any Person who replaces any of such listed
persons between the date of this Agreement and the
Closing Date.
"Liabilities" shall mean any and all debts, liabilities,
commitments and obligations, whether or not fixed,
contingent or absolute, matured or unmatured,
liquidated or unliquidated, accrued or unaccrued,
known or unknown, whether or not required by GAAP to
be reflected in financial statements or disclosed in
the notes thereto.
"Liens" shall mean any lien, mortgage, pledge, charge, claim
assignment by way of security or similar security
interest.
"Listing" shall mean the listing of the Southern Union Shares
on the New York Stock Exchange.
"Material Adverse shall mean any change or effect that is materially
Effect" adverse to the business, financial condition or
assets of the business of Panhandle and the Panhandle
Subsidiaries, taken as a whole;
7
provided, however, that Material Adverse Effect shall
exclude any change or effect due to (a) negotiation,
execution, announcement, and consummation of this
Agreement and the transactions contemplated hereby,
including the impact thereof on relationships,
contractual or otherwise, with customers, suppliers,
distributors, partners, joint owners or venturers, or
employees, (b) any action taken by Seller, Panhandle,
the Panhandle Subsidiaries, Buyer or any of their
respective representatives or Affiliates or other
action required or permitted by the terms of this
Agreement or necessary to consummate the transactions
contemplated by this Agreement, (c) the general state
of the industries in which Panhandle or the Panhandle
Subsidiaries operate (including (i) pricing levels,
(ii) changes in the international, national, regional
or local wholesale or retail markets for natural gas,
(iii) changes in the North American, national,
regional or local interstate natural gas pipeline
systems, and (iv) rules, regulations or decisions of
the FERC or the courts affecting the interstate
natural gas transmission industry as a whole, or rate
orders, motions, complaints or other actions
affecting Panhandle or the Panhandle Subsidiaries),
except, in all cases for such effects which
disproportionately impact Panhandle and the Panhandle
Subsidiaries, taken as a whole, (d) general legal,
regulatory, political, business, economic, capital
market and financial market conditions (including
prevailing interest rate levels), or conditions
otherwise generally affecting the industries in which
Panhandle or the Panhandle Subsidiaries operate,
except, in all cases, for such effects which
disproportionately impact Panhandle and the Panhandle
Subsidiaries, taken as a whole, and (e) any condition
described in the Seller Disclosure Letter (but only
to the extent set forth in such Seller Disclosure
Letter).
"Material Contract" shall have the meaning set forth in Section 3.7 (a).
"Minimum Claim shall have the meaning set forth in Section 8.2 (d).
Amount"
"Net Working Capital shall have the meaning set forth in Section 2.3.
Amount"
"NGA" shall have the meaning set forth in Section 3.22.
"Organizational shall mean certificates of incorporation, by-laws,
Documents" certificates of formation, limited liability company
operating agreements, partnership or limited
partnership agreements or other
8
formation or governing documents of a particular
entity.
"Original Date" shall have the meaning set forth in the recitals to
this Agreement.
"Original Purchase shall have the meaning set forth in the recitals to
Agreement" this Agreement.
"Panhandle" shall have the meaning set forth in the recitals to
this Agreement.
"Panhandle Employees" shall mean all employees employed by Panhandle or the
Panhandle Subsidiaries including employees on
short-term disability, military leave, maternity
leave or paternity leave and other approved leaves of
absence from active employment.
"Panhandle Shares" shall have the meaning set forth in the recitals to
this Agreement.
"Panhandle shall mean CMS Pan Gas Storage Company, LLC, a
Subsidiaries" Delaware limited liability company (d/b/a Southwest
Gas Storage Company); Trunkline Field Services
Company, a Delaware Corporation; CMS Panhandle
Holdings, LLC, a Delaware limited liability company;
CMS Panhandle Storage Company, a Delaware
corporation; CMS Trunkline Gas Company, LLC, a
Delaware limited liability company; CMS Trunkline
Offshore Pipeline Company, LLC, a Delaware limited
liability company; CMS Trunkline Deepwater Pipeline
Company, LLC, a Delaware limited liability company;
Sea Robin Pipeline Company, an unincorporated joint
venture; CMS Trunkline Gas Resources, LLC a Delaware
limited liability company; MG Ventures Storage, Inc.,
a Delaware corporation; CMS Panhandle Eastern
Resources, Inc., a Delaware corporation; CMS
Panhandle Lake Charles Generation Company, LLC, a
Delaware limited liability company; CMS Trunkline LNG
Company, LLC, a Delaware limited liability company,
CMS Trunkline LNG Holdings, LLC, a Delaware limited
liability company, Panhandle Partner LLC, a Delaware
limited liability company, CMS Panhandle LNG
Acquisition Company, a Delaware corporation,
DekaTherm Investor Trust, a Delaware trust, CMSGCFS,
and CMS Gulf Coast Holdings Company, a Delaware
corporation.
Without limiting the foregoing, for purposes of
Section 3.16 of this Agreement, a Panhandle
Subsidiary shall also include any Subsidiary of a
Panhandle Subsidiary and any entity which was merged
or combined under state corporate law with,
9
liquidated into, or converted into a Panhandle
Subsidiary or a Subsidiary of a Panhandle Subsidiary.
"PBOPs" shall have the meaning set forth in Section 5.6 (d).
"Permits" shall have the meaning set forth in Section 3.9.
"Permitted shall mean (a) zoning, planning and building codes
Encumbrances" and other applicable laws regulating the use,
development and occupancy of real property and
permits, consents and rules under such laws; (b)
encumbrances, easements, rights-of-way, covenants,
conditions, restrictions and other matters affecting
title to real property which do not materially
detract from the value of such real property or
materially restrict the use of such real property;
(c) leases and subleases of real property; (d) all
easements, encumbrances or other matters which are
necessary for utilities and other similar services on
real property; (e) Encumbrances to secure
indebtedness reflected on the Financial Statements,
(f) Encumbrances to secure indebtedness incurred in
the ordinary course of business, consistent with past
practice, after the date thereof, to the extent
permitted pursuant to Section 5.1 (b)(xi), (f) Liens
for Taxes and other governmental levies not yet due
and payable or, if due, (i) not delinquent or (ii)
being contested in good faith by appropriate
proceedings during which collection or enforcement
against the property is stayed and with respect to
which adequate reserves have been established and are
being maintained to the extent required by GAAP, (g)
mechanics', workmen's, repairmen's, materialmen's,
warehousemen's, carriers' or other Liens, including
all statutory Liens, arising or incurred in the
ordinary course of business, (h) original purchase
price conditional sales contracts and equipment
leases with third parties entered into in the
ordinary course of business, (i) Liens that do not
materially interfere with or materially affect the
value or use of the respective underlying asset to
which such Liens relate, (j) Encumbrances which are
capable of being cured through condemnation
procedures under the Natural Gas Act at a total cost
to Panhandle and the Panhandle Subsidiaries of less
than $1 million and (k) Encumbrances which are
reflected in any Material Contract.
"Person" shall mean any natural person, corporation, company,
general partnership, limited partnership, limited
liability partnership, joint venture, proprietorship,
limited liability company, or other entity or
business organization or vehicle, trust,
unincorporated organization or Governmental Authority
or any
10
department or agency thereof.
"Post-Closing Taxes" shall have the meaning set forth in Section 5.7
(b)(iii).
"Pre-Closing Taxes" shall have the meaning set forth in Section 5.7
(b)(iv).
"Pro Forma Adjusted shall mean the September 30, 2002 Interim Financial
Balance Sheet" Statements, adjusted to:
(A) reflect, among the other matters reflected in the
adjustments set forth in Section 1.1(c)(ii) of the
Seller Disclosure Letter, the following pro forma
adjustments:
(i) the consolidation of 100
percent of CMS Trunkline LNG Holdings, LLC,
following the purchase of Dekatherm
Investors Trust's interest therein by
Panhandle or a subsidiary of Panhandle,
(ii) the consolidation of 100% of
CMSGCFS,
(iii) the elimination of 100% of
Panhandle's interest in Centennial,
(iv) the elimination of 100% of
Panhandle's interest in Guardian, and
(v) the elimination of all account
balances relating to the Supplemental
Retirement Plan.
(B) reflect, among the other matters reflected in the
adjustments set forth in Section 1.1(c)(ii) of the
Seller Disclosure Letter, the following adjustments
for purposes of calculating the Net Working Capital
Amount:
(i) current assets shall include
the non-current portion of the system gas
account, as reflected on the applicable
balance sheet,
(ii) current assets shall exclude
(x) any Tax asset (current or deferred) or
(y) any mark to market adjustments related
to any swap agreements listed in Section
1.1(c)(i) of the Seller Disclosure Letter,
and
(iii) current liabilities shall
exclude (w) any Tax liability (current or
deferred), (x) any mark to market
adjustments related to
11
any swap agreements listed in Section
1.1(c)(i) of the Seller Disclosure Letter,
(y) short term debt and current portions of
long term debt or (z) bonus amounts accrued
for Affected Employees which will be paid by
Buyer, who will be reimbursed by Seller,
pursuant to Section 5.6 (e) hereof; and
(C) reflect that current assets and current
liabilities relating to amounts owed by (or owed to)
Panhandle or the Panhandle Subsidiaries on the one
hand to (or by) Seller or any of its Affiliates,
other than Panhandle and the Panhandle Subsidiaries,
on the other hand shall be excluded; provided,
however, that none of the following shall be
excluded:
(i) receivables and/or payables for
the purchase or sale of natural gas, natural
gas liquids and other commodities between
Panhandle or the Panhandle Subsidiaries on
the one hand, and Seller (or any of its
Affiliates, other than Panhandle and the
Panhandle Subsidiaries) on the other hand;
(ii) receivables for services
rendered in the ordinary course of business
by Panhandle or the Panhandle Subsidiaries
on the one hand, to Seller (or any of its
Affiliates, other than Panhandle and the
Panhandle Subsidiaries) on the other hand;
and
(iii) payables for services
rendered, other than allocated corporate
expenses in the ordinary course of business
for Panhandle or the Panhandle Subsidiaries
on the one hand, by Seller (or any of its
Affiliates, other than Panhandle and the
Panhandle Subsidiaries) on the other hand.
The Pro Forma Adjusted Balance Sheet, reflecting the
adjustments listed above, is set forth in Section
1.1(c)(ii) of the Seller Disclosure Letter.
"Prohibited shall have the meaning set forth in Section 5.18.
Transactions"
12
"Prospectus shall have the meaning set forth in Section 5.22(a).
Supplement"
"Purchase Price" shall mean the purchase price for the Panhandle
Shares as set forth in Section 2.5 (d).
"Real Property" shall have the meaning set forth in Section 3.11.
"Related Agreements" shall mean the Transition Services Agreement, the
Intellectual Property Agreement, the Access and
Support Agreement, the Assumption Agreement, and the
Shareholder Agreement.
"Related Companies" shall mean Lee 8 Storage Partnership, a Michigan
general partnership and Atchafalaya Pipeline, L.L.C.,
a Delaware limited liability company.
"Restated Financials" shall have the meaning set forth in Section 6.2(i).
"Rights-Of-Way" shall have the meaning set forth in Section 3.11.
"SEC" shall have the meaning set forth in Section 4.10.
"Section 5.4 (b) Person" shall mean any of Southern Union and its Subsidiaries
(taken as a whole), or Buyer.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Seller" shall have the meaning set forth in the preamble to
this Agreement.
"Seller Adjustment" shall have the meaning set forth in Section 2.5(c).
"Seller Counterparty" shall mean each of Seller's Affiliates that executes
and delivers any of the Related Agreements.
"Seller Indemnified shall have the meaning set forth in Section 8.2(b).
Parties"
"Seller Plans" shall have the meaning set forth in Section 5.6 (b).
"Seller Returns" shall have the meaning set forth in Section 5.7
(b)(i).
"Seller's Marks" shall have the meaning set forth in Section 5.16.
"Seller's Savings Plan" shall have the meaning set forth in Section 5.6 (a).
"Separation Plans" shall mean (i) Separation Allowance Plan for
Employees of Panhandle and the Panhandle
Subsidiaries, adopted on November 1, 2002; (ii)
Executive Separation Allowance Plan
13
for Employees of Panhandle and the Panhandle
Subsidiaries, adopted on November 1, 2002; (iii)
Executive Separation Allowance Plan for Designated
Officers of Panhandle and the Panhandle Subsidiaries,
adopted on November 1, 2002; and (iv) Executive
Separation Allowance Plan for Designated Senior
Officers of Panhandle Eastern Pipe Line Company,
adopted on November 1, 2002.
"Shareholder shall mean the shareholder agreement to be entered
Agreement" into on the Closing Date between Seller and Southern
Union, substantially in the form of the agreement
attached hereto as Exhibit D.
"Shelf Registration shall have the meaning set forth in Section 4.16(b).
Statement"
"Southern Union" shall have the meaning set forth in the recitals to
this Agreement.
"Southern Union shall mean the Southern Union Interim Financial
Financial Statements" Statements and the Southern Union Year-End Financial
Statements.
"Southern Union Interim shall mean the unaudited consolidated interim
Financial Statements" financial statements of Southern Union and the
Southern Union Subsidiaries included in Southern
Union's quarterly reports on Form 10-Q for the fiscal
quarters ended after June 30, 2002.
"Southern Union shall mean any change or effect that is materially
Material Adverse adverse to the business, financial condition or
Effect" assets of the business of Southern Union and the
Southern Union Subsidiaries, taken as a whole;
provided, however, that Southern Union Material
Adverse Effect shall exclude any change or effect due
to (a) negotiation, execution, announcement, and
consummation of this Agreement and the transactions
contemplated hereby, including the impact thereof on
relationships, contractual or otherwise, with
customers, suppliers, distributors, partners, joint
owners or venturers, or employees, (b) any action
taken by Southern Union, Buyer or any of their
respective representatives or Affiliates or other
action required or permitted by the terms of this
Agreement or necessary to consummate the transactions
contemplated by this Agreement, (c) the general state
of the industries in which Southern Union or the
Southern Union Subsidiaries operate (including (i)
pricing levels, (ii) changes in the international,
national, regional or local wholesale or retail
markets for natural gas, (iii) changes in the North
American, national, regional or local natural gas
distribution business, and (iv) rules, regulations or
decisions of state public utility commissions or the
courts
14
affecting the local natural gas distribution industry
as a whole, or rate orders, motions, complaints or
other actions affecting Southern Union or the
Southern Union Subsidiaries), except, in all cases
for such effects which disproportionately impact
Southern Union and the Southern Union Subsidiaries,
taken as a whole, (d) general legal, regulatory,
political, business, economic, capital market and
financial market conditions (including prevailing
interest rate levels), or conditions otherwise
generally affecting the industries in which Southern
Union or the Southern Union Subsidiaries operate,
except, in all cases, for such effects which
disproportionately impact Southern Union and the
Southern Union Subsidiaries, taken as a whole, and
(e) any condition described in the Buyer Disclosure
Letter (but only to the extent set forth in such
Buyer Disclosure Letter).
"Southern Union shall mean 3 million shares of Southern Union common
Shares" stock, par value $1.00 per share, registered with the
SEC pursuant to the Shelf Registration Statement and
listed on the New York Stock Exchange.
"Southern Union shall mean the subsidiaries listed in Southern
Subsidiaries" Union's annual report on Form 10-K for the year ended
June 30, 2002.
"Southern Union Year- shall mean the audited consolidated financial
End Financial statements of Southern Union and the Southern Union
Statements" Subsidiaries included in its annual report on Form
10-K for the year ended June 30, 2002.
"Straddle Period" shall have the meaning set forth in Section 5.7
(b)(ii).
"Straddle Period shall have the meaning set forth in Section 5.7
Return(s)" (b)(ii).
"Straddle Statement" shall have the meaning set forth in Section 5.7
(b)(ii).
"Subsidiary" of any entity means, at any date, any Person (a) the
accounts of which would be consolidated with and into
those of the applicable entity in such entity's
consolidated financial statements if such financial
statements were prepared in accordance with GAAP as
of such date or (b) of which securities or other
ownership interests representing more than fifty
percent (50%) of the equity or more than fifty
percent (50%) of the ordinary voting power or, in the
case of a partnership, more than fifty percent (50%)
of the general partnership interests or more than
fifty percent (50%) of the profits or losses of which
are, as of such date, owned,
15
controlled or held by the applicable entity or one or
more subsidiaries of such entity.
"Survival Period" shall have the meaning set forth in Section 8.1 (c).
"Tax Claim" shall have the meaning set forth in Section 5.7
(e)(i).
"Tax Indemnified Party" shall have the meaning set forth in Section 5.7
(e)(i).
"Tax Indemnifying shall have the meaning set forth in Section 5.7
Party" (e)(i).
"Tax Return" shall mean any report, return, declaration, or other
information required to be supplied to a Governmental
Authority in connection with Taxes including any
claim for refund or amended return.
"Taxes" shall mean all taxes, levies or other like
assessments, including net income, gross income,
gross receipts, capital gains, profits,
environmental, excise, value added, ad valorem, real
or personal property, withholding, asset, sales, use,
transfer, registration, license, payroll,
transaction, capital, business, occupation,
corporation, employment, withholding, wage, net
worth, franchise, minimum, alternative minimum, and
estimated taxes, or other governmental taxes imposed
by or payable to any foreign, Federal, state or local
taxing authority, whether computed on a separate,
consolidated, unitary, combined or any other basis;
and in each instance such term shall include any
interest, penalties or additions to tax attributable
to any such Tax.
"Third-Party Claim" shall have the meaning set forth in Section 8.4 (a).
"Threshold Amount" shall have the meaning set forth in Section 8.2 (d).
"Total Debt" shall mean all short-term and long-term indebtedness
of Panhandle and the Panhandle Subsidiaries as
reflected on a consolidated balance sheet, prepared
in accordance with GAAP, of Panhandle and the
Panhandle Subsidiaries as of a particular date, but
excluding any debt payable to Seller or Seller's
Affiliates by Panhandle or a Panhandle Subsidiary
which is eliminated by Panhandle or a Panhandle
Subsidiary prior to the Closing Date in accordance
with Section 5.8.
"Transfer Tax(es)" shall have the meaning set forth in Section 5.7 (g).
"Transition Services shall mean the transition services agreement to be
Agreement" entered into on the Closing Date between Seller and
Buyer in a form
16
mutually acceptable to both parties.
"Transitional License" shall have the meaning set forth in Section 5.16.
"Treasury Regulation" shall mean the income Tax regulations, including
temporary and proposed regulations, promulgated under
the Code, as amended.
"Year-End Financial shall mean the audited balance sheet and statement of
Statements" income, as of and for the twelve (12) months ended
December 31, 2001 for Panhandle and the Panhandle
Subsidiaries (other than CMSGCFS, but including
Centennial and Guardian) on a consolidated basis.
ARTICLE II
SALE AND PURCHASE
Section 2.1 Agreement to Sell and Purchase.
Subject to the terms and conditions of this Agreement, at the Closing,
Seller shall sell, convey, assign, transfer and deliver to Buyer the Panhandle
Shares, free and clear of all Encumbrances, and Buyer shall purchase and accept
such Panhandle Shares from Seller.
Section 2.2 Time and Place of Closing.
Upon the terms and subject to the satisfaction of the conditions
contained in this Agreement, the closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, 4 Times Square, New York, New York, at 10:00 a.m.,
local time, on the fourteenth (14th) day following the date on which all of the
conditions set forth in Article VI of this Agreement have been satisfied or
waived (other than those conditions contemplated to be satisfied at the Closing)
(or June 30, 2002, if such fourteenth day would be July 1, 2003 or later), or at
such other place or time as Buyer and Seller may mutually agree in writing. The
date and time at which the Closing actually occurs is hereinafter referred to as
the "Closing Date."
Section 2.3 Pre-Closing Matters.
At least five (5) Business Days prior to Closing, Seller shall deliver
to Buyer its good faith estimate of the Net Working Capital Amount at Closing
(the "Estimated Closing Net Working Capital Amount") and its good faith estimate
of the amount of Total Debt at Closing (the "Estimated Closing Debt"), in each
case together with a reasonably detailed computation of such estimates, which
shall be computed in accordance with GAAP (subject to the exceptions from GAAP
relating to the adjustments
17
reflected on the Pro Forma Adjusted Balance Sheet) and on a basis consistent
with the preparation of the Pro Forma Adjusted Balance Sheet. "Net Working
Capital Amount" shall mean (a) the current assets of Panhandle and the Panhandle
Subsidiaries minus (b) the current liabilities of Panhandle and the Panhandle
Subsidiaries, with both current assets and current liabilities determined in
accordance with GAAP, applied in a manner consistent with the preparation of the
Pro Forma Adjusted Balance Sheet (and subject to the exceptions from GAAP
relating to the adjustments reflected on the Pro Forma Adjusted Balance Sheet),
except for the calculation of Estimated Closing Net Working Capital and Net
Working Capital Amount as of the Closing Date with respect to System Gas
Inventory and Imbalance Related Accounts, which is addressed below. For purposes
of this Section 2.3, capitalized terms used but not otherwise defined herein
shall be deemed to refer to the corresponding line items in Sections 1.1(b)(ii)
or 1.1(b)(iii) of the Seller Disclosure Letter, as applicable. For purposes of
the Net Working Capital calculation, System Gas Inventory and Imbalance Related
Accounts shall be valued at $29,114,046 plus (less) the excess (deficiency) of
the actual on hand quantity of Net System Gas Owned at the closing date less the
net quantity of system gas owned at September 30, 2002 (10,789,959 MMBTU) times
the average of the closing Henry Hub spot market price for natural gas for the
five business days prior to the Closing Date as reported in the Wall Street
Journal, except for purposes of the calculation of the Estimated Closing Net
Working Capital which shall be valued based on the quantity of Net System Gas
Owned ten (10) days prior to the Closing Date times the average closing Henry
Hub spot market price for natural gas for the five (5) business days ended ten
(10) days prior to the Closing Date. System Gas Inventory and Imbalance Related
Accounts shall be defined as System Gas Inventory, Accounts Receivable -
Exchanges, Accounts Payable - Exchanges, Fuel Tracker and Line Pack as shown in
the Section 1.1(c)(ii) of the Seller Disclosure Letter. Net System Gas Owned
shall be defined as System Gas Inventory plus Accounts Receivable - Exchanges,
Accounts Payable - Exchange, including Fuel Tracker and Line Pack as shown in
the Section 1.1(c)(iii) of the Seller Disclosure Letter. Seller shall deliver to
Buyer its calculations of the Estimated Purchase Price and the Estimated
Adjustment Amount within five (5) Business Days prior to the Closing Date and
shall provide upon reasonable advance notice, Buyer and Buyer's accountants
prompt and full reasonable access during normal business hours to the personnel,
accountants and books and records of Seller, to the extent reasonably related to
the preparation of the Estimated Purchase Price and the Estimated Adjustment
Amount (and the elements of such calculation). Buyer and Seller shall in good
faith attempt to resolve any objections of Buyer to such calculation of the
Estimated Adjustment Amount; if Buyer and Seller are in disagreement with
respect to the calculation of the Estimated Adjustment Amount as of the Closing,
the Estimated Purchase Price paid pursuant to Section 2.4 shall be based on the
amount of the Estimated Adjustment Amount delivered to Buyer pursuant to this
Section 2.3, as adjusted to reflect any changes to the Estimated Adjustment
Amount agreed to by the parties prior to Closing.
Section 2.4 Estimated Purchase Price.
In consideration of the aforesaid sale, conveyance, assignment,
transfer and delivery to Buyer of the Panhandle Shares and the agreement of
Seller to enter into this Agreement, and subject to the adjustments set forth in
Section 2.5, at the Closing, Buyer
18
shall (a) pay in full to Seller (or its designated Affiliates) an amount in cash
equal to (i) $584,300,000 plus (ii) the Estimated Adjustment Amount plus (iii)
the Kansas Site Adjustment (the result of such calculation, the "Estimated
Purchase Price"), and (b) deliver to Seller the Southern Union Shares. The
"Estimated Adjustment Amount" shall mean the amount equal to (a) the Estimated
Closing Net Working Capital Amount, minus (b) the Net Working Capital Amount as
of September 30, 2002, as shown in the Pro Forma Adjusted Balance Sheet
($92,934,493) (the "Base Net Working Capital"), minus (c) the Estimated Closing
Debt, plus (d) the amount of Total Debt as of September 30, 2002
($1,165,519,106) (the "Base Total Debt"). The calculation of the Estimated
Adjustment Amount may result in an amount that is positive or negative. The
Estimated Purchase Price will be payable at the Closing by wire transfer of same
day funds to an account or accounts and in such amounts as designated by Seller.
Seller shall designate such account or accounts and amounts in writing at least
two (2) Business Days prior to Closing.
Section 2.5 Post-Closing Adjustment.
(a) As soon as reasonably practicable following the Closing
Date, and in any event within sixty (60) days thereafter, Seller shall prepare
and deliver to Buyer (i) a consolidated balance sheet of Panhandle and the
Panhandle Subsidiaries as of the close of business on the date immediately prior
to the Closing Date (the "Closing Balance Sheet"), and (ii) a calculation of the
"Closing Adjustment Amount," which shall mean the amount equal to (a) the Net
Working Capital Amount as of the Closing Date, as reflected on the Closing
Balance Sheet, minus (b) the amount of the Base Net Working Capital Amount, plus
(c) the amount of the Base Total Debt, minus (d) the Total Debt as of the
Closing Date, as reflected on the Closing Balance Sheet, which calculation may
result in an amount that is positive or negative (together with reasonable
back-up information providing the basis for such balance sheet and
calculations). In order for Seller to prepare the Closing Balance Sheet and
calculate the Closing Adjustment Amount, Buyer will provide to Seller and
Seller's accountants prompt and full access to the personnel, accountants and
books and records of Panhandle and the Panhandle Subsidiaries (and shall provide
copies of the applicable portions of such books and records as may be reasonably
requested), to the extent reasonably related to the preparation of the Closing
Balance Sheet and the calculation of the Closing Adjustment Amount (and the
elements of such calculation). In order for Buyer to review the Closing Balance
Sheet and review the calculation of the Closing Adjustment Amount, Seller will
provide to Buyer and Buyer's accountants prompt and full access to the
personnel, accountants and books and records used by Seller (and shall provide
copies of the applicable portions of such books and records as may be reasonably
requested), to the extent reasonably related to the preparation of the Closing
Balance Sheet and the calculation of the Closing Adjustment Amount (and the
elements of such calculation). The Closing Balance Sheet and the calculation of
Closing Adjustment Amount shall be prepared in accordance with GAAP, applied in
a manner consistent with the preparation of the Pro Forma Adjusted Balance Sheet
(and subject to the exceptions from GAAP relating to the adjustments reflected
on the Pro Forma Adjusted Balance Sheet).
19
(b) Disputes. If Buyer disagrees with the calculation of the
Closing Adjustment Amount, it shall notify Seller of such disagreement in
writing within thirty (30) days after its receipt of the Closing Balance Sheet,
which notice shall set forth in detail the particulars of such disagreement. In
the event that Buyer does not provide such a notice of disagreement within such
thirty (30) day period, Buyer shall be deemed to have accepted the Closing
Balance Sheet and the calculation of the Closing Adjustment Amount (and each
element of such calculation), respectively delivered by Seller, which shall be
final, binding and conclusive for all purposes hereunder. In the event any such
notice of disagreement is timely provided by Buyer, Buyer and Seller shall use
their reasonable best efforts for a period of thirty (30) days (or such longer
period as they may mutually agree) to resolve any disagreements with respect to
the calculation of the Closing Adjustment Amount (or any element thereof). If,
at the end of such period, they are unable to resolve such disagreements, then,
upon the written request of either party, an independent accounting firm (not
providing services to Buyer or Seller) acceptable to Buyer and Seller (the
"Auditor") shall resolve any remaining disagreements. The Auditor shall
determine as promptly as practicable (but in any event within sixty (60) days)
following the date on which such dispute is referred to the Auditor, based
solely on written submissions, which shall be forwarded by Buyer and Seller to
the Auditor within thirty (30) days following the Auditor's selection, whether
the Closing Balance Sheet was prepared in accordance with the standards set
forth in this Section 2.5 with respect to any items identified as disputed in
the notice of disagreement and not previously resolved by Buyer and Seller, and
if not, whether and to what extent (if any) the Closing Adjustment Amount (or
any element thereof) requires adjustment. Each party shall bear its own expenses
and the fees and expenses of its own representatives and experts in connection
with the preparation, review, dispute (if any) and final determination of the
Closing Balance Sheet and the Closing Adjustment Amount. The parties shall share
the costs, expenses and fees of the Auditor in inverse proportion to the extent
to which their respective positions are sustained (e.g., if Seller's position is
one hundred percent (100%) sustained, it shall bear none of such costs,
expenses, and fees of the Auditor). The determination of the Auditor shall be
final, conclusive and binding on the parties. The Auditor's determination of the
amount of the Closing Adjustment Amount shall then be deemed to be the Closing
Adjustment Amount for purposes of this Section 2.5. The date on which such items
are accepted or finally determined in accordance with this Section 2.5 is
referred as to the "Determination Date." As used in this Agreement, the term
"reasonable best efforts" shall not include efforts which require the performing
party (i) to do any act that is unreasonable under the circumstances, (ii) to
make any capital contribution not expressly contemplated hereunder, (iii) to
amend or waive any rights under this Agreement, or (iv) to incur or expend any
funds other than reasonable out-of-pocket expenses incurred in satisfying its
obligation hereunder, including the reasonable fees, expenses and disbursements
of accountants, counsel and other professionals.
(c) Purchase Price Adjustment. If the Estimated Adjustment
Amount is (x) less than the Closing Adjustment Amount, then the Buyer shall pay
to Seller an amount equal to such shortfall (the "Buyer Adjustment") or (y)
greater than the Closing Adjustment Amount, then Seller shall pay to Buyer an
amount equal to such excess (the "Seller Adjustment").
20
(d) Adjustment Amounts. The Estimated Purchase Price minus the
Seller Adjustment, if any, plus the Buyer Adjustment, if any, shall equal the
"Purchase Price." The Seller Adjustment, if any, and the Buyer Adjustment, if
any, shall bear simple interest at a rate equal to daily average one month LIBOR
plus one percent (1%) per annum measured from the Closing Date to the date of
such payment. Amounts owing by Seller, if any, pursuant to this Section 2.5
shall be paid by Seller by delivery of immediately available funds to an account
designated by Buyer within five (5) Business Days after the Determination Date.
Amounts owing by Buyer, if any, pursuant to this Section 2.5 shall be paid by
Buyer by delivery of immediately available funds to an account designated by
Seller within five (5) Business Days after the Determination Date.
Section 2.6 Deliveries by Seller at the Closing.
At the Closing, Seller shall deliver, or cause its appropriate
Affiliates to deliver, to Buyer:
(a) stock certificates representing one hundred percent (100%)
of the Panhandle Shares;
(b) a cross-receipt acknowledging the receipt of the Purchase
Price and the Southern Union Shares;
(c) a certificate from an authorized officer of Seller, dated
as of the Closing Date, to the effect that the conditions set forth in Section
6.2 (a), Section 6.2 (c) and Section 6.2 (j) of this Agreement have been
satisfied;
(d) all other previously undelivered documents, including duly
executed original copies of the Related Agreements, required by this Agreement
to be delivered by Seller or its Affiliates to Buyer at or prior to the Closing;
(e) resignations of each of the directors and officers of
Panhandle and the Panhandle Subsidiaries who are not employees of Panhandle or
any of the Panhandle Subsidiaries; and
(f) all such other deeds and instruments of sale, assignment,
conveyance and transfer and releases, consents and waivers as in the reasonable
opinion of Buyer may be necessary to effect the sale, transfer, assignment,
conveyance and delivery of the Panhandle Shares to Buyer in accordance with this
Agreement and the Related Agreements, and where necessary or desirable, in
recordable form, in each case, as is necessary to effect the transactions
contemplated by this Agreement.
Section 2.7 Deliveries by Buyer at the Closing.
At the Closing, Buyer and Southern Union shall deliver to Seller:
(a) the Estimated Purchase Price in US-dollar-denominated
funds by wire transfer of immediately available funds or by such other means as
are agreed to by Seller and Buyer:
21
(b) stock certificates representing one hundred percent (100%)
of the Southern Union Shares;
(c) a cross-receipt acknowledging receipt of the Panhandle
Shares;
(d) a certificate from an authorized officer of Buyer and
Southern Union, dated as of the Closing Date, to the effect that the conditions
set forth in Section 6.3 (a) and Section 6.3 (c) of this Agreement have been
satisfied; and
(e) all other previously undelivered documents, including duly
executed original copies of the Related Agreements, required by this Agreement
to be delivered by Buyer or Southern Union to Seller at or prior to the Closing.
Section 2.8 Cooperation with Respect to Like-Kind Exchange.
With the consent of the Seller, which consent shall not unreasonably be
withheld, the rights of Buyer under this Agreement may be assigned in whole or
in part to Southern Union. In the event Seller consents to such assignment to
Southern Union pursuant to Section 9.6 of this Agreement, Buyer may desire that
the transactions contemplated in this Agreement and the Related Agreements be
accomplished in a manner enabling Southern Union's purchase to qualify as part
of a like-kind exchange of property covered by Section 1031 of the Code. Seller
agrees to cooperate and consider in good faith any reasonable request or
proposal made by Southern Union in connection with efforts to effect such
like-kind exchange, including any reasonable use of a "qualified intermediary",
an "exchange accommodation titleholder" or a "qualified exchange accommodation
agreement" within the meaning of the United States Treasury Regulations and
related authority; provided, however, that Seller shall have no obligation to
take (or agree to take) any action that, in its reasonable discretion, may
create any adverse consequences to the Seller, including but not limited to
adverse Tax, financial or regulatory consequences for the transactions
contemplated by this Agreement and the Related Agreements or may cause an
unreasonable delay in the consummation of the transactions contemplated by this
Agreement and the Related Agreements. Buyer agrees that it will reimburse Seller
for any out-of-pocket costs incurred in connection its cooperation, including
but not limited to legal fees, opinions of counsel or other costs incurred in
implementing Buyer's proposals. Notwithstanding anything herein, the structuring
of the transactions in a manner that qualifies the transactions as part of a
like-kind exchange shall not be a condition to Closing.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer and Southern Union as
follows:
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Section 3.1 Corporate Organization; Qualification.
(a) Seller and Panhandle are each corporations duly organized,
validly existing and duly qualified or licensed and in good standing under the
laws of the state or jurisdiction of their respective incorporation and have all
requisite corporate power, as applicable, to own, lease and operate their
respective properties and to carry on their respective businesses as currently
conducted. Seller and Panhandle are each duly qualified or licensed to do
business as foreign corporations, and are, and have been, in good standing in
each jurisdiction in which the nature of the respective businesses conducted by
them or the property they own, lease or operate requires them to so qualify, be
licensed or be in good standing, except for such failures to be qualified,
licensed or in good standing that would not have a Material Adverse Effect. True
and correct copies of the Organizational Documents of Panhandle and the
Panhandle Subsidiaries with all amendments thereto to the date hereof, have been
made available by Seller to Buyer or its representatives.
(b) The Panhandle Subsidiaries are each corporations, or other
entities, as applicable, duly organized, validly existing and duly qualified or
licensed and in good standing under the laws of the state or jurisdiction of
their respective incorporation or formation and have all requisite corporate or
other power, as applicable, to own, lease and operate their respective
properties and to carry on their respective businesses as currently conducted.
The Panhandle Subsidiaries are each duly qualified or licensed to do business as
foreign corporations, or other entities, as applicable, and are, and have been,
in good standing in each jurisdiction in which the nature of the respective
businesses conducted by them or the property they own, lease or operate requires
them to so qualify, be licensed or be in good standing except where the failure
to be so authorized, qualified or licensed and in good standing would not have a
Material Adverse Effect. Section 3.1 (b) of the Seller Disclosure Letter sets
forth all of the jurisdictions in which Panhandle and the Panhandle Subsidiaries
are qualified to do business.
(c) Section 3.1 (c) of the Seller Disclosure Letter sets forth
the ownership interest of Seller (or any Subsidiary) in each Related Company.
Section 3.2 Authority Relative to this Agreement.
Seller has full corporate power and authority to execute and deliver
this Agreement, the Related Agreements and the other agreements, documents and
instruments to be executed and delivered by it in connection with this Agreement
or the Related Agreements, and to consummate the transactions contemplated
hereby and thereby. The execution, delivery and performance of this Agreement,
the Related Agreements and the other agreements, documents and instruments to be
executed and delivered in connection with this Agreement or the Related
Agreements and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all the necessary action on the
part of Seller, and no other corporate or other proceedings on the part of
Seller are necessary to authorize this Agreement, the Related Agreements and the
other agreements, documents and instruments to be executed and delivered in
connection with this Agreement or the Related Agreements or to
23
consummate the transactions contemplated hereby and thereby. This Agreement has
been, and the Related Agreements and the other agreements, documents and
instruments to be executed and delivered in connection with this Agreement or
the Related Agreements as of the Closing Date will be, duly and validly executed
and delivered by Seller or the Seller Counterparties, as applicable, and
assuming that this Agreement, the Related Agreements and the other agreements,
documents and instruments to be executed and delivered in connection with this
Agreement or the Related Agreements constitute legal, valid and binding
agreements of Buyer and Southern Union, as applicable, are (in the case of this
Agreement) or will be as of the Closing Date (in the case of the Related
Agreements and the other agreements, documents and instruments to be executed
and delivered in connection with this Agreement or the Related Agreements)
enforceable against Seller and the Seller Counterparties in accordance with
their respective terms, except that such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally or general principles of
equity.
Section 3.3 Panhandle Shares.
(a) The Panhandle Shares are duly authorized, validly issued
and fully paid and were not issued in violation of any preemptive rights. Except
as set forth in Section 3.3(a) of the Seller Disclosure Letter, (i) there are no
shares of Panhandle authorized, issued or outstanding or reserved for any
purpose, and (ii) there are no (A) existing options, warrants, calls, rights of
first refusal, preemptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character, relating to the Panhandle Shares,
obligating Seller or any of its Affiliates to issue, transfer or sell, or cause
to be issued, transferred or sold, any of the Panhandle Shares, (B) outstanding
securities of Seller or its Affiliates that are convertible into or exchangeable
or exercisable for any of the Panhandle Shares, (C) options, warrants or other
rights to purchase from Seller or its Affiliates any such convertible or
exchangeable securities or (D) other than this Agreement, contracts, agreements
or arrangements of any kind relating to the issuance of any of the Panhandle
Shares, or any such options, warrants or rights, pursuant to which, in any of
the foregoing cases, Seller or its Affiliates are subject or bound.
(b) Except as set forth in Section 3.3 (b) of the Seller
Disclosure Letter, Seller owns all of the issued and outstanding Panhandle
Shares and has good, valid and marketable title to the Panhandle Shares, free
and clear of all Encumbrances or other defects in title, and the Panhandle
Shares have not been pledged or assigned to any Person. At the Closing, the
Panhandle Shares will be transferred to Buyer free and clear of all
Encumbrances. The Panhandle Shares owned by Seller are not subject to any
restrictions on transferability other than those imposed by this Agreement and
by applicable securities laws.
(c) Except for the ownership of the Panhandle Subsidiaries and
the Related Companies, Panhandle does not have any subsidiaries or any stock or
other equity interest (controlling or otherwise) in any corporation, limited
liability company, partnership, joint venture or other entity. Except as set
forth in Section 3.3 (c)(i) of the
24
Seller Disclosure Letter, all of the outstanding shares of capital stock or
other ownership interests, as applicable, of each of the Panhandle Subsidiaries
are owned directly or indirectly by Panhandle, free and clear of all
Encumbrances, and are validly issued, fully paid and nonassessable. At the
Closing, all of such shares or other ownership interests will be free and clear
of all Encumbrances. Except as set forth in Section 3.3 (c)(ii) of the Seller
Disclosure Letter, the number of outstanding shares of capital stock or other
ownership interests, as applicable, of each of the Related Companies indicated
on Section 3.1 (c) of the Seller Disclosure Letter are owned directly or
indirectly by Panhandle, free and clear of all Encumbrances or other defects in
title, and such shares or ownership interests have not been pledged or assigned
to any Person. Except as set forth in Section 3.3 (c)(iii) of the Seller
Disclosure Letter, (i) there are no shares of a Panhandle Subsidiary authorized,
issued or outstanding or reserved for any purpose, and (ii) there are no (A)
existing options, warrants, calls, rights of first refusal, preemptive rights,
subscriptions or other rights, agreements, arrangements or commitments of any
character, relating to the shares of a Panhandle Subsidiary, obligating
Panhandle or any of its Affiliates to issue, transfer or sell, or cause to be
issued, transferred or sold, any of the shares of a Panhandle Subsidiary, (B)
outstanding securities of Panhandle or its Affiliates that are convertible into
or exchangeable or exercisable for any of the shares of a Panhandle Subsidiary,
or (C) options, warrants or other rights to purchase from Panhandle or its
Affiliates any such convertible or exchangeable securities.
Section 3.4 Consents and Approvals.
Except as set forth in Section 3.4 of the Seller Disclosure Letter,
Seller requires no consent, approval or authorization of, or filing,
registration or qualification with, any Governmental Authority, or any other
Person as a condition to the execution and delivery of this Agreement or the
performance of the obligations hereunder, except where the failure to obtain
such consent, approval or authorization of, or filing of, registration or
qualification with, any Governmental Authority, or any other Person would not
materially and adversely impact the operations, as currently conducted, of
Panhandle and the Panhandle Subsidiaries, taken as a whole.
Section 3.5 No Conflict or Violation.
Except as set forth in Section 3.5 of the Seller Disclosure Letter, the
execution, delivery and performance by the Seller of this Agreement does not:
(a) violate or conflict with any provision of the
organizational documents or bylaws of Seller, Panhandle or the Panhandle
Subsidiaries;
(b) violate any applicable provision of a law, statute,
judgment, order, writ, injunction, decree, award, rule or regulation of any
Governmental Authority, except where such violation would not have a Material
Adverse Effect; or
(c) violate, result in a breach of, constitute (with due
notice or lapse of time or both) a default or cause any obligation, penalty or
premium to arise or accrue under any Material Contract, lease, loan, mortgage,
security agreement, trust
25
indenture or other material agreement or instrument to which Panhandle or the
Panhandle Subsidiaries are a party or by which any of them is bound or to which
any of their respective properties or assets is subject, except as would not
have a Material Adverse Effect.
Section 3.6 Financial Information.
Seller has previously furnished to Buyer the Financial Statements.
Except as set forth in Section 3.6 of the Seller Disclosure Letter, as of the
Original Date, the Financial Statements present fairly in all material respects,
in accordance with GAAP consistently applied, on a consolidated basis, the
financial condition and results of operation of Panhandle and the Panhandle
Subsidiaries (other than CMSGCFS, but including Centennial and Guardian) as of
the date thereof and for the periods set forth therein, except for the absence
of footnotes and as otherwise noted therein, and subject, in the case of the
Interim Financial Statements, to normal recurring year-end adjustments which are
not material either individually or in the aggregate. At Closing, the Restated
Financials will present fairly in all material respects, in accordance with GAAP
consistently applied, on a consolidated basis, the financial condition and
results of operation of Panhandle and the Panhandle Subsidiaries (other than
CMSGCFS, but including Centennial and Guardian) as of the date thereof and for
the periods set forth therein, except for the absence of footnotes and as
otherwise noted therein, and subject, in the case of the Interim Financial
Statements, to normal recurring year-end adjustments which are not material
either individually or in the aggregate.
Section 3.7 Contracts.
(a) Section 3.7 (a) of the Seller Disclosure Letter sets forth
a list, as of the Original Date, of each material contract and lease to which
any of Panhandle or the Panhandle Subsidiaries is a party, other than (i) any
purchase or sale orders arising in the ordinary course of business, (ii) any
contract involving the payment or receipt of less than $1,000,000 in the
aggregate and (iii) any contract listed in any other Section of the Seller
Disclosure Letter (each contract set forth in Section 3.7 (a) of the Seller
Disclosure Letter being referred to herein as a "Material Contract").
(b) Section 3.7 (b) of the Seller Disclosure Letter sets forth
a list, as of the Original Date, of each contract that any of Panhandle or the
Panhandle Subsidiaries has with an Affiliate, other than with respect to any
purchases and sales arising in the ordinary course of business.
(c) Except as set forth in Section 3.7 (c) of the Seller
Disclosure Letter, each Material Contract is a valid and binding agreement of
Panhandle or the Panhandle Subsidiaries, as applicable, and, to the Knowledge of
Seller, is in full force and effect.
(d) Except as set forth in Section 3.7 (d) of the Seller
Disclosure Letter, Seller has no Knowledge of any default under any Material
Contract, other than defaults which have been cured or waived and which would
not have a Material Adverse
26
Effect. Panhandle or a Panhandle Subsidiary, as the case may be, and, to
Seller's Knowledge, the other party(ies) to any Material Contract, have
performed in all respects all obligations required to be performed by them under
any Material Contract, except where such non-performance would not have a
Material Adverse Effect. Seller has made available to Buyer or its
representatives true and complete originals or copies of all the Material
Contracts.
Section 3.8 Compliance with Law.
Except for Environmental Laws and Tax laws, which are the subject of
Section 3.15 and Section 3.16 respectively, and except as set forth in Section
3.8 of the Seller Disclosure Letter, since December 31, 1999, Seller, Panhandle
and the Panhandle Subsidiaries have complied with all federal, state, local or
foreign laws, statutes, ordinances, rules, regulations, judgments, orders,
writs, injunctions or decrees of any Governmental Authority applicable to their
respective properties, assets and businesses except where such noncompliance
would not have a Material Adverse Effect. None of Seller or Panhandle, and, to
the Knowledge of Seller, no Panhandle Subsidiary, has received written notice of
any material violation of any such law, license, regulation, order or other
legal requirement or, to the Knowledge of Seller, is in material default with
respect to any order, writ, judgment, award, injunction or decree of any
Governmental Authority, applicable to Panhandle or a Panhandle Subsidiary or any
of their respective assets, properties or operations.
Section 3.9 Permits.
Except as set forth in of the Seller Disclosure Letter, Seller,
Panhandle and the Panhandle Subsidiaries have all permits, licenses,
certificates of authority, orders and approvals of, and have made all filings
applications and registrations with Governmental Authorities necessary for the
conduct of the respective business operations of Panhandle and the Panhandle
Subsidiaries as presently conducted (collectively, the "Permits"), except for
those Permits the absence of which would not, individually or in the aggregate,
have a Material Adverse Effect.
Section 3.10 Litigation.
Except as identified in Section 3.10 of the Seller Disclosure Letter,
there are no lawsuits, actions, proceedings, or, to Seller's Knowledge, any
investigations, pending or, to Seller's Knowledge, threatened, against Seller or
any of its Affiliates or any executive officer or director thereof relating to
the Panhandle Shares or the transactions contemplated hereby or the respective
assets or businesses of Panhandle or the Panhandle Subsidiaries, except, in the
case of lawsuits, actions, proceedings, investigations relating to the
respective assets or businesses of Panhandle or the Panhandle Subsidiaries, as
would not, individually or in the aggregate, have a Material Adverse Effect.
Seller and its Affiliates are not subject to any outstanding judgment, order,
writ, injunction, decree or award entered in an Action to which Seller or any of
its Affiliates was a named party relating to the Panhandle Shares or the
transactions contemplated hereby or the respective assets or businesses of
Panhandle or the Panhandle Subsidiaries, except, in the case of
27
lawsuits, actions, proceedings, investigations relating to the respective assets
or businesses of Panhandle or the Panhandle Subsidiaries, as would not,
individually or in the aggregate, have a Material Adverse Effect.
Section 3.11 Title to Properties.
Each of Panhandle and the Panhandle Subsidiaries has good and valid
title to all of the tangible assets and properties which it owns and which are
reflected in the Financial Statements (except for assets and properties sold,
consumed or otherwise disposed of in the ordinary course of business since the
date of the Financial Statements), and such tangible assets and properties are
owned free and clear of all Encumbrances, except for (a) Encumbrances listed in
Section 3.11 of the Seller Disclosure Letter, (b) Permitted Encumbrances, and
(c) Encumbrances which will be discharged on or before the Closing Date. To the
Knowledge of Seller, each of Panhandle and the Panhandle Subsidiaries owns valid
and defeasible fee title to, or holds a valid leasehold interest in, or a valid
right-of-way or easement (all such rights-of-way and easements collectively, the
"Rights of Way") through, all real property ("Real Property") used or necessary
for the conduct of Panhandle's and the Panhandle Subsidiaries' business as
presently conducted, and all such real Property (other than Rights-Of-Way) are
owned or leased free and clear of all Encumbrances, in each case except for (a)
Encumbrances listed in Section 3.11 of the Seller Disclosure Letter, (b)
Permitted Encumbrances, and (c) Encumbrances which will be discharged on or
before the Closing Date.
Section 3.12 Employee Matters.
(a) Except as set forth in Section 3.12 (a) of the Seller
Disclosure Letter, neither Panhandle nor the Panhandle Subsidiaries contributes
to any "employee benefit plan," as defined in Section 3(3) of ERISA ("ERISA
Plans").
(b) Other than the Separation Plans, neither Panhandle nor the
Panhandle Subsidiaries sponsors or administers any ERISA Plan.
(c) Except as set forth in Section 3.12 (c) of the Seller
Disclosure Letter, neither Panhandle nor the Panhandle Subsidiaries has
established or maintains any plan, agreement or arrangement providing for
employment terms; severance benefits; insurance coverage (including any
self-insured arrangements); workers' compensation; disability benefits;
supplemental unemployment benefits; vacation benefits; retirement benefits;
deferred compensation, profit-sharing, bonuses, or other forms of incentive
compensation; or post-retirement insurance, compensation or benefits (whether or
not an ERISA Plan) that (i) is entered into, sponsored or maintained, as the
case may be, by Panhandle or the Panhandle Subsidiaries, and (ii) covers any
current or former Panhandle Employee or independent contractor to Panhandle or a
Panhandle Subsidiary. The policies, agreements, plans and arrangements, copies
or descriptions, including the ERISA Plans, that are set forth in Section 3.12
(a) and Section 3.12 (c) of the Seller Disclosure Letter, of all of which
complete and accurate copies have previously have been made available to Buyer,
are hereinafter referred to collectively as the "Employee Benefit Plans."
28
(d) Except as set forth in Section 3.12 (d) of the Seller
Disclosure Letter, neither Panhandle nor the Panhandle Subsidiaries has any
legal commitment to create, incur liability with respect to or cause to exist
any other employee benefit plan, program or arrangement for the benefit of any
current or former Panhandle Employee or to enter into any contract or agreement
to provide compensation or benefits to any former or current Panhandle Employee.
(e) Except as set forth in Section 3.12(e) of the Seller
Disclosure Letter, with respect to each Employee Benefit Plan:
(i) the applicable reporting, disclosure and other
requirements of ERISA (and other Applicable Law) have been complied
with in all material respects;
(ii) there is no act or omission of Panhandle or the
Panhandle Subsidiaries which would (a) constitute a breach of fiduciary
duty under Section 404 of ERISA or a transaction (including the
transactions contemplated by this Agreement) intended to evade
liability under Section 4069 of ERISA, in either case that would
subject Panhandle or the Panhandle Subsidiaries to a liability, or (b)
constitute a prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code that would subject Panhandle or the Panhandle
Subsidiaries or any plan fiduciary, directly or indirectly (through
indemnification obligations or otherwise), to an excise Tax or civil
penalty under Section 4975 of the Code or Section 502(i) of ERISA in an
amount that would be material;
(iii) none of the current or former Panhandle
Employees are entitled to benefits under a multiemployer plan (as
defined in Section 4001(a)(3) of ERISA) by reason of their employment
with Panhandle or the Panhandle Subsidiaries;
(iv) all contributions or payments required to be
made under each Employee Plan or Employee Benefit Plan, by reason of
Part 3 of Subtitle B of Title I of ERISA, Section 412 of the Code, or
otherwise prior to the Closing Date have been and will be timely made;
(v) there is no pending or, to Seller's Knowledge,
threatened litigation with respect to any Employee Benefit Plan;
(vi) except to the extent required under Section 601
of ERISA, neither Panhandle nor the Panhandle Subsidiaries has any
present or future obligation to make any payment to or with respect to
any former or current Panhandle Employee or any dependent of any such
former or current Panhandle Employee under any retiree medical benefit
plan, or other retiree welfare benefit plan;
29
(vii) there is no Employee Benefit Plan covering any
former or current Panhandle Employee that provides for the payment by
Panhandle or the Panhandle Subsidiaries of any amount (i) that is not
deductible as a result of Section 162(a)(1) or 404 of the Code or (ii)
that is an "excess parachute payment" pursuant to Section 280G of the
Code;
(viii) Seller is aware of no fact that would lead
Buyer or, after the transaction, Panhandle or a Panhandle Subsidiary,
to incur any liability under Title IV of ERISA;
(ix) Neither the execution of this Agreement nor the
consummation of the transactions contemplated hereby will (x) entitle
any Panhandle Employee to severance pay to which such employee was not
previously entitled, or any increase in severance pay upon a
termination of employment, (y) accelerate the time of payment or
vesting of, or trigger any payment of compensation or benefits to, the
Panhandle Employees under any Employee Benefit Plan or (z) trigger any
other material obligation pursuant to the Employee Benefit Plans that
would be a liability of Buyer or Panhandle or the Panhandle
Subsidiaries after the Closing Date; and
(x) each ERISA Plan intended to qualify under Section
401(a) of the Code has been determined to be so qualified by the
Internal Revenue Service and, to the Knowledge of Seller, nothing has
occurred which has resulted or is likely to result in the revocation of
such determination or which requires or is reasonable likely to require
action under the compliance resolution programs of the Internal Revenue
Service to preserve such qualification.
Section 3.13 Labor Relations.
Except as set forth in Section 3.13 of the Seller Disclosure Letter,
(i) none of Panhandle or the Panhandle Subsidiaries is a party to any labor or
collective bargaining agreements, and there are no labor or collective
bargaining agreements which pertain to any employees of Panhandle or the
Panhandle Subsidiaries, (ii) within the preceding eighteen (18) months, there
have been no representation or certification proceedings, or petitions seeking a
representation proceeding, pending or, to the Knowledge of Seller, threatened in
writing to be brought or filed with the National Labor Relations Board or any
other labor relations tribunal or authority with respect to Panhandle or the
Panhandle Subsidiaries and (iii) within the preceding eighteen (18) months, to
the Knowledge of Seller, there have been no organizing activities involving
Panhandle or the Panhandle Subsidiaries with respect to any group of their
respective employees.
Section 3.14 Intellectual Property.
Except as set forth in Section 3.14 of the Seller Disclosure Letter,
Panhandle and the Panhandle Subsidiaries will, on the Closing Date, either in
their own name or by
30
operation of the Intellectual Property Agreement attached hereto as Exhibit A,
own or possess licenses or other legally enforceable rights to use all patents,
copyrights (including any copyrights in proprietary software), trademarks,
service marks, trade names, logos, and other intellectual property rights,
software object and source code as are necessary to conduct their respective
businesses as currently conducted, except those the lack of which would not,
materially and adversely impact the operations, as currently conducted, of
Panhandle and the Panhandle Subsidiaries taken as a whole; and to Seller's
Knowledge, there is no conflict by Seller or any of Panhandle or the Panhandle
Subsidiaries with the rights of others therein which, individually or in the
aggregate, would materially and adversely impact the operations, as currently
conducted, of Panhandle and the Panhandle Subsidiaries taken as a whole.
Section 3.15 Representations with Respect to Environmental
Matters.
To Seller's Knowledge, and except as set forth in Section 3.15 of the
Seller Disclosure Letter:
(a) Panhandle and the Panhandle Subsidiaries are in compliance
with all applicable Environmental Laws, except for such noncompliance as would
not, individually or in the aggregate, have a Material Adverse Effect;
(b) Panhandle and the Panhandle Subsidiaries have all of the
Environmental Permits required in order to conduct their operations or, where
such Environmental Permits have expired, have applied for a renewal of such
Environmental Permits in a timely fashion, except where the failure to have an
Environmental Permit or to have applied for a renewal of an Environmental Permit
would not, individually or in the aggregate, have a Material Adverse Effect;
(c) there is no pending or threatened written Claim, lawsuit,
or administrative proceeding against Panhandle or the Panhandle Subsidiaries
under or pursuant to any Environmental Law that, individually or in the
aggregate, would have a Material Adverse Effect. Neither Panhandle nor the
Panhandle Subsidiaries is a party or subject to any administrative or judicial
order, decree or other agreement with a Governmental Authority under or pursuant
to any applicable Environmental Law that, individually or in the aggregate,
would have a Material Adverse Effect;
(d) neither Panhandle nor the Panhandle Subsidiaries have
received written notice from any third party, including any Governmental
Authority, alleging that Panhandle or the Panhandle Subsidiaries has been or is
in violation or potentially in violation of any applicable Environmental Law or
otherwise may be liable under any applicable Environmental Law, which violation
or liability is unresolved and which, individually or in the aggregate, would
have a Material Adverse Effect; and
(e) with respect to the real property that is currently owned
or leased by Panhandle or the Panhandle Subsidiaries, there have been no spills
or discharges of Hazardous Substances on or underneath any such real property
that, individually or in the aggregate, would have a Material Adverse Effect.
31
The representations and warranties set forth in this Section 3.15 are Seller's
sole and exclusive representations and warranties related to environmental
matters.
Section 3.16 Tax Matters.
(a) Except as would not have a Material Adverse Effect, all
federal, state, and local Tax Returns required to be filed by or on behalf of
Panhandle or the Panhandle Subsidiaries, and each consolidated, combined,
unitary, affiliated or aggregate group of which any of Panhandle or the
Panhandle Subsidiaries are a member has been timely filed (taking into account
applicable extensions), and all Taxes shown as due on such Tax Returns have been
paid, or adequate reserves therefor have been established.
(b) Except as would not have a Material Adverse Effect, there
is no deficiency, proposed adjustment, or matter in controversy that has been
asserted or assessed in writing with respect to any Taxes due and owing by
Panhandle or the Panhandle Subsidiaries that has not been paid or settled in
full.
(c) Except as would not have a Material Adverse Effect,
Panhandle and the Panhandle Subsidiaries have timely withheld and timely paid
all Taxes required to be withheld by them in connection with any amounts paid or
owing to any employee, creditor, independent contractor or other third party.
(d) Except as would not have a Material Adverse Effect, there
are no liens for Taxes upon any of the assets of Panhandle or any Panhandle
Subsidiary except for liens for Taxes not yet due and payable.
(e) Except as would not have a Material Adverse Effect, no
property of Panhandle or any Panhandle Subsidiary is required to be treated as
"tax-exempt use property" within the meaning of Code Section 168(h), and no
property of Panhandle or any Panhandle Subsidiary is subject to a tax benefit
transfer lease subject to the provisions of former Section 168(f)(8) of the
Code.
(f) Except as set forth in Section 3.16 (f) of the Seller
Disclosure Letter, each Panhandle Subsidiary and each Related Company that is
treated as a partnership for United States federal income tax purposes has not
made a valid election under Section 754 of the Code that will be in effect on
the Closing Date.
Section 3.17 Absence of Certain Changes or Events.
(a) Except as set forth in Section 3.17 (a) of the Seller
Disclosure Letter, for the period beginning on March 29, 1999 and until the date
hereof, Panhandle and the Panhandle Subsidiaries have conducted their respective
businesses in the ordinary course of business, consistent with past practice (as
such practice existed during the period of Seller's ownership of Panhandle and
the Panhandle Subsidiaries).
(b) Except as set forth in Section 3.17 (b) of the Seller
Disclosure Letter, or in the Financial Statements and the notes thereto, since
the date of
32
the Financial Statements, there has not been with respect to Panhandle and the
Panhandle Subsidiaries any event or development or change which has resulted or
would reasonably be expected to result in a Material Adverse Effect.
Section 3.18 Absence of Undisclosed Liabilities.
Neither Panhandle nor the Panhandle Subsidiaries have any Liabilities
(whether absolute, accrued, contingent or otherwise) that are required by GAAP
to be reflected in the audited financial statements of Panhandle and the
Panhandle Subsidiaries except those Liabilities (a) disclosed and reserved
against in the September 30, 2002 balance sheet for Panhandle and the Panhandle
Subsidiaries, (b) set forth in Section 3.18 of the Seller Disclosure Letter, (c)
incurred in the ordinary course of business since September 30, 2002 and (d)
which have not resulted in a Material Adverse Effect.
Section 3.19 Brokerage and Finders' Fees.
Except for Merrill Lynch & Co. and Salomon Smith Barney Inc., whose
fees will be paid by Seller, none of Seller, Panhandle, the Panhandle
Subsidiaries, or any of their Affiliates or their respective stockholders,
partners, directors, officers or employees, has incurred, or will incur any
brokerage, finders' or similar fee in connection with the transactions
contemplated by this Agreement or the Related Agreements.
Section 3.20 Affiliated Transactions.
Except as described in Section 3.20 of the Seller Disclosure Letter,
and except for trade payables and receivables arising in the ordinary course of
business for purchases and sales of goods or services consistent with past
practice, neither Panhandle nor the Panhandle Subsidiaries have been a party
over the past twelve (12) months to any material transaction or agreement with
Seller or any Affiliate of Seller (other than Panhandle and the Panhandle
Subsidiaries) and no director or officer of Seller or its Affiliates (other than
Panhandle and the Panhandle Subsidiaries), has, directly or indirectly, any
material interest in any of the assets or properties of Panhandle or the
Panhandle Subsidiaries.
Section 3.21 Insurance.
(a) Section 3.21 of the Seller Disclosure Letter sets forth a
true and complete list of all current policies of all material property and
casualty insurance, insuring the properties, assets, employees and/or operations
of Panhandle and the Panhandle Subsidiaries (collectively, the "Insurance
Policies"). To the Knowledge of Seller, all premiums payable under such Policies
have been paid in a timely manner and Panhandle and the Panhandle Subsidiaries
have complied in all material respects with the terms and conditions of all such
Policies.
(b) As of the Original Date, Seller has not received any
written notification of the failure of any of the Insurance Policies to be in
full force and effect. To the Knowledge of Seller, neither Panhandle nor the
Panhandle Subsidiaries is in default under any provision of the Insurance
Policies, and except as set forth in Section
33
3.21 of the Seller Disclosure Letter, there is no claim by Panhandle or any
other Person pending under any of the Insurance Policies as to which coverage
has been denied or disputed by the underwriters or issuers thereof.
Section 3.22 Regulatory Matters.
Panhandle is a "Natural Gas Company" as that term is defined in Section
2 of the Natural Gas Act ("NGA"). Panhandle is not a "public utility company,"
"holding company" or "subsidiary" or "affiliate" of a holding company as such
terms are defined in the Public Utility Holding Company Act of 1935 (the "1935
Act"). Except as would not have a Material Adverse Effect, Panhandle and the
Panhandle Subsidiaries are in compliance with all provisions of the NGA and all
rules and regulations promulgated by FERC pursuant thereto. Except as would not
have a Material Adverse Effect, Panhandle and the Panhandle Subsidiaries are in
compliance with all orders issued by FERC that pertain to all terms and
conditions and rates charged for services. Except as set forth in Section 3.22
of the Seller Disclosure Letter, no approval of (i) the Securities and Exchange
Commission under the 1935 Act or (ii) FERC under the NGA or the Federal Power
Act is required in connection with the execution of this Agreement by Seller or
the transaction contemplated hereby with respect to Seller. The Form No. 2
Annual Reports filed by Panhandle with FERC for the years ended December 31,
2001 and December 31, 2000 were true and correct in all material respects as of
the dates thereof. Since September 30, 2002 until the date of this Agreement
none of Panhandle or the Panhandle Subsidiaries have become subject to any
proceeding under Section 5 of the NGA or any general rate case proceeding
commenced under Section 4 of the NGA by reason of a filing made with the FERC
after September 30, 2002.
Section 3.23 Opinions of Financial Advisors.
(a) The Board of Directors of Parent has received separate
opinions, dated the Original Date, from each of Merrill Lynch & Co. and Salomon
Smith Barney Inc., each addressed to the Board of Directors of Parent, to the
effect that, subject to, and based upon the assumptions, qualifications and
limitations included in such opinions, the consideration to be received by
Parent pursuant to the Original Purchase Agreement is fair from a financial
point of view to Parent. Buyer will be permitted to inspect such opinions solely
for informational purposes following receipt thereof by Parent.
(b) The Board of Directors of Parent has received an opinion,
dated as of the date of this Agreement, from Salomon Smith Barney Inc.,
addressed to the Board of Directors of Parent, to the effect that, subject to,
and based upon the assumptions, qualifications and limitations included in such
opinion, the consideration to be received by Parent pursuant to this Agreement
is fair from a financial point of view to Parent. Buyer will be permitted to
inspect such opinion solely for informational purposes following receipt thereof
by Parent.
34
Section 3.24 Investment Representations.
Seller is acquiring the Southern Union Shares to be acquired by it
hereunder for its own account, solely for the purpose of investment and not with
a view to, or for sale in connection with, any distribution thereof in violation
of the federal securities laws or any applicable foreign or state securities
law.
Section 3.25 Recent Transfers.
(a) On February 28, 2002, Seller caused CMS Gulf Coast
Holdings Company, whose sole asset was 100 percent of the ownership interests in
CMSGCFS, and the contracts relating thereto, to be transferred to CMS Panhandle
Holdings, LLC.
(b) In March 2003, Panhandle's ownership interest in Guardian,
and the contracts relating thereto, was transferred to Seller.
(c) In February 2003, Panhandle sold its ownership interest in
Centennial, and the contracts relating thereto, to Marathon Ashland Petroleum,
LLC and TE Products Pipeline Company, Limited Partner.
Section 3.26 Date of Certain Representations.
All of the representations and warranties provided for in this Article
III are made only as of the Original Date except for the representations and
warranties set forth in Section 3.1 (Corporate Organization; Qualification),
Section 3.2 (Authority Relative to this Agreement), Section 3.3 (Panhandle
Shares), Section 3.4 (Consents and Approvals), Section 3.5 (No Conflict or
Violation) and Section 3.19 (Brokerage and Finders' Fees) which are made as of
the Original Date and as of the date of this Agreement and for Section 3.23(b)
(Opinions of Financial Advisors), Section 3.24 (Investment Representations) and
Section 3.25 (Recent Transfers) which are made only as of the date of this
Agreement.
Section 3.27 No Other Representations or Warranties.
Except for the representations and warranties contained in this Article
III, none of Seller, Panhandle, or the Panhandle Subsidiaries, nor any other
Person makes any other express or implied representation or warranty on behalf
of Seller.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND SOUTHERN UNION
Buyer and Southern Union hereby represent and warrant to Seller as
follows:
35
Section 4.1 Corporate Organization; Qualification.
Buyer and Southern Union are corporations or other legal entities duly
organized, validly existing and duly qualified or licensed and in good standing
under the laws of the state or jurisdiction of their incorporation and have all
requisite corporate power to own, lease and operate their properties and to
carry on their business as currently conducted. Buyer and Southern Union are
duly qualified or licensed to do business as foreign corporations or other legal
entities and are, and have been, in good standing in each jurisdiction in which
the nature of the business conducted by each of them or the property each owns,
leases or operates requires it to so qualify, be licensed or be in good
standing, except for such failures to be qualified, licensed or in good standing
that would not materially affect the consummation of the transactions
contemplated by this Agreement.
Section 4.2 Authority Relative to this Agreement.
Buyer and Southern Union have full corporate, or other power, and
authority to execute and deliver this Agreement, the Related Agreements and the
other agreements, documents and instruments to be executed and delivered by each
of them in connection with this Agreement or the Related Agreements, and to
consummate the transactions contemplated hereby and thereby, including the
issuance and delivery of the Southern Union Shares, their registration pursuant
to the Shelf Registration Statement and the Listing. The execution, delivery and
performance of this Agreement, the Related Agreements and the other agreements,
documents and instruments to be executed and delivered in connection with this
Agreement or the Related Agreements and the consummation of the transactions
contemplated hereby and thereby, including the issuance and delivery of the
Southern Union Shares, their registration pursuant to the Shelf Registration
Statement and the Listing, have been duly and validly authorized by all the
necessary action on the part of Buyer and Southern Union and no other corporate,
or other proceedings on the part of Buyer or Southern Union are necessary to
authorize this Agreement, the Related Agreements and the other agreements,
documents and instruments to be executed and delivered in connection with this
Agreement or the Related Agreements or to consummate the transactions
contemplated hereby and thereby, including the issuance and delivery of the
Southern Union Shares, their registration pursuant to the Shelf Registration
Statement and the Listing. This Agreement has been, and the Related Agreements
and the other agreements, documents and instruments to be executed and delivered
in connection with this Agreement or the Related Agreements as of the Closing
Date will be, duly and validly executed and delivered by Buyer or Southern
Union, as applicable, and assuming that this Agreement, the Related Agreements
and the other agreements, documents and instruments to be executed and delivered
in connection with this Agreement or the Related Agreements constitute legal,
valid and binding agreements of Seller and the Seller Counterparties, as
applicable, are (in the case of this Agreement) or will be as of the Closing
Date (in the case of the Related Agreements and the other agreements, documents
and instruments to be executed and delivered in connection with this Agreement
or the Related Agreements), enforceable against Buyer and Southern Union in
accordance with their respective terms, except that such enforceability may be
limited by applicable bankruptcy, insolvency, moratorium or
36
other similar laws affecting or relating to enforcement of creditors' rights
generally or general principles of equity.
Section 4.3 Consents and Approvals.
Except as set forth in Section 4.3 of the Buyer Disclosure Letter, none
of Buyer or Southern Union requires any consent, approval or authorization of,
or filing, registration or qualification with, any Governmental Authority, or
any other Person as a condition to the execution and delivery of this Agreement
or the performance of the obligations hereunder, including the issuance and
delivery of the Southern Union Shares, their registration pursuant to the Shelf
Registration Statement and the Listing, except where the failure to obtain such
consent, approval or authorization of, or filing of, registration or
qualification with, any Governmental Authority, or any other Person would not
materially affect the consummation of the transactions contemplated by this
Agreement.
Section 4.4 No Conflict or Violation.
Except as set forth in Section 4.4 of the Buyer Disclosure Letter, the
execution, delivery and performance by Buyer and Southern Union and the issuance
and delivery of the Southern Union Shares of this Agreement do not:
(a) violate or conflict with any provision of the
organizational documents or bylaws of Buyer or Southern Union, respectively;
(b) violate any applicable provision of a law, statute,
judgment, order, writ, injunction, decree, award, rule or regulation of any
Governmental Authority, except where such violation would not have a Material
Adverse Effect; or
(c) violate, result in a breach of, constitute (with due
notice or lapse of time or both) a default or cause any material obligation,
penalty or premium to arise or accrue under any material contract, lease, loan,
agreement, mortgage, security agreement, trust indenture or other material
agreement or instrument to which Buyer or Southern Union is a party or by which
it is bound or to which any of its properties or assets is subject, except as
would not have materially affect the consummation of the transactions
contemplated by this Agreement.
Section 4.5 Litigation.
Except as set forth in Section 4.5 of the Buyer Disclosure Letter,
there are no lawsuits, actions, proceedings, or, to Buyer's Knowledge, any
investigations, pending or, to Buyer's Knowledge, threatened, against Buyer,
Southern Union or any of their respective Affiliates or any executive officer or
director thereof which would prohibit or impair Buyer, Southern Union or their
respective Affiliates from undertaking any of the transactions contemplated by
this Agreement or the Related Agreements, except as would not materially affect
the consummation of the transactions contemplated by this Agreement. Buyer,
Southern Union and their respective Affiliates are not subject to any
outstanding judgment, order, writ, injunction, decree or award entered in an
Action to which Buyer, Southern Union or any of their respective Affiliates was
a named party
37
which would prohibit or impair Buyer, Southern Union or their Affiliates from
undertaking any of the transactions contemplated by this Agreement or the
Related Agreements, except as would not materially affect the consummation of
the transactions contemplated by this Agreement.
Section 4.6 Availability of Funds.
Buyer will have on the Closing Date sufficient funds available in
immediately available funds to pay the Purchase Price and to consummate the
transactions contemplated hereby. The ability of Buyer to consummate the
transactions contemplated hereby is not subject to any condition or contingency
with respect to financing.
Section 4.7 Brokerage and Finders' Fees.
Except for Lehman Brothers and Berenson & Company, whose fees will each
be paid by Buyer, neither Buyer, Southern Union nor any of their Affiliates, or
their respective stockholders, partners, directors, officers or employees, has
incurred, or will incur any brokerage, finders' or similar fee in connection
with the transactions contemplated by this Agreement or the Related Agreements.
Section 4.8 Investment Representations.
(a) Buyer is acquiring the Panhandle Shares to be acquired by
it hereunder for its own account, solely for the purpose of investment and not
with a view to, or for sale in connection with, any distribution thereof in
violation of the federal securities laws or any applicable foreign or state
securities law.
(b) Buyer is an "accredited investor" as defined in Rule
501(a) promulgated under the Securities Act of 1933, as amended.
(c) Buyer understands that the acquisition of the Panhandle
Shares to be acquired by it pursuant to the terms of this Agreement involves
substantial risk. Buyer and its officers have experience as an investor in
securities and equity interests of companies such as the ones being transferred
pursuant to this Agreement and acknowledges that it can bear the economic risk
of its investment and has such knowledge and experience in financial or business
matters that Buyer is capable of evaluating the merits and risks of its
investment in the Panhandle Shares to be acquired by it pursuant to the
transactions contemplated hereby.
(d) Buyer understands that the Panhandle Shares to be acquired
by it hereunder have not been registered under the Securities Act on the basis
that the sale provided for in this Agreement is exempt from the registration
provisions thereof. Buyer acknowledges that such securities may not be
transferred or sold except pursuant to the registration and other provisions of
applicable securities laws or pursuant to an applicable exemption therefrom.
38
(e) Buyer acknowledges that the offer and sale of the
Panhandle Shares to be acquired by it in the transactions contemplated hereby
has not been accomplished by the publication of any advertisement.
Section 4.9 Buyer Capitalization; Other Interests
(a) Southern Union directly owns all of the issued and
outstanding shares of capital stock of Buyer.
(b) Except as set forth in Section 4.9(b) of the Buyer
Disclosure Letter, there are no (A) existing options, warrants, calls, rights of
first refusal, preemptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character, relating to the capital stock of
Buyer, obligating Buyer, Southern Union or any of their respective Affiliates to
issue, transfer or sell, or cause to be issued, transferred or sold, any of the
capital stock of Buyer, (B) outstanding securities of Buyer or its Affiliates
that are convertible into or exchangeable or exercisable for any of the capital
stock of Buyer, (C) options, warrants or other rights to purchase from Buyer,
Southern Union or their respective Affiliates any such convertible or
exchangeable securities or (D) contracts, agreements or arrangements of any kind
relating to the issuance of any of the capital stock of Buyer, or any such
options, warrants or rights, pursuant to which, in any of the foregoing cases,
Buyer, Southern Union or any of their respective Affiliates are subject or
bound.
(c) Other than as set forth on Section 4.9 (c) of the
Buyer Disclosure Letter, neither Buyer nor Southern Union own any stock or other
equity interest (controlling or otherwise) in any corporation, limited liability
corporation, joint venture or other entity engaged in the energy business,
including without limitation any business engaged in (i) the ownership or
operation of natural gas and condensate pipelines, (ii) interstate
transportation of natural gas, (iii) natural gas storage services, (iv) the
storage and regasification of liquefied natural gas and (v) the separation and
measurement of condensate. Section 4.9 (c) of the Buyer Disclosure Letter
indicates whether, and the extent to which, Southern Union has management
responsibility and/or operational control for the entities set forth in Section
4.9 (c) of the Buyer Disclosure Letter which are engaged in the energy business.
Section 4.10 Compliance with Law.
Except as set forth in Southern Union's filings with the Securities and
Exchange Commission ("SEC") filed since December 31, 1999 through the date of
this Agreement, and except as set forth in Section 4.10 of the Buyer Disclosure
Letter, since December 31, 1999, Southern Union and the Southern Union
Subsidiaries have complied with all federal, state, local or foreign laws,
statutes, ordinances, rules, regulations, judgments, orders, writs, injunctions
or decrees of any Governmental Authority applicable to their respective
properties, assets and businesses except where such noncompliance would not have
a Southern Union Material Adverse Effect. None of Southern Union or, to the
Knowledge of Buyer, no Southern Union Subsidiary, has received written notice of
any material violation of any such law, license, regulation, order or other
legal requirement
39
or, to the Knowledge of Buyer, is in material default with respect to any order,
writ, judgment, award, injunction or decree of any Governmental Authority,
applicable to Southern Union or a Southern Union Subsidiary or any of their
respective assets, properties or operations.
Section 4.11 Southern Union Shares.
(a) Except as set forth in Section 4.11 (a) of the Buyer
Disclosure Letter, (i) except as set forth in Southern Union's report on Form
10-Q for the quarterly period ended December 31, 2002, there are no shares of
Southern Union authorized, issued or outstanding or reserved for any purpose,
and (ii) there are no (A) existing options, warrants, calls, rights of first
refusal, preemptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character, relating to the Southern Union
Shares, obligating Southern Union or any of its Affiliates to issue, transfer or
sell, or cause to be issued, transferred or sold, any of the Southern Union
Shares, (B) outstanding securities of Southern Union or its Affiliates that are
convertible into or exchangeable or exercisable for any of the Southern Union
Shares, (C) options, warrants or other rights to purchase from Southern Union or
its Affiliates any such convertible or exchangeable securities or (D) other than
this Agreement, contracts, agreements or arrangements of any kind relating to
the issuance of any of the Southern Union Shares, or any such options, warrants
or rights, pursuant to which, in any of the foregoing cases, Seller or its
Affiliates are subject or bound.
(b) Southern Union has taken all necessary actions to
permit it to issue the Southern Union Shares. The Southern Union Shares will,
when issued, be duly authorized, validly issued, fully paid and non-assessable,
and no shareholder of Southern Union or other person has or will have any
preemptive right of subscription or purchase in respect thereof. At the Closing,
the Southern Union Shares will be transferred to Seller free and clear of all
Encumbrances or other defects in title. The Southern Union Shares are not, and
at Closing will not be, subject to any restrictions on transferability other
than those imposed by this Agreement and by applicable securities laws.
(c) Except as set forth in Section 4.11 (c)(i) of the
Buyer Disclosure Letter, all of the outstanding shares of capital stock or other
ownership interests, as applicable, of each of the Southern Union Subsidiaries
are owned directly or indirectly by Southern Union, free and clear of all
Encumbrances, and are validly issued, fully paid and nonassessable. At the
Closing, all of such shares or other ownership interests will be free and clear
of all Encumbrances. Except as set forth in Section 4.11 (c)(ii) of the Buyer
Disclosure Letter, there are no (A) existing options, warrants, calls, rights of
first refusal, preemptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character, relating to the shares of a
Southern Union Subsidiary, obligating Southern Union or any of its Affiliates to
issue, transfer or sell, or cause to be issued, transferred or sold, any of the
shares of a Southern Union Subsidiary, (B) outstanding securities of Southern
Union or its Affiliates that are convertible into or exchangeable or exercisable
for any of the shares of a Southern Union Subsidiary, or (C) options, warrants
or other rights to purchase from Southern Union or its Affiliates any such
convertible or exchangeable securities.
40
Section 4.12 Southern Union Financial Information.
Southern Union has previously furnished to Seller the Southern Union
Financial Statements. Except as set forth in Section 4.12 of the Buyer
Disclosure Letter, the Southern Union Financial Statements present fairly in all
material respects, in accordance with GAAP consistently applied, on a
consolidated basis, the financial condition and results of operation of Southern
Union and the Southern Union Subsidiaries as of the date thereof and for the
periods set forth therein, except as otherwise noted therein, and in the case of
the Southern Union Interim Financial Statement, except for the absence of
footnotes and subject to normal recurring year-end adjustments which are not
material either individually or in the aggregate.
Section 4.13 Absence of Certain Changes or Events.
Except as set forth in Southern Union's annual report on Form 10-K for
the year ended June 30, 2002, and its subsequent SEC filings filed prior to the
date of this Agreement:
(a) Except as set forth in Section 4.13(a) of the Buyer
Disclosure Letter, for the period beginning on July 1, 2002 and until the date
hereof, Southern Union and the Southern Union Subsidiaries have conducted their
respective businesses in the ordinary course of business, consistent with past
practice.
(b) Except as set forth in Section 4.13(b) of the Buyer
Disclosure Letter, or in the Southern Union Financial Statements and the notes
thereto, since December 31, 2002, there has not been with respect to Southern
Union and the Southern Union Subsidiaries any event or development or change
which has resulted or would reasonably be expected to result in a Southern Union
Material Adverse Effect.
Section 4.14 Absence of Undisclosed Liabilities.
Except as set forth in Southern Union's annual report on Form 10-K for
the year ended June 30, 2002, and its subsequent SEC filings filed prior to the
date of this Agreement, neither Southern Union nor the Southern Union
Subsidiaries have any Liabilities (whether absolute, accrued, contingent or
otherwise) that are required by GAAP to be reflected in the most recent Southern
Union Financial Statements except those Liabilities (a) disclosed and reserved
against in the December 31, 2002 balance sheet for Southern Union, (b) set forth
in Section 4.14 of the Buyer Disclosure Letter, (c) incurred in the ordinary
course of business since December 31, 2002 and (d) which have not resulted in a
Southern Union Material Adverse Effect.
Section 4.15 Southern Union Subsidiaries.
Except for subsidiaries not required to be listed pursuant to Item 601
of Regulation S-K in Southern Union's annual report on Form 10-K for the year
ended June 30, 2002, Southern Union has no subsidiaries other than the Southern
Union Subsidiaries.
41
Section 4.16 SEC Filings.
(a) From and including the date of Southern Union's annual
report on Form 10-K for the year ended June 30, 2002, as of their respective
filing dates with the Securities and Exchange Commission ("SEC"), Southern
Union's filings with the SEC (i) have complied as to form in all material
respects with the applicable requirements of the Exchange Act or Securities Act,
as applicable, and (ii) did not contain any untrue statement of a material fact
or omit any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not false or
misleading.
(b) Southern Union's registration statement on Form S-3,
filed with the SEC on January 7, 2003, as amended on April 1, 2003, pursuant to
which the Southern Union Shares will be issued to Seller (the "Shelf
Registration Statement"), has been declared effective by the SEC and is
currently effective.
Section 4.17 Date of Certain Representations.
The representations and warranties provided for in this Article IV are
made as of the Original Date and as the date of this Agreement except for the
representations and warranties set forth in Section 4.9 (Buyer Capitalization;
Other Interests), Section 4.10 (Compliance with Law), Section 4.11 (Southern
Union Shares), 4.12 (Southern Union Financial Information), 4.13 (Absence of
Certain Changes or Events), 4.14 (Absence of Undisclosed Liabilities), 4.15
(Southern Union Subsidiaries) and Section 4.16 (SEC Filings) which are made only
as of the date of this Agreement.
Section 4.18 No Other Representations or Warranties.
Except for the representations and warranties contained in this Article
IV, none of Buyer, Southern Union or any other Person makes any other express or
implied representation or warranty on behalf of Buyer or Southern Union.
ARTICLE V
COVENANTS OF THE PARTIES
Section 5.1 Conduct of Business.
(a) Except as expressly provided in this Agreement or as
set forth in Section 5.1 (a) of the Seller Disclosure Letter, from and after the
Original Date and until the Closing Date, Seller shall cause Panhandle and the
Panhandle Subsidiaries to conduct and maintain their respective businesses in
the ordinary course of business, consistent with past practice.
(b) Except as contemplated by this Agreement or as set
forth in Section 5.1 (b) of the Seller Disclosure Letter, from and after the
Original Date and until the Closing Date, without the prior written consent of
Buyer (which consent shall not
42
be unreasonably withheld or delayed), Seller shall cause Panhandle and the
Panhandle Subsidiaries not to:
(i) Amend its Certificate of Incorporation, Bylaws
or other comparable charter or organizational documents or merge with
or into or consolidate with any other Person;
(ii) Issue, sell, pledge, dispose of or encumber,
or authorize or propose the issuance, sale, pledge, disposition or
encumbrance of, any shares of, or securities convertible or
exchangeable for, or options, puts, warrants, calls, commitments or
rights of any kind to acquire, any of its capital stock or other
membership or ownership interests or subdivide or in any way reclassify
any shares of its capital stock or other membership or ownership
interests or change or agree to change in any manner the rights of its
outstanding capital stock or other membership or ownership interests;
(iii) (A) Declare, set aside or pay any dividend or
other distribution payable other than in cash or cash equivalents, with
respect to any shares of any class or series of capital stock of
Panhandle or the Panhandle Subsidiaries; (B) split, combine or
reclassify any shares of any class or series of capital stock of
Panhandle or the Panhandle Subsidiaries; or (C) redeem, purchase or
otherwise acquire directly or indirectly any shares of any class or
series of capital stock of Panhandle or the Panhandle Subsidiaries, or
any instrument or security which consists of or includes a right to
acquire such shares;
(iv) Except as may be required by agreements or
arrangements identified in Section 5.1 (b)(iv) of the Seller Disclosure
Letter, grant any severance or termination pay to, or enter into,
extend or amend any employment, consulting, severance or other
compensation agreement with, or otherwise increase the compensation or
benefits provided to any of its officers or other employees whose
annual salary base is in excess of $100,000 other than in the ordinary
course of business, consistent with past practice;
(v) Sell, lease, license, mortgage or otherwise
dispose of any properties or assets material to its business, other
than (A) sales made in the ordinary course of business consistent with
past practice or (B) sales of obsolete or other assets not presently
utilized in its business;
(vi) Make any change in its accounting principals,
practices, estimates or methods, other than as may be required by GAAP,
Applicable Law or any Governmental Authority;
43
(vii) Organize any new Subsidiary or acquire any
capital stock of, or equity or ownership interest in, any other Person;
(viii) Materially modify or amend or terminate any
Material Contract or waive, release or assign any material rights or
Claims under a Material Contract, except in the ordinary course of
business and consistent with past practice;
(ix) Pay, repurchase, discharge or satisfy any of
its Claims, Liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than in the ordinary course
of business and consistent with past practice;
(x) Enter into any contract or transaction
relating to the purchase of assets material to Panhandle or the
Panhandle Subsidiaries, taken as a whole, other than in the ordinary
course of business consistent with past practice;
(xi) (A) Incur or assume any long-term debt, or
except in the ordinary course of business consistent with past
practice, incur or assume short-term indebtedness (other than
intercompany indebtedness) exceeding $5,000,000 in the aggregate from
the date hereof until Closing; (B) modify the terms of any indebtedness
or other liability, other than modifications of short-term debt in the
ordinary course of business, consistent with past practice; or (C)
assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of
any other Person (other than any Panhandle Subsidiary), except as
described in Section 5.1 (b)(xi)(C) of the Seller Disclosure Letter;
(xii) Adopt a plan of complete or partial
liquidation, dissolution, restructuring, recapitalization or other
reorganization;
(xiii) Make or change any material election in
respect of Taxes, adopt or request permission of any Taxing authority
to change any material accounting method in respect of Taxes, or enter
into any closing agreement in respect of Taxes that would increase the
Tax liability of Buyer, without Buyer's written consent which shall not
be unreasonably withheld; provided, however, that Panhandle and the
Panhandle Subsidiaries may make elections pursuant to Treas. Reg.
ss.301.7701-3 or Section 754 of the Code (and any comparable provisions
of state or local law).
(xiv) Other than routine compliance filings, make
any filings or submit any documents or information to FERC without
prior consultation with Buyer; or
44
xv) Authorize any of, or commit or agree to take
any of, the actions referred to in the paragraphs (i) through (xiv)
above.
(c) Seller shall, or shall cause Panhandle and the
Panhandle Subsidiaries, to provide to Buyer copies of any filings made
with any Governmental Entities after the Original Date and prior to the
Closing Date.
Section 5.2 Access to Properties and Records.
(a) Seller, Panhandle and the Panhandle Subsidiaries
shall afford to Buyer and Buyer's accountants, counsel and
representatives full reasonable access during normal business hours
throughout the period prior to the Closing Date (or the earlier
termination of this Agreement pursuant to Article VII hereof) to all of
Seller's, Panhandle's and the Panhandle Subsidiaries' properties,
books, contracts, commitments and records (including all environmental
studies, reports and other environmental records) and, during such
period, shall furnish to Buyer all information concerning the
respective businesses, properties, Liabilities and personnel of
Panhandle and the Panhandle Subsidiaries as Buyer may request, provided
that no investigation or receipt of information pursuant to this
Section 5.2 shall affect any representation or warranty of Seller or
the conditions to the obligations of Buyer. To the extent not located
at the offices or properties of Panhandle or the Panhandle Subsidiaries
as of the Closing Date, as promptly as practicable thereafter Seller
shall deliver, or cause its appropriate Affiliates to deliver to Buyer
all of the books of accounts, minute books, record books and other
records (including safety, health, environmental, maintenance and
engineering records and drawings) pertaining to the business operations
of Panhandle and the Panhandle Subsidiaries. Notwithstanding anything
to the contrary herein, neither Buyer, Southern Union nor any of their
respective representatives shall have the right to conduct any Phase II
environmental due diligence, including the collection and analysis of
any samples of environmental media or building materials.
(b) The information contained herein, in the Seller
Disclosure Letter or heretofore or hereafter delivered to Buyer or its
authorized representatives in connection with the transactions
contemplated by this Agreement shall be held in confidence by Buyer and
its representatives in accordance with the Confidentiality Agreement
until the Closing Date with respect to information relating to
Panhandle and its Subsidiaries, and for the term of the Confidentiality
Agreement with respect to information relating to Seller and its
Affiliates (other than Panhandle and its Subsidiaries).
Section 5.3 Southern Union Conduct of Business.
(a) Except as expressly provided in this Agreement or as
set forth in Section 5.3 (a) of the Buyer Disclosure Letter, from and
after the date of this Agreement and until the Closing Date, Southern
Union shall, and shall cause the Southern Union Subsidiaries to,
conduct and maintain their respective businesses in the ordinary course
of business, consistent with past practice.
45
(b) Except as contemplated by this Agreement or as set
forth in Section 5.3 (b)of the Buyer Disclosure Letter, prior to the
Closing Date, without the prior written consent of Seller (which
consent shall not be unreasonably withheld or delayed), Southern Union
shall not, and shall cause each of the Southern Union Subsidiaries not
to:
(i) Amend its Certificate of Incorporation,
Bylaws or other comparable charter or organizational documents or merge
with or into or consolidate with any other Person;
(ii) Issue, sell, pledge, dispose of or encumber,
or authorize or propose the issuance, sale, pledge, disposition or
encumbrance of, any shares of, or securities convertible or
exchangeable for, or options, puts, warrants, calls, commitments or
rights of any kind to acquire, any of its capital stock or other
membership or ownership interests or subdivide or in any way reclassify
any shares of its capital stock or other membership or ownership
interests or change or agree to change in any manner the rights of its
outstanding capital stock or other membership or ownership interests;
(iii) (A) Declare, set aside or pay any dividend or
other distribution payable other than in cash or cash equivalents, with
respect to any shares of any class or series of capital stock of
Southern Union or the Southern Union Subsidiaries; (B) split, combine
or reclassify any shares of any class or series of capital stock of
Southern Union or the Southern Union Subsidiaries; or (C) redeem,
purchase or otherwise acquire directly or indirectly any shares of any
class or series of capital stock of Southern Union or the Southern
Union Subsidiaries, or any instrument or security which consists of or
includes a right to acquire such shares;
(iv) Sell, lease, license, mortgage or otherwise
dispose of any properties or assets material to its business, other
than (A) sales made in the ordinary course of business consistent with
past practice or (B) sales of obsolete or other assets not presently
utilized in its business;
(v) Make any change in its accounting principals,
practices, estimates or methods, other than as may be required by GAAP,
Applicable Law or any Governmental Authority;
(vi) Acquire any capital stock of, or equity or
ownership interest in, any other Person;
(vii) Enter into any contract or transaction
relating to the purchase of assets material to Southern Union and the
Southern Union Subsidiaries, taken as a whole, other than in the
ordinary course of business consistent with past practice;
46
(viii) Except in connection with the consummation of
the transactions contemplated by this Agreement and except as permitted
pursuant to the terms of Southern Union's credit facilities listed in
Section 6.3(e) of the Buyer Disclosure Letter, (A) Incur or assume any
long-term debt, or except in the ordinary course of business consistent
with past practice, incur or assume short-term indebtedness (other than
intercompany indebtedness) from the date hereof until Closing; (B)
modify the terms of any indebtedness or other liability, other than
modifications of short-term debt in the ordinary course of business,
consistent with past practice; or (C) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently
or otherwise) for the obligations of any other Person (other than any
Southern Union Subsidiary), except as described in Section 5.3
(b)(viii)(C) of the Buyer Disclosure Letter;
(ix) Adopt a plan of complete or partial
liquidation, dissolution, restructuring, recapitalization or other
reorganization; and
(x) Authorize any of, or commit or agree to take
any of, the actions referred to in the paragraphs (i) through (ix)
above.
Section 5.4 Consents and Approvals.
(a) Upon the terms and subject to the conditions of this
Agreement, each of the parties hereto agree to use, and will cause its
Affiliates to use its reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary or advisable under
Applicable Law and regulations to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable including the
preparation and filing of all forms, registrations and notices required to be
filed by such party in order to consummate the transactions contemplated by this
Agreement, the taking of all appropriate action necessary, proper or advisable
to satisfy each of the conditions to Closing that are to be satisfied by that
party or any of its Affiliates and the taking of such actions as are necessary
to obtain any approvals, consents, orders, exemptions or waivers of Governmental
Authorities and any other Person required to be obtained by such party in order
to consummate the transactions contemplated by this Agreement, including the
issuance and delivery of the Southern Union Shares.
(b) To the extent required by the HSR Act, each party
shall (i) file or cause to be filed, as promptly as practicable after the
execution and delivery of this Agreement, with the Federal Trade Commission and
the United States Department of Justice, any additional reports and other
documents required to be filed by such party under the HSR Act concerning the
transactions contemplated hereby and (ii) promptly comply with or cause to be
complied with any requests by the Federal Trade Commission or the United States
Department of Justice for additional information concerning such transactions.
The filing fees payable in connection with the filings required by the HSR
47
Act in connection with the transaction contemplated hereby shall be borne by
Buyer. Each party shall have a right to review in advance all characterizations
of the information relating to the transactions contemplated by this Agreement
which appear in Items 2 and 3 of the Antitrust Improvements Act Notification and
Report Form for certain mergers and acquisitions made in connection with the
transactions contemplated hereby. For the avoidance of doubt, no party shall be
required to provide to any other party a copy of any documents filed by it
pursuant to Item 4(c) the of the Antitrust Improvements Act Notification and
Report Form. Subject to (c) below, each party shall, and shall cause its
Affiliates to, promptly consult with the other with respect to, provide any
necessary information with respect to, and provide copies of all filings made by
such party with any Governmental Authority or any other information supplied by
such party to a Governmental Authority in connection with this Agreement and the
Related Agreements and the transactions contemplated hereby and thereby. Each
party shall, and shall cause their respective Affiliates to, with respect to a
threatened or pending preliminary or permanent injunction or other order, decree
or ruling or statute, rule, regulation or executive order that would adversely
affect the ability of any party to this Agreement or any Related Agreement to
consummate the transactions contemplated hereby or thereby, use their respective
reasonable best efforts to prevent the entry, enactment or promulgation thereof,
as the case may be (including by pursuing any available appeal process). Each of
Buyer and Southern Union shall use its respective reasonable best efforts to,
and shall cause their respective Affiliates to use their reasonable best efforts
to, promptly take or cause to be taken all actions necessary to comply with any
requests made, or conditions set, by a Governmental Authority to consummate the
transactions contemplated hereby, including, subject to the receipt of all
required third party consents (including those of lenders, shareholders and
partners), with respect to Panhandle (but subject to Section 6.1 (b)) and each
Section 5.4 (b) Person, the divestiture of assets. Each party agrees to use its
reasonable best efforts to procure any third-party consents required in the
preceding sentence. Notwithstanding the foregoing, none of Southern Union or its
Subsidiaries (i) shall be required to divest any asset or modify any arrangement
with respect to any of its respective operations that would have a material
adverse impact on the Section 5.4 (b) Person which holds the asset to be
divested or is a party to the arrangement to be modified or on any other Section
5.4 (b) Person or (ii) shall be required to take or refrain from taking any
action if such action or refraining would have a material adverse impact on the
Section 5.4 (b) Person so acting or refraining or on any other Section 5.4 (b)
Person. Without limiting the foregoing, in no event shall any of Buyer's
Affiliates be required to take any action to obtain the consent or approval of
any Governmental Authority to the transactions contemplated hereby if such
Governmental Authority imposes on such Affiliate as a condition to obtaining any
such consent any limitations or conditions materially adverse to the businesses
and activities engaged in by Southern Union and its Subsidiaries taken as a
whole (any such condition or limitation described in this paragraph being
referred to herein as a "Burdensome Condition").
(c) Without limiting the generality of the undertakings
pursuant to this Section 5.4 and subject to appropriate confidentiality
protections and limitations set forth in Section 5.4 (b) above, Seller, Buyer
and their respective Affiliates shall each furnish to the parties to this
Agreement such necessary information and reasonable assistance a party may
request in connection with the foregoing and, shall each provide
48
counsel for the other party with copies of all filings made by such party or
such Affiliate, and all correspondence between such party or such Affiliate (and
its advisors) with any Governmental Authority and any other information supplied
by such party and such party's Affiliates to a Governmental Authority in
connection with this Agreement and the transactions contemplated hereby,
provided, however, that materials may be redacted (i) to remove references
concerning the valuation of Panhandle or the Panhandle Subsidiaries, (ii) as
necessary to comply with contractual arrangements, and (iii) to remove
information that is proprietary. Subject to Applicable Law and Section 5.4 (b)
hereof, each party shall, and shall cause its Affiliates to, permit counsel for
the other party to review in advance, and consider in good faith the views of
the other party in connection with, any proposed written communication to any
Governmental Authority. Seller, Buyer and Southern Union agree not to
participate, or to permit their Affiliates to participate, in any substantive
meeting or discussion, either in person or by telephone, with any Governmental
Authority in connection with this Agreement and the transactions contemplated
hereby unless it consults with the other party in advance and, to the extent not
prohibited by such Governmental Authority, gives the other party the opportunity
to attend and participate. Upon the terms and subject to the conditions herein
provided, in case at any time after the Closing Date any further action is
necessary or desirable to secure the approvals from any and all Governmental
Authority necessary to carry out the purposes of this Agreement, the proper
officers and/or directors of the parties shall use their reasonable best efforts
to take or cause to be taken all such necessary action.
Section 5.5 Further Assurances.
On and after the Closing Date, Seller and Buyer shall cooperate and use
their respective reasonable best efforts to take or cause to be taken all
appropriate actions and do, or cause to be done, all things necessary or
appropriate to consummate and make effective the transactions contemplated
hereby, including the execution of any additional documents or instruments of
any kind, the obtaining of consents which may be reasonably necessary or
appropriate to carry out any of the provisions hereof and the taking of all such
other actions as such party may reasonably be requested to take by the other
party hereto from time to time, consistent with the terms of this Agreement and
the Related Agreements, in order to effectuate the provisions and purposes of
this Agreement and the Related Agreements and the transactions contemplated
hereby and thereby.
Section 5.6 Employee Matters.
(a) Buyer shall take all actions necessary and
appropriate to ensure that Buyer maintains or adopts one or more defined
contribution plans and related trust or trusts (the "Buyer Account Plan")
effective as of, or as soon as reasonably practicable but in no event later than
15 days after, the Closing Date for the benefit of the Affected Employees (as
defined below). Following the Closing and as soon as practicable following
receipt by Seller of (i) a copy of a favorable determination letter issued by
the Internal Revenue Service with respect to the Buyer Account Plan or (ii) an
opinion, satisfactory to Seller's counsel, of Buyer's counsel that the Buyer
Account Plan and its related trust(s) qualify under Section 401(a) and Section
501(a) of the Code, Seller shall provide each Affected Employee who is a
participant in the Savings and Incentive
49
Plan for Employees of Consumers Energy and Other CMS Energy Companies ("Seller's
Savings Plan") with the opportunity to receive a distribution of his or her
account balance and to elect to "roll over" such account balance to the Buyer
Account Plan, subject to and in accordance with the provisions of Seller's
Savings Plan and Applicable Law. The Buyer Account Plan shall accept the "roll
over" of such account balances, including any outstanding plan loans. Seller
shall take all necessary or appropriate action, to the extent consistent with
applicable law, to ensure that any plan loans of Affected Employees under the
Seller's Savings Plan shall not be deemed distributed prior to the rollover
opportunity previously described. Seller shall provide Buyer with copies of such
personnel and other records of Seller pertaining to the Affected Employees and
such records of any agent or representative of Seller pertaining to the Affected
Employees, in each case pertaining to Seller's Savings Plan and as Buyer may
reasonably request in order to administer and manage the accounts and assets
rolled over to the Buyer Account Plan.
(b) Subject to Section 5.6 (b)(i) and Section 5.6 (h)
below, prior to the Closing Date, Seller shall take all actions necessary to
cause the following events to occur as of the Closing Date, and shall give
notice to all Panhandle Employees that (i) all Affected Employees shall become
fully vested with respect to their account balances under the Seller Savings
Plan as of the Closing Date, (ii) the active participation of the Affected
Employees in those employee benefit plans, programs and arrangements that are
not sponsored by Panhandle or the Panhandle Subsidiaries (such plans, programs
and arrangements, the "Seller Plans") shall terminate on the Closing Date, and
(iii) Panhandle and the Panhandle Subsidiaries shall terminate participation of
Affected Employees in the Seller Plans as of the Closing Date. Panhandle and the
Panhandle Subsidiaries shall be solely responsible (except as provided in
Section 8.2 (a)(iii)) for all obligations and Liabilities under each employee
benefit plan listed in Section 3.12 (c) of the Seller Disclosure Letter in
existence as of the Closing Date, and each employee benefit plan that they
establish, maintain or contribute to, on or after the Closing Date, and no such
obligations or Liabilities shall be assumed or retained by Seller or its
Affiliates. Seller shall retain all obligations or Liabilities and assets with
respect to current and former Panhandle Employees or otherwise under all Seller
Plans, and no such obligations or Liabilities shall be assumed or retained by
Buyer or its affiliates, including after the transactions contemplated hereby,
Panhandle and the Panhandle Subsidiaries.
(i) Notwithstanding the foregoing, any Affected
Employee who is unable to report to work with Buyer as of the Closing
Date due to disability (each, a "Disabled Employee"), shall continue to
be eligible for any applicable long-term disability and life insurance
coverage pursuant to Seller's plans until such Disabled Employee
returns to active employment with Buyer, Panhandle or the Panhandle
Subsidiaries; provided, however, that in order to be eligible for such
benefits, each such Disabled Employee, pending approval for long-term
disability benefits or return to active employment, must continue to
pay all applicable long-term disability and life insurance premiums due
following the Closing Date for such coverage pursuant to Seller's
long-term disability plan and life insurance plans. Buyer shall, or
shall cause Panhandle or the Panhandle
50
Subsidiaries to, (A) pay Disabled Employees who are on short-term
disability as of the Closing Date the short-term disability benefits,
if any, that apply under Buyer's plans, provided, however, that such
benefits need not be provided to the extent that they would duplicate
benefits paid under the Seller Plans, and (B) honor any continuing pay
or salary obligations and return to work obligations that apply to any
such Disabled Employees. Any Disabled Employees who are on short-term
disability as of the Closing Date but who subsequently transition to
long-term disability shall be eligible for, and covered by, Seller's
long-term disability and life insurance coverage, subject to the
provisions of this Section 5.6 (b)(i).
(c) As of the Closing Date, Buyer shall cause Panhandle
and the Panhandle Subsidiaries to continue to employ all of the Affected
Employees as of the Closing Date, other than those Affected Employees whose
employment is covered by a Panhandle Eastern Pipe Line Company collective
bargaining agreement as of the Closing Date, in Comparable Employment for a
period of at least one (1) year from and after the Closing Date, or to pay
severance if due in accordance with the terms of the Separation Allowance Plan
for Employees of Panhandle and the Panhandle Subsidiaries or the Executive
Separation Allowance Plan for Employees of Panhandle and the Panhandle
Subsidiaries, as applicable. Notwithstanding the terms of the preceding
sentence, Buyer shall cause Panhandle and the Panhandle Subsidiaries to employ
all Affected Employees who are officers of Panhandle and the Panhandle
Subsidiaries in Comparable Employment for a period of at least two (2) years
from and after the Closing Date, or to pay severance if due in accordance with
the terms of the Executive Separation Allowance Plan for Designated Officers of
Panhandle and the Panhandle Subsidiaries or the Executive Separation Allowance
Plan for Designated Senior Officers of Panhandle Eastern Pipe Line Company, as
applicable. Employment of, and severance payments, if any, payable to, Affected
Employees whose employment is covered by a Panhandle Eastern Pipe Line Company
collective bargaining agreement as of the Closing Date shall be governed by the
applicable collective bargaining agreement.
(d) For no less than one-year following the Closing Date,
Buyer shall, and shall cause Panhandle and the Panhandle Subsidiaries, to
provide the Affected Employees with employee benefits that are substantially
similar in the aggregate to those provided under the Seller Plans as such plans
are to be in effect for 2003; provided, however, that Buyer shall not be
obligated to replace any equity based plans in which Affected Employees could
participate prior to Closing. With respect to those employee benefit plans of
Panhandle and the Panhandle Subsidiaries or other Affiliates of Buyer ("Buyer
Plans") in which Affected Employees may participate on or after the Closing
Date, Buyer shall, and shall cause Panhandle and the Panhandle Subsidiaries to,
credit prior service of the Affected Employees with Panhandle and the Panhandle
Subsidiaries for purposes of eligibility and vesting under Buyer Plans and for
all purposes with respect to vacation, sick days, severance and post-employment
benefits other than pensions ("PBOPs") under such Buyer Plans to the extent that
such service was recognized under the analogous Employee Benefit Plans, provided
however that such service need not be credited to the extent it would result in
a duplication of benefits. Following the Closing Date, Buyer shall, or shall
cause Panhandle and the Panhandle Subsidiaries to, honor the
51
accrued vacation and sick days of the Affected Employees which remain unused as
of the Closing Date to the extent such accruals are shown on the Closing Balance
Sheet. Affected Employees shall also be given pro rata credit for any deductible
or co-insurance payment amounts payable in respect of the Buyer Plan year in
which the Closing Date occurs, to the extent that, following the Closing Date,
they participate in any Buyer Plan during such plan year for which deductibles
or co-payments are required. Any preexisting condition restrictions and waiting
period limitations which were deemed satisfied with respect to a particular
person under any Employee Benefit Plan immediately prior to the Closing Date
shall be deemed satisfied by Buyer and its Affiliates under Buyer Plans with
respect to such person on and after the Closing Date. Seller has provided Buyer
a list of Affected Employees and the status of such Affected Employees as of the
Closing Date under Seller Plans providing for PBOPs, for the purpose of avoiding
duplication of benefits.
(e) Subject to the final sentence of this Section 5.6
(e), Buyer agrees that, at the request of Seller, it shall cause Panhandle and
the Panhandle Subsidiaries to make bonus payments to the bonus-eligible Affected
Employees (as determined by Seller) for performance in the 2002 calendar year
from funds made available by Seller for such purposes, which bonus payments
shall be available as a tax deduction to Seller and Panhandle attributable to
the pre-Closing Tax period. Buyer shall cause such payments to be made by
Panhandle and the Panhandle Subsidiaries as soon as practicable after Buyer is
informed by Seller of the bonus amounts to be paid to each bonus-eligible
Affected Employee by name, as authorized by the Board of Directors of Parent.
Seller and Buyer agree that the calculation of Net Working Capital Amount shall
not reflect the bonus amounts accrued for the Affected Employees for accounting
purposes (the "Bonus Accrual") and that the Bonus Accrual shall be transferred
to the books of Seller as of the Closing Date. To the extent not funded in
advance, Seller shall promptly reimburse Buyer for the bonus amounts so paid
(and the employer's share of any payroll taxes associated therewith), which
reimbursement shall be treated as an adjustment to the Purchase Price. Seller
and Buyer shall cooperate with respect to the development and distribution of
any employee communications to be made to the Affected Employees after the
Closing Date relating to 2002 bonuses.
(f) Buyer, Panhandle and the Panhandle Subsidiaries shall
be responsible for all Liabilities and obligations under the Worker Adjustment
and Retraining Notification Act and similar foreign, state and local rules,
statutes and ordinances resulting from the actions of Buyer, Panhandle or the
Panhandle Subsidiaries after the Closing Date. Buyer agrees to hold Seller
harmless in accordance with Article VIII for any breach of such responsibility
and Buyer's indemnification of Seller in this regard specifically includes any
Claim by the Affected Employees for back pay, front pay, benefits or
compensatory or punitive damages, any Claim by any Governmental Authority for
penalties regarding any issue of prior notification (or lack thereof) of any
plant closing or mass layoff occurring after the Closing Date and Seller's
costs, including reasonable attorney's fees, in defending any such Claims.
(g) Notwithstanding the foregoing provisions of this
Section 5.6, Buyer shall cause all obligations of Panhandle Eastern Pipe Line
Company pursuant to
52
existing collective bargaining agreements (which agreements are listed in
Section 3.13 of the Seller Disclosure Letter) to be honored following the
Closing.
(h) Parent or its Affiliates shall retain all assets that
are accumulated through the Closing Date under Financial Accounting Standards
Board Statement 106 (and deposited in various VEBA accounts and 401(h) accounts
of Parent or its Affiliates). Further, Parent or its Affiliates shall retain the
liability for PBOP for the benefit of former Panhandle Employees who are
retirees of Panhandle and/or the Panhandle Subsidiaries as of the Closing Date,
and Affected Employees who are eligible to retire and qualified for benefits
under PBOP as of the Closing Date, and Parent or its Affiliates shall retain the
responsibility for providing post-retirement benefits (other than pension) to
such employees pursuant to the eligibility requirements of the Seller Plans.
Seller shall provide a list of retirees and Affected Employees who are eligible
to retire as of the Closing Date.
Section 5.7 Tax Covenants.
(a) Section 338(h)(10) Election.
(i) Seller and Buyer shall jointly make an
election under Section 338(h)(10) of the Code (and any comparable
provision of applicable state or local income tax law) with respect to
the purchase of the Panhandle Shares by Buyer (and with respect to the
Panhandle Subsidiaries for which such an election may be made) and
shall cooperate with each other to take all actions necessary and
appropriate (including filing such additional forms, returns, elections
schedules and other documents as may be required) to effect and
preserve a timely election, in accordance with the provisions of
Treasury Regulation Section 1.338(h)(10)-1 (or any comparable
provisions of state or local tax law) (the "Election").
(ii) In connection with the Election, Buyer and
Seller shall mutually prepare a Form 8023 (or successor form) with any
attachments. Buyer shall prepare a draft Form 8023 and provide such
draft Form 8023 to Seller no later than ninety (90) days prior to the
due date of such Form 8023. If, within thirty (30) days of the receipt
of the draft Form 8023, Seller notifies Buyer that it disagrees with
the draft Form 8023 and provides Buyer with its proposed Form 8023 and
a written or oral explanation of the reasons for its adjustment, then
Seller and Buyer shall attempt to resolve their disagreement within the
twenty (20) days following Seller's notification of Buyer of such
disagreement, otherwise, the draft Form 8023 shall become the final
Form 8023 (the "Final Form 8023"). If Seller and Buyer are unable to
resolve their disagreement, the dispute shall be submitted to a
mutually agreed upon nationally recognized independent accounting firm,
whose expense shall be borne equally by Seller and Buyer, for
resolution within twenty (20) days of such submission. The Form 8023
delivered by such accounting firm shall be
53
the Final Form 8023. The Final Form 8023 shall be binding on Buyer,
Seller, and their respective Affiliates. Buyer and Seller shall take no
position, and cause their respective Affiliates to take no position,
inconsistent with the Final Form 8023.
(iii) Buyer and Seller shall mutually prepare any
forms or schedules similar to Form 8023 that are required for
provisions of state or local law that are comparable to Treasury
Regulation Section 1.338(h)(10)-1 in a manner similar to the above
procedure. In the event that the Final Form 8023 (or similar forms or
schedules required for provisions of state or local law) is disputed by
any Taxing authority, the party receiving written notice of the dispute
shall promptly notify the other party hereto concerning such dispute.
(b) Tax Return Filings, Refunds, and Credits.
(i) Seller shall timely prepare and file (or cause
such preparation and filing) with the appropriate Tax authorities all
Tax Returns (including any Consolidated Income Tax Returns) with
respect to Panhandle and the Panhandle Subsidiaries (and make all
elections with respect to such Tax Returns) for Tax periods that end on
or before the Closing Date (the "Seller Returns"), and will pay (or
cause to be paid) all Taxes due with respect to the Seller Returns.
(ii) Buyer shall timely prepare and file (or cause
such preparation and filing) with the appropriate Tax authorities all
Tax Returns (the "Straddle Period Returns") with respect to Panhandle
and the Panhandle Subsidiaries (and make all elections with respect to
such Tax Returns) for all Tax periods ending after the Closing Date
that include the Closing Date (the "Straddle Period"). All Straddle
Period Returns shall be prepared in accordance with past practice to
the extent consistent with applicable law and Panhandle's and the
Panhandle Subsidiaries' operations. Buyer shall provide Seller with
copies of any Straddle Period Returns at least forty-five (45) days
prior to the due date thereof (giving effect to any extensions
thereto), accompanied by a statement (the "Straddle Statement") setting
forth and calculating in reasonable detail the Pre-Closing Taxes as
defined below. If Seller agrees with the Straddle Period Return and
Straddle Statement, Seller shall pay to Buyer (or Buyer shall pay to
Seller, if appropriate) an amount equal to the Pre-Closing Taxes as
shown on the Straddle Statement not later than two (2) Business Days
before the due date (including any extensions thereof) for payment of
Taxes with respect to such Straddle Period Return. If, within fifteen
(15) days of the receipt of the Straddle Period Return and Straddle
Statement, Seller notifies Buyer that it disputes the manner of
preparation of the Straddle Period Return or the amount calculated in
the Straddle Statement, and provides Buyer its proposed form of
Straddle Period Return, a statement setting forth and calculating in
reasonable detail the
54
Pre-Closing taxes, and a written or oral explanation of the reasons for
its adjustment, then Buyer and Seller shall attempt to resolve their
disagreement within the five (5) days following Seller's notification
or Buyer of such disagreement. If Buyer and Seller are unable to
resolve their disagreement, the dispute shall be submitted to a
mutually agreed upon nationally recognized independent accounting firm,
whose expense shall be borne equally by Buyer and Seller, for
resolution within twenty (20) days of such submission. The decision of
such accounting firm with respect to such dispute shall be binding upon
Buyer and Seller, and Seller shall pay to Buyer (or Buyer shall pay to
Seller, if appropriate) an amount equal to the Pre-Closing Taxes as
decided by such accounting firm not later than two (2) Business Days
before the due date (including any extensions thereof) for payment of
Taxes with respect to such Straddle Period Return. If for any reason
the parties' dispute is not resolved as provided in this paragraph
prior to the date that is two (2) Business Days before the due date
(including any extensions thereof) for payment of Taxes with respect to
such Straddle Period Return, Seller shall pay to Buyer (or Buyer shall
pay to Seller, if appropriate) an amount equal to the amount of
Pre-Closing Taxes not in dispute not later than two (2) Business Days
before the due date (including any extensions thereof) for payment of
Taxes with respect to such Straddle Period Return.
(iii) From and after the Closing Date, Buyer and its
Affiliates (including Panhandle and the Panhandle Subsidiaries) will
not file any amended Tax Return, carryback claim, or other adjustment
request with respect to Panhandle or the Panhandle Subsidiaries for any
Tax period that includes or ends on or before the Closing Date unless
Seller consents in writing; provided, however, that Buyer and its
affiliates may carryback for its own account (without paying any
resulting refund or credit to Seller) any loss attributable to a tax
period ending after the Closing Date to a tax period ending on or
before the Closing Date provided that Buyer and its Affiliates shall
indemnify and make Seller whole for any detriment or cost incurred (or
to be incurred) by Seller as a result of such carryback.
(iv) For purposes of this Agreement, in the case of
any Taxes of Panhandle or the Panhandle Subsidiaries that are payable
with respect to any Straddle Period, the portion of any such Taxes that
constitutes "Pre-Closing Taxes" shall be the excess of (A) (i) in the
case of Taxes that are either (x) based upon or related to income or
receipts or (y) imposed in connection with any sale, transfer or
assignment or any deemed sale, transfer or assignment of property (real
or personal, tangible or intangible) be deemed equal to the amount that
would be payable if the Tax period ended at the close of business on
the Closing Date (including without limitation all Taxes attributable
to any Election) and (ii) in the case of Taxes (other than those
described in clause (i)) imposed on a periodic basis with respect to
the business or assets of Panhandle or the
55
Panhandle Subsidiaries, be deemed to be the amount of such Taxes for
the entire Straddle Period (or, in the case of such Taxes determined on
an arrears basis, the amount of such Taxes for the immediately
preceding Tax period) multiplied by a fraction the numerator of which
is the number of calendar days in the portion of the Straddle Period
ending on and including the Closing Date and the denominator of which
is the number of calendar days in the entire Straddle Period over (B)
any prepayment or advances of Taxes or any payments of estimated Taxes
with respect to the Straddle Period. For purposes of clause (i) of the
preceding sentence, any exemption, deduction, credit or other item that
is calculated on an annual basis shall be allocated to the portion of
the Straddle Period ending on the Closing Date on a pro rata basis
determined by multiplying the total amount of such item allocated to
the Straddle Period by a fraction, the numerator of which is the number
of calendar days in the portion of the Straddle Period ending on the
Closing Date and the denominator of which is the number of calendar
days in the entire Straddle Period. Pre-Closing Taxes include any Taxes
attributable to a Person that is treated as a partnership for federal
income tax purposes as if such Person allocated Tax items to its
partners in a manner consistent with this Section 5.7 (b)(iv). In the
case of any Tax based upon or measured by capital (including net worth
or long-term debt) or intangibles, any amount thereof required to be
allocated under this Section 5.7 (b)(iv) shall be computed by reference
to the level of such items at the close of business on the Closing
Date. The parties hereto will, to the extent permitted by Applicable
Law, elect with the relevant Tax authority to treat a portion of any
Straddle Period as a short taxable period ending as of the close of
business on the Closing Date. For purposes of this Agreement,
"Post-Closing Taxes" shall include any Taxes of Panhandle or the
Panhandle Subsidiaries that are payable with respect to a Straddle
Period, except for the portion of any such Taxes that constitutes
Pre-Closing Taxes. For purposes of this Agreement, the Texas corporate
franchise tax determined based on the income or capital of any entity
for the year during which the Closing Date occurs shall be considered
to be a Tax due with respect to the Straddle Period.
(v) Seller and Buyer shall reasonably cooperate in
preparing and filing all Tax Returns with respect to Panhandle or the
Panhandle Subsidiaries, including maintaining and making available to
each other all records reasonably necessary in connection with Taxes of
Panhandle or the Panhandle Subsidiaries and in resolving all disputes
and audits with respect to all Tax periods relating to Taxes of
Panhandle or the Panhandle Subsidiaries.
(vi) For a period of six (6) years after the
Closing Date, Seller and its representatives shall have reasonable
access to the books and records (including the right to make extracts
thereof) of Panhandle or the Panhandle Subsidiaries to the extent that
such books and
56
records relate to Taxes and to the extent that such access may
reasonably be required by Seller in connection with matters relating to
or affected by the operation of Panhandle or the Panhandle Subsidiaries
prior to the Closing Date. Such access shall be afforded by Buyer upon
receipt of reasonable advance notice and during normal business hours.
If Buyer shall desire to dispose of any of such books and records prior
to the expiration of such six-year period, Buyer shall, prior to such
disposition, give Seller a reasonable opportunity, at Seller's expense,
to segregate and remove such books and records as Seller may select.
(vii) If a Tax Indemnified Party receives a refund
or credit or other reimbursement with respect to Taxes for which it
would be indemnified under this Agreement, the Tax Indemnified Party
shall pay over such refund or credit or other reimbursement to the Tax
Indemnifying Party.
(viii) Buyer shall not, and shall cause Panhandle or
the Panhandle Subsidiaries to not, make, amend or revoke any Tax
election if such action would adversely affect any of Seller or its
Affiliates with respect to any Tax period ending on or before the
Closing Date or for the Pre-Closing Period or any Tax refund with
respect thereto unless Buyer and its Affiliates indemnify and make
Seller whole for any detriment or cost incurred (or to be incurred) by
Seller as a result of such action.
(ix) For purposes of this Agreement a "Consolidated
Income Tax Return" is any income Tax Return filed with respect to any
consolidated, combined, affiliated or unified group provided for under
Section 1501 of the Code and the Treasury regulations under Section
1502 of the Code, or any comparable provisions of state or local law,
other than any income Tax Return that includes only Panhandle or the
Panhandle Subsidiaries.
(c) Indemnity for Taxes.
(i) Seller hereby agrees to indemnify Buyer and
its affiliates against and hold them harmless from and against all
liability for (i) all Taxes imposed on Panhandle or the Panhandle
Subsidiaries with respect to Tax periods ending on or before the
Closing Date, including without limitation all Taxes incurred by reason
of any Election, (ii) Pre-Closing Taxes with respect to any Straddle
Period, and (iii) all Taxes that are attributable to Seller or any
member of an affiliated, consolidated, combined or unitary Tax group of
which at least one of Panhandle or the Panhandle Subsidiaries (or any
direct or indirect predecessor(s) of any of them) was a member at any
time on or prior to the Closing Date and not after the Closing Date
that is imposed under Treasury Regulation Section 1.1502-6 (or any
similar provision of state, local or foreign Tax law), (iv)
57
any Taxes of Panhandle or any Panhandle Subsidiary incurred as a
transferee or a successor relating to any full or partial Tax period
ending on or before the Closing Date, (v) Seller's portion of Transfer
Taxes pursuant to Section 5.7(g), and (vi) any Damages arising out of,
resulting from, or incurred in connection with any breach or inaccuracy
of any representation or warranty set forth in Section 3.16; provided
that the determination of whether such a breach or inaccuracy of
Section 3.16(c), Section 3.16(d) or Section 3.16(e) occurred will be
made without the Material Adverse Effect qualifications contained
therein.
(ii) Buyer hereby agrees to indemnify Seller and
its Affiliates against and hold them harmless from all liability for
(A) all Taxes of Panhandle or the Panhandle Subsidiaries with respect
to all Tax periods beginning after the Closing Date, (B) Post-Closing
Taxes with respect to any Straddle Period, and (C) Buyer's portion of
Transfer Taxes pursuant to Section 5.7 (g).
(iii) The obligation of Seller to indemnify and hold
harmless Buyer, on the one hand, and the obligations of Buyer to
indemnify and hold harmless Seller, on the other hand, pursuant to this
Section 5.7 shall terminate upon the expiration of the applicable
statutes of limitations with respect to the Tax Liabilities in question
(giving effect to any waiver, mitigation or extension thereof) or if a
Claim is brought with respect thereto, until such time as such Claim is
resolved.
(d) Certain Payments. Buyer and Seller agree to treat
(and cause their Affiliates to treat) any payment by Seller under Section 5.7
(b)(ii) or Section 5.7 (c) as an adjustment to the Purchase Price for all Tax
purposes.
(e) Contests.
(i) After the Closing Date, Seller and Buyer each
shall notify the other party in writing within ten (10) days of the
commencement of any Tax audit or administrative or judicial proceeding
affecting the Taxes of any of Panhandle or the Panhandle Subsidiaries
that, if determined adversely to the taxpayer (the "Tax Indemnified
Party") or after the lapse of time would be grounds for indemnification
under this Section 5.7 by the other party (the "Tax Indemnifying Party"
and a "Tax Claim"). Such notice shall contain factual information
describing any asserted Tax liability in reasonable detail and shall
include copies of any notice or other document received from any Tax
authority in respect of any such asserted Tax liability. Failure to
give such notification shall not affect the indemnification provided in
this Section 5.7 except to the extent the Tax Indemnifying Party shall
have been prejudiced as a result of such failure (except that the Tax
Indemnifying Party shall not be liable for any expenses incurred during
the period in which the Tax Indemnified Party failed to give such
notice). Thereafter, the Tax Indemnified Party shall
58
deliver to the Tax Indemnifying Party, as promptly as possible but in
no event later than ten (10) days after the Tax Indemnified Party's
receipt thereof, copies of all relevant notices and documents
(including court papers) received by the Tax Indemnified Party.
(ii) In the case of an audit or administrative or
judicial proceeding involving any asserted liability for Taxes relating
to any Taxable years or periods ending on or before the Closing Date,
Seller shall have the right, at its expense, to control the conduct of
such audit or proceeding; provided, however, that if Seller does not
timely take control of such audit or proceeding, Buyer may, at its
expense, control the conduct of the audit or proceeding. In the case of
an audit or administrative or judicial proceeding involving any
asserted liability for Taxes relating to any Straddle Period, Buyer
shall have the right, at its expense, to control the conduct of such
audit or proceeding; provided, however, that (A) Buyer shall keep
Seller reasonably informed with respect to the status of such audit or
proceeding and provide Seller with copies of all written correspondence
with respect to such audit or proceeding in a timely manner and (B) if
such audit or proceeding would be reasonably expected to result in a
material increase in Tax liability of Panhandle or the Panhandle
Subsidiaries for which Seller would be liable under this Section 5.7
Seller may participate in the conduct of such audit or proceeding at
its own expense.
(iii) In the case of an audit or administrative or
judicial proceeding involving any asserted liability for Taxes relating
to any Taxable years or periods beginning after the Closing Date, Buyer
shall have the right, at its expense, to control the conduct of such
audit or proceeding.
(iv) Buyer and Seller shall reasonably cooperate in
connection with any Tax Claim, and such cooperation shall include the
provision to the Tax Indemnifying Party of records and information
which are reasonably relevant to such Tax Claim and making employees
available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder.
(f) Section 743 Determination.
(i) Buyer and Seller shall reasonably cooperate
with each other with respect to making any election under Section 754
of the Code for any Panhandle Subsidiary or any Related Company. Prior
to making any adjustments pursuant to Section 743 of the Code as a
result of the transactions contemplated by this Agreement Buyer shall
prepare a schedule indicating such adjustments that Buyer proposes to
make (the "743 Schedule") and provide such schedule to Seller. If,
within ten (10) days of the receipt of the 743 Schedule, Seller
notifies Buyer that it
59
disagrees with the 743 Schedule and provides Buyer with its proposed
743 Schedule and a written or oral explanation of the reasons for the
adjustment, then Seller and Buyer shall attempt to resolve their
disagreement within the twenty (20) days following Buyer's notification
of Seller of such disagreement, otherwise, the 743 Schedule shall be
deemed the final 743 Schedule (the "Final 743 Schedule"). If Seller and
Buyer are unable to resolve their disagreement, the dispute shall be
submitted to a mutually agreed upon nationally recognized independent
accounting firm, whose expense shall be borne equally by Seller and
Buyer, for resolution within twenty (20) days of such submission. The
743 Schedule delivered by such accounting firm shall be the Final 743
Schedule. The Final 743 Schedule shall be binding on Buyer, Seller, and
their respective Affiliates. Buyer and Seller shall take no position,
and cause their respective Affiliates to take no position, inconsistent
with the Final 743 Schedule.
(ii) Buyer and Seller shall mutually prepare any
forms or schedules necessary to give effect to the preceding paragraph.
In the event that any Tax position taken in reliance upon the Final 743
Schedule is disputed by any Taxing authority, the party receiving
written notice of the dispute shall promptly notify the other party
hereto concerning such dispute.
(g) Transfer and Similar Taxes. Notwithstanding any other
provisions of this Agreement to the contrary, all sales, use, transfer, gains,
stamp, duties, recording and similar Taxes (collectively, "Transfer Taxes")
incurred in connection with the transactions contemplated by this Agreement
shall be borne equally by Buyer and Seller, and Seller shall accurately file all
necessary Tax Returns and other documentation with respect to Transfer Taxes and
timely pay all such Transfer Taxes. If required by Applicable Law, Buyer will
join in the execution of any such Return. Seller shall provide copies of any Tax
Returns with respect to Transfer Taxes to Buyer no later than five (5) days
after the due dates of such Tax Returns.
(h) Termination of Tax Sharing Agreements. On or prior to
the Closing Date, Seller shall cause all Tax sharing agreements between Seller
or any of its Affiliates (as determined immediately after the Closing Date) on
the one hand, and Panhandle or the Panhandle Subsidiaries on the other hand, to
be terminated, and all obligations thereunder shall be settled, and no
additional payments shall be made under any provisions thereof after the Closing
Date.
Section 5.8 Intercompany Accounts.
Except as set forth on Section 5.8 of the Seller Disclosure Letter or
as contemplated by the Assumption Agreement, prior to the Closing Date, Seller
shall, and shall cause its Affiliates (other than Panhandle and the Panhandle
Subsidiaries) to, settle intercompany accounts payable (including any debt
payable) to Panhandle or the Panhandle Subsidiaries and accounts receivable
(including any debt receivable) from Panhandle or the Panhandle Subsidiaries.
Seller shall determine the method by which
60
such intercompany accounts are eliminated including, but not limited to, by
means of setoff, settlement, capital contribution or reduction in capital.
Section 5.9 Related Agreements.
At the Closing or as otherwise provided herein, (i) Southern Union and
Buyer shall execute and deliver to Seller duly executed copies of the Related
Agreements to which they are a party and (ii) Seller shall, and shall cause the
Seller Counterparties to, execute and deliver to Buyer duly executed copies of
the Related Agreements to which they are a party.
Section 5.10 Maintenance of Insurance Policies.
(a) Seller and Buyer agree that Casualty Insurance claims
relating to the businesses of Panhandle and the Panhandle Subsidiaries
(including reported claims and including incurred but not reported claims) will
remain with Panhandle and the Panhandle Subsidiaries immediately following the
Closing. For purposes hereof, "Casualty Insurance Claims" shall mean workers'
compensation, auto liability, general liability and products liability claims
and claims for damages caused to the facilities of Panhandle or the Panhandle
Subsidiaries generally insured under all risk, real property, boiler and
mechanical breakdown insurance coverage. The Casualty Insurance Claims are
subject to the provisions of the Insurance Policies with insurance carriers and
contractual arrangements with insurance adjusters maintained by Seller or its
Affiliates prior to the Closing. With respect to the Casualty Insurance Claims,
the following procedures shall apply: (i) Seller or its Affiliates shall
continue to administer, adjust, settle and pay, on behalf of Panhandle and the
Panhandle Subsidiaries, all Casualty Insurance Claims with dates of occurrence
prior to the date of Closing; provided, that Seller will obtain the consent of
Buyer prior to adjusting, settling or paying any Casualty Insurance Claim of an
amount greater than $100,000 and provided, further, that Seller shall permit
Buyer to join Seller in any settlement negotiations with claimants, insurers, or
insurance adjusters; and (ii) Seller shall invoice Panhandle and the Panhandle
Subsidiaries at the end of each month for Casualty Insurance Claims paid on
behalf of Panhandle and the Panhandle Subsidiaries by Seller. Buyer shall cause
Panhandle and the Panhandle Subsidiaries to pay the invoice within thirty (30)
days of its date. In the event that Panhandle and the Panhandle Subsidiaries do
not pay Seller within thirty (30) days of such invoice, interest at the rate of
ten percent (10%) per annum shall accrue on the amount of such invoice. Casualty
Insurance Claims to be paid by Seller hereunder shall include all costs
necessary to settle claims including compensatory, medical, legal and other
allocated expenses, net of insurance proceeds. In the event that any Casualty
Insurance Claims exceeds a deductible or self-insured retention under the
Insurance Policies, Seller shall be entitled to the benefit of any insurance
proceeds that may be available to discharge any portion of such Casualty
Insurance Claim.
(b) Other than as set forth in Section 3.21 hereof,
Seller makes no representation or warranty with respect to the applicability,
validity or adequacy of any Insurance Policies, and Seller shall not be
responsible to Buyer or any of its Affiliates for the failure of any insurer to
pay under any such Insurance Policy.
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(c) Nothing in this Agreement is intended to provide or shall
be construed as providing a benefit or release to any insurer or claims service
organization of any obligation under any Insurance Policies. Seller and Buyer
confirm that the sole intention of this Section 5.10 is to divide and allocate
the benefits and obligations under the Insurance Policies between them as of the
Closing Date and not to effect, enhance or diminish the rights and obligations
of any insurer or claims service organization thereunder. Nothing herein shall
be construed as creating or permitting any insurer or claims service
organization the right of subrogation against Seller or Buyer or any of their
Affiliates in respect of payments made by one to the other under any Insurance
Policy.
(d) If Buyer requests a copy of an Insurance Policy relating
to a pending or threatened Casualty Insurance Claim, Seller shall provide a copy
of all relevant insurance policies which insure such Casualty Insurance Claims
within five (5) Business Days, provided, that if Seller cannot provide such
policy within five (5) days after exercising reasonable best efforts to locate
such policy, Seller shall continue to exercise its reasonable best efforts to
provide such policy to Buyer as soon as possible thereafter.
Section 5.11 Preservation of Records.
Buyer agrees that it shall, at its own expense, preserve and keep the
records held by it relating to the respective businesses of Panhandle and the
Panhandle Subsidiaries that could reasonably be required after the Closing by
Seller for as long as may be required for such categories of records for the
greater of the time periods required pursuant to the Access and Support
Agreement and the time periods required pursuant to the applicable document
retention program in effect on the Closing Date (a copy of which has been
provided to Buyer). In addition, Buyer shall make such records available to
Seller as may reasonably be required by Seller in connection with, among other
things, any insurance claim, legal proceeding or governmental investigation
relating to the respective businesses of Seller and its Affiliates, including
Panhandle and the Panhandle Subsidiaries.
Section 5.12 Public Statements.
On or prior to the Closing Date, neither party shall, nor shall permit
its Affiliates to, issue or cause the publication of any press release or other
announcement with respect to this Agreement or the transactions contemplated
hereby without the consent of the other party hereto. Notwithstanding the
foregoing, in the event any such press release or announcement is required by
law, court process or stock exchange rule to be made by the party proposing to
issue the same, such party shall use its reasonable best efforts to consult in
good faith with the other party prior to the issuance of any such press release
or announcement.
Section 5.13 Certain Transactions.
Buyer and Southern Union shall not, and shall not permit any of their
respective Subsidiaries to acquire or agree to acquire by merging or
consolidating with, or by
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purchasing a substantial portion of the assets of or equity in, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof, or otherwise acquire or agree to
acquire any assets if the entering into of a definitive agreement relating to,
or the consummation of such acquisition, merger or consolidation would
reasonably be expected to (i) impose any material delay in the obtaining of, or
significantly increase the risk of not obtaining, any authorizations, consents,
orders, declarations or approvals of any Governmental Authority necessary to
consummate the transactions contemplated by this Agreement or the expiration or
termination of any applicable waiting period, (ii) significantly increase the
risk of any Governmental Authority entering an order prohibiting the
consummation of the transactions contemplated by this Agreement, (iii)
significantly increase the risk of not being able to remove any such order on
appeal or otherwise or (iv) materially delay or prevent the consummation of the
transactions contemplated by this Agreement. Prior to Closing, Southern Union
shall not, and the Subsidiaries of Southern Union shall not, acquire or agree to
acquire any ownership interest in Southern Star Central or any material asset of
Southern Star Central.
Section 5.14 CMS Panhandle Holdings, LLC.
Buyer covenants to maintain CMS Panhandle Holdings, LLC as a
partnership for all Tax purposes through December 31, 2003.
Section 5.15 Change of Corporate Name.
As soon as reasonably practicable following the Closing Date, but in no
event later than ninety (90) days following the Closing Date (the "Corporate
Name Change Transition Period"), Buyer shall cause each of Panhandle and the
Panhandle Subsidiaries, as applicable, to change its corporate name to a name
that does not include "CMS" and to make any necessary legal filings with the
appropriate Governmental Authorities to effectuate such changes. Buyer shall
hold harmless and indemnify Seller Indemnified Parties (as defined herein)
against all costs, expenses and Damages to the extent incurred by Seller
Indemnified Parties resulting from or arising in connection with Buyer's,
Panhandle's or any Panhandle Subsidiary's use of the "CMS" name during the
Corporate Name Change Transition Period.
Section 5.16 Transitional Use of Seller's Trademarks.
(a) Seller hereby grants to Panhandle and the Panhandle
Subsidiaries, effective upon the Closing Date, a limited non-transferable,
non-exclusive, royalty-free transitional right and license to use the
trademarks, service marks, and trade names listed on Section 5.16 of the Seller
Disclosure Letter, together with all slogans, logotypes, designs and trade dress
associated therewith which are, in each case, in existence at Closing Date and
currently being used in the conduct of the businesses of Panhandle and the
Panhandle Subsidiaries (collectively, the "Seller's Marks") solely on and in
connection with the goods and services of the businesses of Panhandle and the
Panhandle Subsidiaries and which are embodied in or on any stationery, business
cards, advertising and promotional materials, packaging and labels, equipment,
manuals and
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other documentation, statements of work, trucks, hard hats, e-mail addresses,
caller ID, printed facsimile headers and footers, web page content and URLs for
web sites, Messenger screens, signs on facilities owned or leased by Panhandle
and the Panhandle Subsidiaries, and inventory ("Business Materials"), and for
any administrative, corporate and legal use in connection with the transition
away from using the Seller's Marks (the "Transitional License").
(b) Panhandle's and the Panhandle Subsidiaries' right to use
the Seller's Marks shall automatically cease as soon as reasonably practicable
following the Closing Date, but in no event later than six (6) months following
the Closing Date. Upon the termination of Panhandle's and the Panhandle
Subsidiaries' right to use Seller's Marks, Panhandle and each Panhandle
Subsidiary shall immediately cease all use of Seller's Marks and all materials
bearing Seller's Marks (such materials to be returned to Seller or destroyed).
(c) All rights and goodwill arising from the use of Seller's
Marks and/or any similar names or marks (including logos) shall inure solely to
Seller's benefit. Panhandle and the Panhandle Subsidiaries agree that neither
Buyer, Panhandle nor any Panhandle Subsidiary shall use, directly or indirectly,
the word "CMS" or any marks similar thereto, as part of Buyer's, Panhandle's or
any Panhandle Subsidiary's own trade names, or in any other way that suggests
that there is any relation or affiliation between Seller and Buyer, or Seller
and Panhandle and the Panhandle Subsidiaries, other than that created by this
Agreement, or as a trademark, service mark or trade name for any other business,
product or service. Panhandle and Panhandle Subsidiaries shall have no interest
in Seller's Marks except as expressly provided in this Agreement and shall not
claim any other rights therein. Nothing in this Agreement or in the performance
thereof, or that might otherwise be implied by law, shall operate to grant
Panhandle and the Panhandle Subsidiaries any right, title, or interest in or to
Seller's Marks other than as specified in the limited license grant in this
Agreement. All rights not expressly granted in this Agreement or herein are
reserved to Seller.
(d) Panhandle and the Panhandle Subsidiaries agree to assign
to Seller and do hereby assign to Seller all rights they may acquire, if any, by
operation of law or otherwise in Seller's Marks, including all applications or
registrations therefore, along with the goodwill associated therewith. Panhandle
and the Panhandle Subsidiaries shall assist Seller in protecting and maintaining
Seller's rights in Seller's Marks in connection with Panhandle's and the
Panhandle Subsidiaries' licensed use hereunder, including preparation and
execution of documents necessary or appropriate in the ordinary course to
register Seller's Marks and/or record this Agreement. As between the parties,
Seller shall have the sole right to, and in its sole discretion may, commence,
prosecute or defend, and control any action concerning Seller's Marks.
(e) During the term of the Transitional License, Buyer,
Panhandle and the Panhandle Subsidiaries shall not take, or agree or commit to
take, any action that would or would be reasonably likely have an adverse impact
on any of the Seller's Marks.
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(f) Neither Buyer, Panhandle, nor any Panhandle Subsidiary
shall directly or indirectly, contest the validity of, by act or omission
jeopardize, or take any action inconsistent with, Seller's rights in Seller's
Marks (including attempting to register Seller's Marks or a mark incorporating
either Seller's Marks or the word "CMS" or any mark similar thereto).
Panhandle's and the Panhandle Subsidiaries' rights under the license granted
herein are personal and may not be sublicensed, assigned or otherwise
transferred.
Section 5.17 Reasonable Best Efforts.
Upon the terms and subject to the conditions of this Agreement, each of
the parties hereto will use all reasonable best efforts to take, or cause to be
taken, all action, and to do, or cause to be done, all things necessary, proper
or advisable consistent with applicable law to consummate and make effective in
the most expeditious manner practicable the transactions contemplated hereby.
Section 5.18 No Shopping.
From and after the Original Date hereof, none of Seller, Panhandle, the
Panhandle Subsidiaries nor their officers, directors, employees, affiliates,
stockholders, representatives, agents, nor anyone acting on behalf of them
shall, directly or indirectly, encourage, solicit, engage in discussions or
negotiations with, or provide any non-public information to, any Person (other
than Buyer, Southern Union or their respective representatives) concerning any
merger, sale of assets, purchase or sale of Panhandle Shares or similar
transaction involving Panhandle or the Panhandle Subsidiaries (collectively,
"Prohibited Transactions") unless this Agreement is terminated pursuant to and
in accordance with Article VII hereof; provided however, that nothing herein
shall prohibit a transaction resulting in a change of control of any direct or
indirect parent of Panhandle.
Section 5.19 Southern Union Covenants.
Southern Union shall cause Buyer to perform all of its obligations
under this Agreement which are required to be performed on and prior to the
Closing Date, including, without limitation, Buyer's requirement to consummate
the transaction in accordance with and subject to the terms of Section 2.2
hereof and to pay the Purchase Price in accordance with Article II.
Section 5.20 Restated Financials.
Seller shall use its reasonable best efforts to deliver the Restated
Financials to Buyer as soon as reasonably practicable after the date of this
Agreement. Seller shall instruct Ernst & Young LLP to conduct an audit of the
financial statements of Panhandle and the Panhandle Subsidiaries for the fiscal
year ended December 31, 2002 as soon as reasonably practicable after Panhandle
management completes such financial statements, Seller shall cooperate with such
audit, and shall deliver to Buyer a copy of the audited financial statements of
Panhandle and the Panhandle Subsidiaries for the fiscal year ended December 31,
2002 and Ernst & Young LLP's audit opinion thereon upon receipt
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of same. To the extent Buyer reasonably requires audited or reviewed financial
statements with respect to Panhandle and the Panhandle Subsidiaries in order to
comply with the reporting requirements of the Securities and Exchange Commission
set forth in Regulations S-K and S-X, Seller will reasonably cooperate with
Buyer (at Buyer's cost), including any reasonable request that Seller instruct
Ernst & Young LLP to prepare and deliver to Buyer a comfort letter, customary in
scope and substance for comfort letters delivered in similar circumstances.
Section 5.21 1935 Act Jurisdiction.
Neither Southern Union and its Affiliates nor Seller and its Affiliates
shall take any action that would cause the transactions contemplated by this
Agreement to require any filing, approval or consent under the Public Utility
Holding Company Act of 1935, as amended.
Section 5.22 Registration of Southern Union Shares.
(a) Prior to Closing, Southern Union shall prepare and file
with the SEC a prospectus supplement (the "Prospectus Supplement") to the Shelf
Registration Statement to effect the registration of the Southern Union Shares.
Southern Union shall use its reasonable best efforts to keep the Shelf
Registration Statement effective as long as is necessary to consummate the sale
of the Southern Union Shares by Seller. Seller and its Affiliates shall
cooperate with Southern Union in timely obtaining any consents, approvals, or
waivers or making any filings, or furnishing information required in connection
with the Prospectus Supplement.
(b) Southern Union will advise Seller, promptly after it
receives notice thereof, of the issuance of any stop order or the suspension of
the qualification of the Southern Union Shares for offering or sale in any
jurisdiction.
ARTICLE VI
CONDITIONS
Section 6.1 Mutual Conditions to the Closing.
The respective obligations of each party to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction or waiver of
each of the following conditions at or prior to the Closing Date:
(a) Any waiting period (and any extension thereof) applicable
to the consummation of the transactions contemplated by this Agreement under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), shall have expired or have been terminated;
(b) All waiting periods applicable to the transactions
contemplated by this Agreement or any Related Agreement under any applicable
other law shall have expired or been terminated, and all filings required by law
to be made prior to Closing by Seller, Southern Union or Buyer with, and all
consents, approvals and
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authorizations required by law to be obtained prior to Closing by Seller,
Southern Union or by Buyer from, any Governmental Authority under any law in
order to consummate the transactions contemplated by this Agreement shall have
been made or obtained (as the case may be), except where the failure for such
waiting periods to expire or to be terminated, to make such filings, or to
obtain any such authorizations, individually or in the aggregate, would not have
a Material Adverse Effect; provided, however, if any consent, approval or
authorization from any Governmental Authority the absence of which would not
have a Material Adverse Effect is not obtained prior to or at the Closing and,
as a result, the transfer of one or more assets, rights or interests is
prevented at the Closing, from and after the Closing, Seller, Southern Union and
Buyer shall continue to use their reasonable best efforts to obtain such
requisite consent, approval or authorization. If the parties are unable to
obtain the necessary approvals and, as a result, such assets, rights or
interests may not be transferred to Buyer within 90 days after the Closing, the
parties shall mutually agree on an acceptable adjustment to the Purchase Price
to reflect the fair market value of such assets, rights or interests as of the
Closing Date; and
(c) No court of competent jurisdiction or other competent
Governmental Authority shall have issued a statute, rule, regulation, order,
decree or injunction or taken any other action that has the effect of
restraining, enjoining, imposing a Burdensome Condition or otherwise prohibiting
in any material respect the ownership by Buyer of the Panhandle Shares or the
ownership or operation by Buyer of a material portion of the business or assets
of Panhandle and the Panhandle Subsidiaries, taken as a whole.
Section 6.2 Buyer's Conditions to the Closing.
The obligations of Buyer to consummate the transactions contemplated by
this Agreement shall be subject to the satisfaction or waiver of each of the
following conditions at or prior to the Closing Date:
(a) The representations and warranties of Seller contained in
this Agreement (i) if subject to any limitations as to "materiality" or
"Material Adverse Effect," shall be true and correct at and as of the Closing
Date as if made at and as of such time, and (ii) if not subject to any
limitations as to "materiality" or "Material Adverse Effect," shall be true and
correct at and as of the Closing Date as if made at and as of such time, except
where the failure of such representations and warranties to be true and correct
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, and except in the case of clauses (i) or (ii) for the
representations and warranties set forth in Section 3.7 (a) (Contracts), Section
3.7 (b) (Contracts), the second sentence of Section 3.6 (Financial Information),
the first sentence of Section 3.21 (b) and the last sentence of Section 3.22 ,
each of which shall be true and correct only as of the date set forth in such
representation or warranty);
(b) Seller and its Affiliates shall have made all deliveries
required under Section 2.6;
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(c) Seller shall have performed in all material respects all
of its obligations required to be performed by it under this Agreement at or
prior to the Closing Date;
(d) Seller shall have, or shall have caused the appropriate
Seller Counterparty to have, executed and delivered as of the Closing each of
the Related Agreements to be executed by Seller or a Seller Counterparty;
(e) Buyer shall have received a properly executed statement of
Seller dated as of the Closing Date and conforming to the requirements of
Treasury Regulation Section 1.1445-2(b)(2);
(f) Seller shall have delivered to Buyer an opinion, dated as
of the Closing Date, from a nationally recognized appraisal firm addressed to
Seller, that Seller and its Subsidiaries on a consolidated basis are solvent,
both immediately before and after giving effect to the consummation of the
transactions contemplated by this Agreement;
(g) Seller shall have obtained all approvals, consents,
releases and documents which are listed in Section 6.2 (g) of the Seller
Disclosure Letter;
(h) Buyer shall have received a legal opinion, dated as of the
Closing Date, from counsel to Seller, substantially in the form of Exhibit E
hereto;
(i) Seller shall have delivered to Buyer (and shall have filed
with the Securities and Exchange Commission) the restated audited financial
statements of Panhandle for each of the fiscal years ended December 31, 2000 and
December 31, 2001 (including the opinion of Ernst & Young LLP with respect
thereto) (the "Annual Financial Statements") and the restated unaudited
financial statements of Panhandle for the quarters ended March 31, 2002, June
30, 2002 and September 30, 2002 (which quarterly financial statements shall have
been reviewed by Ernst & Young LLP in accordance with the applicable rules and
regulations of the SEC) (collectively with the Annual Financials Statements, the
"Restated Financials"), and except as set forth in Section 6.2 (i) of the Seller
Disclosure Letter, the Restated Financials (including the notes thereto) shall
correspond in all material respects to the draft Restated Financials (and draft
notes thereto) delivered to Buyer prior to the date of this Agreement, and any
footnotes with respect to any restated quarterly financial statements shall be
the same in all material respects as such footnotes in the Interim Financial
Statements, except for corresponding changes reflected in the Annual Financial
Statements; and
(j) Seller shall have caused Panhandle to cure any defaults
(currently under waiver by the lenders) under the credit facility described as
Item 44 in Section 3.7(a) of the Seller Disclosure Letter relating to a failure
to furnish such lenders with certified financial statements.
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Section 6.3 Seller's Conditions to the Closing.
The obligations of Seller to consummate the transactions contemplated
by this Agreement shall be subject to the satisfaction or waiver of each of the
following conditions at or prior to the Closing Date:
(a) The representations and warranties of Buyer and Southern
Union contained in this Agreement (A) if subject to any limitations as to
"materiality" or "Material Adverse Effect," shall be true and correct at and as
of the Closing Date as if made at and as of such time, and (B) if not subject to
any limitations as to "materiality" or "Material Adverse Effect," shall be true
and correct at and as of the Closing Date as if made at and as of such time
except where the failure of such representations and warranties to be true and
correct would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the ability of Buyer and Southern Union to
consummate the transactions contemplated by this Agreement;
(b) Buyer and Southern Union shall have made all deliveries
required under Section 2.7;
(c) Each of Buyer and Southern Union shall have performed in
all material respects all of its obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and Seller shall have
received a certificate from each of Buyer and Southern Union to that effect
dated the Closing Date;
(d) Buyer shall have, or shall have caused Southern Union to
have, executed and delivered as of the Closing each of the Related Agreements to
be executed by Buyer or Southern Union;
(e) Buyer and Southern Union shall have obtained all
approvals, consents and releases which are listed in Section 6.3 (e) of the
Buyer Disclosure Letter including any approvals required in connection with the
issuance and delivery of the Southern Union Shares, their registration pursuant
to the Shelf Registration Statement and the Listing;
(f) Seller shall have received a legal opinion, dated as of
the Closing Date, from counsel to each of Buyer and Southern Union substantially
in the form of Exhibit F hereto; and
(g) The Shelf Registration Statement shall remain effective,
the Listing shall have occurred and remain effective, and all waiting periods
applicable to the issuance and delivery of the Southern Union Shares, their
registration pursuant to the Shelf Registration Statement and the Listing shall
have expired or been terminated, and all filings required by law to be made
prior to Closing by Southern Union with, and all consents, approvals and
authorizations required by law to be obtained prior to Closing by Southern Union
from, any Governmental Authority under any law in connection with the issuance
and delivery of the Southern Union Shares, their registration pursuant to the
Shelf Registration Statement and the Listing shall have been made or obtained
(as the case may be).
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ARTICLE VII
TERMINATION AND ABANDONMENT
Section 7.1 Termination.
This Agreement may be terminated at any time prior to the Closing Date
by:
(a) mutual written consent of the parties;
(b) by either Buyer or Seller, upon written notice to the
other parties, if the Closing shall not have occurred on or before June 30, 2003
(the "Initial Termination Date"); provided, however, that if on the Initial
Termination Date the conditions to closing set forth in Section 6.1 (a), Section
6.1 (b) and Section 6.1 (c) shall have been fulfilled and certain other
conditions set forth in Section 6.1, Section 6.2 or Section 6.3 shall not have
been fulfilled but are reasonably capable of being fulfilled no later than ten
business days after the Initial Termination Date, then, if a written notice
requesting an extension of the termination date has been delivered by either
Buyer to Seller, or by Seller to Buyer, at any time during the ten business day
period ending on the Initial Termination Date, the termination date shall be
extended to July 15, 2003.
(c) by either Buyer or Seller upon written notice to the other
party, if any of the mutual conditions to the Closing set forth in Section 6.1
shall have become incapable of fulfillment by June 30, 2003 or July 15, 2003, as
the case may be, and shall not have been waived in writing by the other party;
(d) by Buyer, so long as Buyer is not then in breach of its
obligations under this Agreement, upon a breach of any covenant or agreement on
the part of Seller set forth in this Agreement, or if any representation or
warranty of Seller shall have been or become untrue, in each case such that the
conditions set forth in Section 6.2 would not be satisfied; provided, however,
that Buyer may not terminate this Agreement if such breach or untruth is capable
of being cured by Seller by not later than June 30, 2003 or July 15, 2003, as
the case may be, through the exercise of its reasonable best efforts, so long as
Seller continues to exercise such reasonable best efforts (until not later than
June 30, 2003 or July 15, 2003, as the case may be);
(e) by Seller, so long as Seller is not then in breach of its
obligations under this Agreement, upon a breach of any covenant or agreement on
the part of Buyer or Southern Union set forth in this Agreement, or if any
representation or warranty of Buyer and Southern Union shall have been or become
untrue, in each case such that the conditions set forth in Section 6.3 would not
be satisfied; provided, however, that Seller may not terminate this Agreement if
such breach or untruth is capable of being cured by Buyer and Southern Union by
not later than July 15, 2003, through the exercise of their reasonable best
efforts, so long as Buyer and Southern Union continue to exercise such
reasonable best efforts (until not later than June 30, 2003 or July 15, 2003, as
the case may be); and
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(f) by either Seller or Buyer if any Governmental Authority
shall have issued an order, decree or ruling or taken any other action, which
permanently restrains, enjoins or otherwise prohibits the transactions
contemplated by this Agreement and which order, decree, ruling or other action
is not subject to appeal; unless failure to consummate closing because of such
action by the Governmental Authority is due to the failure of the party seeking
to terminate to have fulfilled its obligations under Section 5.4 and Section
5.5.
Section 7.2 Procedure and Effect of Termination.
In the event of the termination of this Agreement pursuant to Section
7.1 (i) this Agreement, except for the provisions of Section 5.2 (b), all of
Article IX and this Section 7.2 , shall become void and have no effect, without
any Liability on the part of any party hereto or its directors, officers,
stockholders or partners; provided, however, that nothing in this Section 7.2
shall relieve any party for liability for any breach of this Agreement as set
forth in the next succeeding sentence of this Section 7.2 and (ii) all filings,
applications and other submissions made pursuant to this Agreement, to the
extent practicable, shall be withdrawn from the agency or other Person to which
they were made or appropriately amended to reflect the termination of the
transactions contemplated hereby. Notwithstanding the foregoing, (a) nothing in
this Section 7.2 shall relieve any party hereto of liability for Damages
resulting from any breach of any of its obligations under this Agreement;
provided, however, that for purposes of this clause (a), Damages shall be deemed
not to include Third Party Claims, and (b) if it shall be judicially determined
that termination of this Agreement was caused by an intentional breach of this
Agreement, then, in addition to other remedies at law or equity for breach of
this Agreement, but subject to the limitation in clause (a) above, the party so
found to have intentionally breached this Agreement shall indemnify and hold
harmless the other party hereto for its respective out-of-pocket costs,
including the fees and expenses of their counsel, accountants, financial
advisors and other experts and advisors, as well as fees and expenses incident
to the negotiation, preparation and execution of this Agreement and related
documentation.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
Section 8.1 Survival.
(a) The representations and warranties provided for in this
Agreement shall survive the Closing and remain in full force and effect until
the twelve-month (12) anniversary of this Agreement; provided however, that the
representations and warranties set forth in Section 3.2 (Authority Relative to
this Agreement), Section 3.3 (Panhandle Shares), Section 3.19 (Brokerage and
Finders' Fees), Section 4.2 (Authority Relative to this Agreement), Section 4.7
(Brokerage and Finders' Fees) and Section 4.11 (Southern Union Shares) shall
survive indefinitely, the representations and warranties set forth in Section
3.16 (Tax Matters) shall survive for a period equal to the applicable statute of
limitations for each Tax and taxable year, and the representations and
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warranties set forth in Section 3.15 (Environmental; Health and Safety Matters)
shall survive until the second (2nd) anniversary of the Closing Date.
(b) No Claim for damages or other relief of any kind
(including a Claim for indemnification under Section 8.2 hereof) arising against
an Indemnified Party out of or relating to this Agreement or the transactions
contemplated hereby, whether sounding in contract, tort, breach of warranty,
securities law, other statutory cause of action, deceptive trade practice,
strict liability, product liability or other cause of action or theory of
liability (except, in all cases Claims alleging fraud, intentional
misrepresentation or intentional misconduct), may be brought unless suit thereon
is filed, or a written notice describing the nature of that Claim, the theory of
liability, the nature of the relief sought and the material factual assertions
upon which the Claim is based is given to the other party, before the
termination of the Survival Period.
(c) The survival period of each representation or warranty as
provided in this Section 8.1 is referred to herein as the "Survival Period."
Notwithstanding the foregoing, any representation or warranty that would
otherwise terminate shall survive with respect to Damages which respect to which
suit thereon is filed or of which notice describing the nature of that Claim,
the theory of liability, the nature of the relief sought and the material
factual assertions upon which the Claim is based is given pursuant to this
Agreement prior to the end of the Survival Period, until the matter is finally
resolved and any related Damages are paid.
Section 8.2 Indemnification.
(a) Subject to the limitations set forth in this Article VIII,
subsequent to the Closing, Seller shall indemnify, defend, save and hold
harmless, Buyer, Southern Union, Panhandle and the Panhandle Subsidiaries, their
respective successors and permitted assigns, and their shareholders, members,
partners (general and limited), officers, directors, managers, trustees,
incorporators, employees, agents, attorneys, consultants and representatives,
and each of their heirs, executors, successors and assigns (collectively, the
"Buyer Indemnified Parties"), against and in respect of any and all Damages to
the extent incurred by the Buyer Indemnified Party arising out of, resulting
from or incurred in connection with:
(i) any breach or inaccuracy of any representation or
warranty of Seller contained in this Agreement;
(ii) any breach by Seller of any covenant or
agreement contained in this Agreement; and
(iii) the matters set forth on Section 8.2 (a)(iii)
of the Seller Disclosure Letter.
(b) Subject to the limitations set forth in this Article VIII,
subsequent to the Closing, Buyer shall indemnify, defend, save and hold
harmless, Seller and its Affiliates, their respective successors and permitted
assigns, and their shareholders, members, partners (general and limited),
officers, directors, managers,
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trustees, incorporators, employees, agents, attorneys, consultants and
representatives, and each of their heirs, executors, successors and assigns
(collectively, the "Seller Indemnified Parties") against and in respect of any
and all Damages to the extent incurred by the Seller Indemnified Party arising
out of, resulting from or incurred in connection with:
(i) any breach or inaccuracy of any representation or
warranty of Buyer or Southern Union contained in this Agreement; and
(ii) any breach by Buyer or Southern Union of any
covenant or agreement contained in this Agreement.
(c) Any Person providing indemnification pursuant to the
provisions of this Section 8.2 is referred to herein as an "Indemnifying Party,"
and any Person entitled to be indemnified pursuant to the provisions of this
Section 8.2 is referred to herein as an "Indemnified Party."
(d) Seller's indemnification obligations contained in Section
8.2 (a)(i) shall not apply to any Claim for Damages until the aggregate of all
such Damages total $40,000,000 (the "Threshold Amount"), in which event Seller's
indemnity obligation contained in Section 8.2 (a)(i) shall apply to all Claims
for Damages in excess of the Threshold Amount, subject to a maximum liability to
all Indemnified Parties, in the aggregate, of $200,000,000 (the "Cap Amount")
for all Claims under Section 8.2 (a)(i) in the aggregate. Damages relating to
any single breach or series of related breaches of Seller's representations and
warranties shall not constitute Damages, and therefore shall not be applied
towards the Threshold Amount or be indemnifiable hereunder, unless such Damages
relating to any single breach or series of related breaches exceed $1,000,000
(the "Minimum Claim Amount").
(e) Buyer's indemnification obligations contained in Section
8.2 (b)(i) shall not apply to any Claim for Damages until the aggregate of all
such Damages equals the Threshold Amount, in which event Buyer's indemnification
obligation contained in Section 8.2 (b)(i) shall apply to all Claims for Damages
in excess of the Threshold Amount, subject to a maximum liability to all
Indemnified Parties, in the aggregate, of the Cap Amount for all Claims under
Section 8.2 (b)(i) in the aggregate. Damages relating to any single breach or
series of related breaches of Buyer's and Southern Union's representations and
warranties shall not constitute Damages, and therefore shall not be applied
towards the Threshold Amount or be indemnifiable hereunder, unless such Damages
relating to any single breach or series of related breaches exceed the Minimum
Claim Amount.
(f) The indemnification obligations of each party hereto under
this Section 8.2 shall inure to the benefit of the Buyer Indemnified Parties and
Seller Indemnified Parties, and such Buyer Indemnified Parties and Seller
Indemnified Parties will be obligated to keep and perform the obligations
imposed on an Indemnified Party by this Section 8.2, on the same terms as are
applicable to such other party.
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(g) In all cases in which a Person is entitled to be
indemnified in accordance with this Agreement, such Indemnified Party shall be
under a duty to take all commercially reasonable measures to mitigate all
losses. Without limiting the foregoing, each Indemnified Party shall use its
reasonable best efforts to collect any amount available under insurance
coverage, or from any other Person alleged to be responsible, for any Damages
for which an indemnity claim is being made; provided, that the reasonable costs
incurred by the Indemnified Party in taking such measures shall be included in
the amount of any Claim.
(h) An Indemnified Party shall not be entitled under this
Agreement to multiple recovery for the same losses. If an Indemnified Party
receives any amount under applicable insurance policies, or from any other
Person alleged to be responsible for any Damages, subsequent to an
indemnification payment by the Indemnifying Party, then such Indemnified Party
shall promptly reimburse the Indemnifying Party for any payment made or expense
incurred by such Indemnifying Party in connection with providing such
indemnification payment up to the amount received by the Indemnified Party, net
of any expenses incurred by such Indemnified Party in collecting such amount.
(i) All amounts paid by Seller or Buyer, as the case may be,
under this Article VIII shall be treated as adjustments to the Purchase Price
for all Tax purposes.
(j) Notwithstanding any other provision in the Agreement to
the contrary, this Section 8.2 shall not apply to any Claim of indemnification
with respect to Tax matters. Claims for indemnification with respect to Tax
matters shall be governed by Section 5.7.
(k) For purposes of this Article VIII only, the existence of a
breach of a representation or warranty in this Agreement and the calculation of
Damages arising out of a breach of any representation or warranty in this
Agreement shall be determined without giving effect to any exception or
qualification of such representation or warranty as to the materiality of the
breach thereof or the Material Adverse Effect on any Person of such breach.
Except as provided in Section 5.7 hereof, the provisions of this Article VIII
shall constitute the sole and exclusive remedy of any Indemnified Party for
Damages arising out of, resulting from or incurred in connection with any
inaccuracy in any representation or the breach of any warranty made by Buyer or
Southern Union, on the one hand, or Seller, on the other hand, in this
Agreement; provided, however, that this exclusive remedy for Damages does not
preclude a party from bringing an Action for specific performance or other
equitable remedy to require a party to perform its obligations under this
Agreement or any Related Agreement; provided, further, that this exclusive
remedy for Damages does not preclude a party from bringing an Action alleging
fraud, intentional misrepresentation or intentional misconduct without reference
to the provisions of this Article VIII.
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Section 8.3 Calculation of Damages.
The Damages suffered by any Party hereto shall be calculated after
giving effect to the actual receipt of any available insurance proceeds paid
directly to the Indemnified Party. In computing the amount of any insurance
proceeds, such insurance proceeds shall be reduced by a reasonable estimate of
the present value of future premium increases attributable to the payment of
such Claim.
Section 8.4 Procedures for Third-Party Claims.
(a) In the case of any Claim for indemnification arising from
a Claim of a third party against an Indemnified Party arising under paragraph
8.2(a) or 8.2(b) as the case may be (a "Third-Party Claim"), an Indemnified
Party shall give prompt written notice to the Indemnifying Party of any Claim or
demand of which such Indemnified Party has knowledge, and as to which it may
request indemnification hereunder, specifying (to the extent known) the amount
of such Claim and any relevant facts and circumstances relating thereto;
provided, however, that any failure to give such prompt notice or to provide any
such facts and circumstances will not waive any rights of the Indemnified Party,
except to the extent that the rights of the Indemnifying Party are actually
materially prejudiced thereby. The Indemnifying Party shall have the right (and,
if it elects to exercise such right, to do so by written notice within thirty
(30) days after receiving notice from the Indemnified Party) to defend and to
direct the defense against any such Third-Party Claim, in its name or in the
name of the Indemnified Party, as the case may be, at the expense of the
Indemnifying Party, and with counsel selected by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party, unless (i) the Indemnifying
Party shall not have taken any action to defend such Third-Party Claim within
such thirty-day (30-day) period, or (ii) the Indemnified Party shall have
reasonably concluded that there is a conflict of interest between the
Indemnified Party and the Indemnifying Party in the conduct of the defense of
such Third-Party Claim. Notwithstanding anything in this Agreement to the
contrary (other than the last sentence of this Section 8.4 (a)), the Indemnified
Party, at the expense of the Indemnifying Party (which shall include only
reasonable out-of-pocket expenses actually incurred), shall cooperate with the
Indemnifying Party and keep the Indemnifying Party fully informed in the defense
of such Third-Party Claim. The Indemnified Party shall have the right to
participate in the defense of any Third-Party Claim with counsel employed at its
own expense; provided, however, that in the case of any Third-Party Claim (A)
described in clause (ii) above, or (B) as to which the Indemnifying Party shall
not in fact have employed counsel to assume the defense of such Third-Party
Claim within such thirty-day (30-day) period, or (C) that involves assertion of
criminal liability on the Indemnified Party, or (D) seeks to force the
Indemnified Party to take (or prevent the Indemnified Party from taking) any
action, then in each such case the Indemnified Party shall have the right, but
not the obligation, to conduct and control the defense thereof for the account
of, and at the risk of, the Indemnifying Party, and the reasonable fees and
disbursements of such Indemnified Party's counsel shall be at the expense of the
Indemnifying Party. Except as provided in the last sentence of Section 8.4 (b),
the Indemnifying Party shall have no indemnification obligations with respect to
any Third-Party Claim which shall be
75
settled by the Indemnified Party without the prior written consent of the
Indemnifying Party, which consent shall not be unreasonably withheld, delayed or
conditioned.
(b) The Indemnifying Party, if it has assumed the defense of
any Third Party Claim as provided in this Agreement, shall not consent to a
settlement of, or the entry of any judgment arising from, any such Third-Party
Claim without the Indemnified Party's prior written consent (which consent shall
not be unreasonably withheld, delayed or conditioned) unless (i) such settlement
or judgment relates solely to monetary damages, and (ii) prior to consenting to
such settlement or such entry of judgment, the Indemnifying Party delivers to
the Indemnified Party a writing (in form reasonably acceptable to the
Indemnified Party) which unconditionally provides that, subject to the
provisions of Section 8.2 (d) or Section 8.2 (e), as appropriate, relating to
the Minimum Claim Amount, the Threshold Amount and the Cap Amount, the Damages
represented thereby are the responsibility of the Indemnifying Party pursuant to
the terms of this Agreement and that, subject to the provisions of the Threshold
Amount, the Indemnifying Party shall pay all Damages associated therewith in
accordance with the terms of this Agreement. The Indemnifying Party shall not,
without the Indemnified Party's prior written consent, enter into any compromise
or settlement that (x) commits the Indemnified Party to take, or to forbear to
take, any action or (y) involves a reasonable likelihood of an imposition of
criminal liability on the Indemnified Party, or (z) does not provide for a
complete release by such third party of the Indemnified Party. With the written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld, conditioned or delayed, the Indemnified Party shall have the sole and
exclusive right to settle any Third-Party Claim, on such terms and conditions as
it deems reasonably appropriate, to the extent such Third-Party Claim involves
equitable or other nonmonetary relief against the Indemnified Party or involves
a reasonable likelihood of an imposition of criminal liability on the
Indemnified Party, and shall have the right to settle any Third-Party Claim
involving money damages for which the Indemnifying Party has not assumed the
defense pursuant to this Section 8.4.
Section 8.5 Procedures for Inter-Party Claims.
In the event that an Indemnified Party determines that it has a Claim
for Damages against an Indemnifying Party hereunder (other than as a result of a
Third-Party Claim), the Indemnified Party shall give prompt written notice
thereof to the Indemnifying Party, specifying the amount of such Claim and any
relevant facts and circumstances relating thereto, and such notice shall be
promptly given even if the nature or extent of the Damages is not then known.
The notification shall be subsequently supplemented within a reasonable time as
additional information regarding the Claim or the nature or extent of Damages
resulting therefrom becomes available to the Indemnified Party. Any failure to
give such prompt notice or supplement thereto or to provide any such facts and
circumstances will not waive any rights of the Indemnified Party, except to the
extent that the rights of the Indemnifying Party are actually materially
prejudiced thereby. The Indemnified Party and the Indemnifying Party shall
negotiate in good faith for a thirty-day (30-day) period regarding the
resolution of any disputed Claims for Damages. Promptly following the final
determination of the amount of any Damages claimed by the Indemnified Party, the
Indemnifying Party, subject to the limitations of the Minimum
76
Claim Amount, Threshold Amount and the Cap Amount, shall pay such Damages to the
Indemnified Party by wire transfer or check made payable to the order of the
Indemnified Party.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Interpretation.
Unless the context of this Agreement otherwise requires, (a) words of
any gender include the other gender; (b) words using the singular or plural
number also include the plural or singular number, respectively; (c) the terms
"hereof," "herein," "hereby" and derivative or similar words refer to this
entire Agreement; (d) the terms "Article," "Section" and "Exhibit" refer to the
specified Article, Section and Exhibit of this Agreement, respectively; and (e)
"including," shall mean "including, but not limited to." Unless otherwise
expressly provided, any agreement, instrument, law or regulation defined or
referred to herein means such agreement, instrument, law or regulation as from
time to time amended, modified or supplemented, including (in the case of
agreements or instruments) by waiver or consent and (in the case of a law or
regulation) by succession of comparable successor law and includes (in the case
of agreements or instruments) references to all attachments thereto and
instruments incorporated therein.
Section 9.2 Disclosure Letters.
The Seller Disclosure Letter and the Buyer Disclosure Letter are
incorporated into this Agreement by reference and made a part hereof.
Section 9.3 Payments.
All payments set forth in this Agreement and Exhibits are in United
States Dollars. Such payments shall be made by wire transfer of immediately
available funds or by such other means as the parties to such payment shall
designate.
Section 9.4 Expenses.
Except as expressly set forth herein, or as agreed upon in writing by
the parties, whether or not the transactions contemplated hereby are
consummated, each party shall bear its own costs, fees and expenses, including
the expenses of its Representatives, incurred by such party in connection with
this Agreement and the Related Agreements and the transaction contemplated
hereby and thereby; provided, however, that Seller shall be solely responsible
for all legal, accounting and other fees, costs and expenses incurred by Seller,
Panhandle and the Panhandle Subsidiaries in connection with the negotiation,
execution and Closing of this Agreement.
77
Section 9.5 Choice of Law.
This Agreement shall be governed by and construed in accordance with
the law of the State of New York (regardless of the laws that might otherwise
govern under applicable New York principles of conflicts of law).
Section 9.6 Assignment.
This Agreement may not be assigned by either party without the prior
written consent of the other party; provided, however, that without the prior
written consent of the other party, each party shall have the right to assign
its rights and obligations under this Agreement to any third party successor to
all or substantially all of its entire business. This Agreement shall be binding
upon and, subject to the terms of the foregoing sentence, inure to the benefit
of the parties hereto and their successors, legal representatives and assigns.
Section 9.7 Notices.
All demands, notices, consents, approvals, reports, requests and other
communications hereunder must be in writing, will be deemed to have been duly
given only if delivered personally or by facsimile transmission (with
confirmation of receipt) or by an internationally-recognized express courier
service or by mail (first class, postage prepaid) to the parties at the
following addresses or telephone or facsimile numbers and will be deemed
effective upon delivery; provided, however, that any communication by facsimile
shall be confirmed by an internationally-recognized express courier service or
regular mail.
(i) If to Seller:
CMS Gas Transmission Company
CMS Energy Corporation
300 Town Center Drive, Suite 1100
Dearborn, Michigan 48126
Attention: General Counsel
Telephone: (313) 436-9214
Facsimile: (313) 436-9258
With a required copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Attention: Sheldon S. Adler, Esq.
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
(ii) If to Buyer or Southern Union:
78
Southern Union Company
One PEI Center
Wilkes Barre, Pennsylvania 18711-0601
Attention: Thomas F. Karam, President & COO
Telephone: (570) 829-8888
Facsimile: (570) 829-8900
with a copy (which shall not constitute notice) to:
Fleischman and Walsh, L.L.P.
1400 Sixteenth Street, N.W., Suite 600
Washington, D.C. 20036
Attention: Stephen A. Bouchard
Telephone: (202) 939-7911
Facsimile: (202) 265-5706
or to such other address as the addressee shall have last furnished in writing
in accord with this provision to the addressor.
Section 9.8 Consent to Jurisdiction.
Each party shall maintain at all times a duly appointed agent in the
State of New York, which may be changed upon ten (10) Business Days' notice to
the other party, for the service of any process or summons in connection with
any issue, litigation, action or proceeding brought in any such court. Any such
process or summons may also be served on it by mailing a copy of such process or
summons to it at its address set forth, and in the manner provided, in Section
9.7. Each party hereby irrevocably consents to the exclusive personal
jurisdiction and venue of any New York State or United States Federal court of
competent jurisdiction sitting in New York County, New York, in any action,
Claim or proceeding arising out of or in connection with this Agreement and
agrees not to commence or prosecute any action, Claim or proceeding in any other
court. Each of the parties hereby expressly and irrevocably waives and agrees
not to assert the defense of lack of personal jurisdiction, forum non conveniens
or any similar defense with respect to the maintenance of any such action or
proceeding in New York County, New York.
Section 9.9 Resolution of Disputes.
Except for the resolution of matters which shall be resolved in
accordance with the procedures set forth in specific sections, all other
disputes arising out of or relating to this Agreement or any Related Agreement
or the breach, termination or validity thereof or the parties' performance
hereunder or thereunder ("Dispute") shall be resolved as provided by this
Section 9.9.
(a) Mediation.
(i) If the Dispute has not been resolved by executive
officer negotiation within thirty (30) days of the disputing
79
party's notice requesting negotiation, or if the parties fail to meet
within twenty (20) days from delivery of said notice, such Dispute
shall be submitted to non-binding mediation in accordance with the
then-current Model Procedure for Mediation of Business Disputes of the
CPR Institute for Dispute Resolution. The mediation shall be completed
within thirty (30) days of the time the mediator is selected. Unless
otherwise agreed, the parties will select a mediator from the CPR
Panels of Distinguished Neutrals; provided, however, that if no
mediator from that list can be mutually agreed upon, each party will
submit to the CPR its own list of acceptable mediators from the CPR
Panels of Distinguished Neutrals and the CPR shall appoint one of those
listed as the mediator for the parties. The costs of the mediation,
including the mediator's fees, shall be borne equally by the parties to
the Dispute.
(ii) By agreeing to mediation, the parties do not
intend to deprive any court of its jurisdiction to issue an injunction,
attachment or other order in aid of mediation proceedings. The parties
agree to participate in good faith in the mediation to its conclusion.
If the Dispute has not been resolved by mediation within ninety (90)
days of the disputing party's notice requesting negotiation pursuant to
Section 9.9 (a)(i), then either party may pursue other available
remedies.
Section 9.10 Waiver of Jury Trial.
SELLER AND BUYER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER DOCUMENT DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF SELLER OR
BUYER. EACH OF SELLER AND BUYER ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED
FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION
OF EACH OTHER DOCUMENT DELIVERED IN CONNECTION HEREWITH TO WHICH IT IS A PARTY)
AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR SUCH PARTY ENTERING INTO
THIS AGREEMENT AND EACH SUCH OTHER DOCUMENT.
Section 9.11 No Right of Setoff.
Neither party hereto nor any Affiliate thereof may deduct from, set
off, holdback or otherwise reduce in any manner whatsoever against any amounts
such Persons may owe to the other party hereto or any of its Affiliates any
amounts owed by such Persons to the other party or its Affiliates.
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Section 9.12 Time is of the Essence.
Time is of the essence in the performance of the provisions of this
Agreement.
Section 9.13 Specific Performance.
The parties hereto agree that irreparable damage would occur in the
event that any provision of this Agreement was not performed in accordance with
the terms hereof and that the parties shall be entitled to specific performance
of the terms hereof, in addition to any other remedy at law or equity, subject
to the limitations set forth in Section 7.2 of this Agreement.
Section 9.14 Entire Agreement.
This Agreement, together with the Seller Disclosure Letter, Buyer
Disclosure Letter, Exhibits hereto, Related Agreements and the Confidentiality
Agreement constitute the entire agreement between the parties hereto with
respect to the subject matter herein and supersede all previous agreements,
whether written or oral, relating to the subject matter of this Agreement and
all prior drafts of this Agreement, all of which are merged into this Agreement.
No prior drafts of this Agreement and no words or phrases from any such prior
drafts shall be admissible into evidence in any action or suit involving this
Agreement. In the case of any material conflict between any provision of this
Agreement and any other Related Agreement, this Agreement shall take precedence.
Section 9.15 Third Party Beneficiaries.
Except as expressly provided in Article VIII hereof, none of the
provisions of this Agreement shall be for the benefit of or enforceable by any
third party, including any creditor of any party or any of their affiliates.
Except as expressly provided in Article VIII hereof, no such third party shall
obtain any right under any provision of this Agreement or shall by reasons of
any such provision make any Claim in respect of any Liability (or otherwise)
against either party hereto.
Section 9.16 Counterparts.
This Agreement may be executed in two (2) counterparts, both of which,
when executed, shall be deemed to be an original and both of which together
shall constitute one and the same document.
Section 9.17 Severability.
If any provision of this Agreement is held to be illegal, invalid or
unenforceable under any applicable present or future law, and if the rights or
obligations of either party under this Agreement will not be materially and
adversely affected thereby, (i) such provision shall be fully severable, (ii)
this Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part hereof, (iii) the remaining
provisions of this Agreement shall remain in full force and effect and shall not
be affected by the illegal, invalid or unenforceable provision or by its
severance
81
herefrom and (iv) in lieu of such illegal, invalid or unenforceable provision,
there shall be added automatically as a part of this Agreement, a legal, valid
and enforceable provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible.
Section 9.18 Headings.
The headings used in this Agreement have been inserted for convenience
of reference only and do not define or limit the provisions hereof.
Section 9.19 Waiver.
Any term or condition of this Agreement may be waived at any time by
the party that is entitled to the benefit thereof, but no such waiver shall be
effective unless set forth in a written instrument duly executed by or on behalf
of the party or parties waiving such term or condition. No waiver by any party
of any term or condition of this Agreement, in any one or more instances, shall
be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by law or otherwise afforded, will be cumulative and not
alternative.
Section 9.20 Amendment.
This Agreement may be altered, amended or changed only by a writing
making specific reference to this Agreement and signed by duly authorized
representatives of each party.
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IN WITNESS WHEREOF, Seller, Buyer and Southern Union, by their duly
authorized officers, have executed this Agreement as of the date first written
above.
CMS GAS TRANSMISSION COMPANY
By:/s/ William J. Haener
-----------------------------
Name: William J. Haener
Title: President and CEO
SOUTHERN UNION PANHANDLE CORP.
By:/s/ Thomas F. Karam
-----------------------------
Name: Thomas F. Karam
Title: President and Chief Operating Officer
SOUTHERN UNION COMPANY
By:/s/ Thomas F. Karam
-----------------------------
Name: Thomas F. Karam
Title: President and Chief Operating Officer
EXHIBIT 10(c)
SHAREHOLDER AGREEMENT
BY AND BETWEEN
CMS GAS TRANSMISSION COMPANY,
AND
SOUTHERN UNION COMPANY
DATED AS OF
MAY 12, 2003
TABLE OF CONTENTS
Page
----
ARTICLE I DEFINITIONS
Section 1.1 Specific Definitions..............................................3
ARTICLE II SHARE RESTRICTIONS
Section 2.1 Standstill and Related Provisions.................................4
Section 2.2 Legends...........................................................6
Section 2.3 Sale of Shares....................................................6
ARTICLE III TERM
Section 3.1 Term..............................................................7
ARTICLE IV MISCELLANEOUS
Section 4.1 Dispute Resolution................................................7
Section 4.2 Specific Performance..............................................7
Section 4.3 Entire Agreement..................................................7
Section 4.4 Expenses..........................................................7
Section 4.5 Amendment.........................................................8
Section 4.6 Notices...........................................................8
Section 4.7 Severability......................................................8
Section 4.8 Waiver............................................................8
Section 4.9 Headings..........................................................8
Section 4.10 Third Party Beneficiaries........................................9
Section 4.11 Assignment.......................................................9
Section 4.12 Choice of Law....................................................9
Section 4.13 Facsimiles; Counterparts.........................................9
Section 4.14 Consent to Jurisdiction..........................................9
Section 4.15 Waiver of Jury Trial............................................10
2
SHAREHOLDER AGREEMENT
This SHAREHOLDER AGREEMENT (the "Agreement"), dated as of May 12, 2003,
is made by and between Southern Union Company, a Delaware corporation ("Southern
Union"), and CMS Gas Transmission Company, a Michigan corporation ("CMSGT").
W I T N E S S E T H:
WHEREAS, simultaneously with the execution of this Agreement, Southern
Union and CMSGT, have entered into that certain Amended and Restated Stock
Purchase Agreement, dated as of May 12, 2003 (the "Purchase Agreement"),
pursuant to which CMSGT will acquire 3 million shares of Southern Union Common
Stock, par value $1.00 per share (the "Shares") as part of the consideration
received for the sale of Panhandle; and
WHEREAS, the parties desire to set forth their agreement as to certain
rights and obligations relating to the Shares upon the terms and subject to the
conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing and the mutual
premises, representations, warranties, covenants and agreements contained herein
and in the Purchase Agreement, the parties hereto, intending to be legally bound
hereby, agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Specific Definitions For purposes of this Agreement, the
following terms shall have the meanings set forth below:
(a) "Affiliate" shall mean, with respect to any specified
Person, any Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.
(b) "Beneficially Own" or "Beneficial Ownership" with respect
to any securities shall mean having "beneficial ownership" of such securities
(as determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), including pursuant to any agreement,
arrangement or understanding, whether or not in writing. Securities Beneficially
Owned by a Person shall include securities Beneficially Owned by all Affiliates
and "associates" (as defined under the Exchange Act) of such Person and all
other Persons with whom such Person would constitute a "group" within the
meaning of Section 13(d) of the Exchange Act and the rules promulgated
thereunder.
3
(c) "Common Stock" shall mean Southern Union common stock, par
value $1.00 per share.
(d) "including" shall mean including without limitation.
(e) "Person" shall mean an individual, corporation,
partnership, joint venture, association, trust, unincorporated organization or
other entity.
Capitalized terms used, but not defined herein, shall have the meaning set forth
in the Purchase Agreement.
ARTICLE II
SHARE RESTRICTIONS
Section 2.1 Standstill and Related Provisions.
(a) Southern Union and CMSGT agree that, without the prior
written consent of Southern Union, CMSGT will not, directly or indirectly, alone
or in concert with others, in the event that a prospectus supplement relating to
the offering by Southern Union of (x) equity securities or (y) equity-linked
securities occurs on or prior to the closing of the transactions contemplated by
the Purchase Agreement, from the date of this Agreement until ninety (90) days
after the closing of the transactions contemplated by the Purchase Agreement, or
in the event that a prospectus supplement relating to the offering by Southern
Union of (x) equity securities or (y) equity-linked securities occurs after the
closing of the transactions contemplated by the Purchase Agreement, then from
the date of this Agreement until the earlier to occur of (A) ninety (90) days
from the date of a prospectus supplement relating to the offering by Southern
Union of (x) equity securities or (y) equity-linked securities pursuant to a
prospectus supplement or (B) one hundred and five (105) days from the closing of
the transactions contemplated by the Purchase Agreement:
(i) sell, transfer, assign, offer, pledge, or
otherwise dispose of,directly or indirectly, the Shares
(ii) sell any option or contract to purchase any
Common Stock;
(iii) purchase any option or contract to sell any
Common Stock;
(iv) grant any option, right or warrant to sell any
Common Stock;
4
(v) lend or otherwise dispose of or transfer any of
the Shares;
(vi) enter into swap or other agreement that
transfers, in whole or in part, the economic consequence of ownership
of any Common Stock whether any such swap or transaction is to be
settled by delivery of shares or other securities, in cash or
otherwise;
(vii) publicly announce an intention to effect a
transaction contemplated in subsections (i) through (vi) above;
(viii) acquire, other than by dividend, or offer,
propose or agree to acquire, directly or indirectly, whether by
purchase, tender or exchange offer, through the acquisition or control
of another Person or otherwise, any shares of Southern Union;
(ix) make, or in any way participate, directly or
indirectly, in any "solicitation" (as such term is used in the proxy
rules of the Securities and Exchange Commission as in effect on the
date hereof) of proxies or consents (whether or not relating to the
election or removal of directors), seek to advise, encourage or
influence any Person with respect to the voting of any shares of
Southern Union, initiate, propose or otherwise "solicit" (as such term
is used in the proxy rules of the Securities and Exchange Commission as
in effect on the date hereof) shareholders of Southern Union for the
approval of shareholder proposals, whether made pursuant to Rule 14a-8
of the Exchange Act or otherwise, or induce or attempt to induce any
other Person to initiate any such shareholder proposal;
(x) except as provided for under the Purchase
Agreement, seek, propose, or make any statement with respect to, any
merger, consolidation, business combination, tender or exchange offer,
sale or purchase of assets, sale or purchase of securities,
dissolution, liquidation, reorganization, recapitalization or similar
transaction involving Southern Union or its subsidiaries; provided,
however, that nothing in this provision shall prohibit CMSGT from
exercising its right to vote as a stockholder in connection with any
such transaction contemplated by this Section 2.1(a)(ix);
(xi) form, join or in any way participate in a
"group" (within the meaning of Section 13(d)(3) of the Exchange Act)
with respect to any Southern Union shares;
(xii) call or seek to have called any meeting of the
stockholders of Southern Union or execute any written consent with
respect to Southern Union or Southern Union shares;
(xiii) seek representation on the Board of Directors
of Southern Union, or seek the removal of any member of such Board;
5
(xiv) make any proposal or publicly disclose any
intention to make any proposal (whether or not subject to conditions)
or enter into any discussion regarding any of the foregoing;
(xv) make any proposal, statement or inquiry, or
disclose any intention, plan or arrangement (whether written or oral)
inconsistent with the foregoing, or make or disclose any request to
amend, waive or terminate any provision of this Agreement; and
(xvi) have any discussions or communications, or
enter into any arrangements, understandings or agreements (whether
written or oral) with, or advise, finance, assist or encourage, any
other Person in connection with any of the foregoing, or make any
investment in or enter into any arrangement with, any other Person that
engages, or offers or proposes to engage, in any of the foregoing.
Notwithstanding the foregoing, (a) CMSGT may transfer or assign the Shares to an
Affiliate of CMSGT that agrees to be bound by the terms of this Agreement; (b)
the Shares may be pledged to a lender of CMSGT or an Affiliate of CMSGT; and (c)
CMSGT or CMS Energy Corporation ("CMS") may enter into a business combination or
transaction with respect to at least a majority of the shares of CMSGT, CMS, or
CMS Enterprises Company.
(b) Neither Southern Union nor CMSGT shall disclose the terms,
or existence, of this Agreement to any Person except as required by law.
Section 2.2 Legends.
(a) If requested in writing by Southern Union, CMSGT shall
present or cause to be presented promptly all certificates representing the
Shares for the placement thereon of a legend substantially to the following
effect, which legend shall remain thereon for the period of the restrictions set
forth in Section 2.1(a):
"The Securities represented by this certificate are subject to the
provisions of a Shareholder Agreement, dated as of May 12, 2003, between
Southern Union Company and CMS Gas Transmission Company, and may not be sold,
transferred, assigned or otherwise disposed of except in accordance therewith. A
copy of said Shareholder Agreement is on file at the office of the Corporate
Secretary of Southern Union Company."
Section 2.3 Sale of Shares.
Southern Union shall assist CMSGT, to the extent reasonably
requested, in connection with selling all or any significant portion of the
Shares to any potential purchaser, including, without limitation, making
officers, employees and other representatives available to meet with potential
purchasers.
6
ARTICLE III
TERM
Section 3.1 Term.
This Agreement shall terminate at the earlier to occur of (a) the
sale of all the Shares by CMSGT or on the second anniversary of the date hereof.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Dispute Resolution.
Any disputes arising out of or relating to this Agreement or
the breach, termination or validity thereof or the parties' performance
hereunder shall be resolved as provided by Section 9.9 of the Purchase
Agreement.
Section 4.2 Specific Performance.
The parties hereto agree that irreparable damage would occur in
the event that any provision of this Agreement was not performed in accordance
with the terms hereof and that the parties shall be entitled to specific
performance of the terms hereof, in addition to any other remedy at law or
equity.
Section 4.3 Entire Agreement.
This Agreement constitutes the entire agreement, and supersedes
all prior agreements and understandings, written or oral, among the parties with
respect to the subject matter of this Agreement. This Agreement may be altered,
amended or changed only by a writing making specific reference to this Agreement
and signed by duly authorized representatives of each party.
Section 4.4 Expenses.
All costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses.
7
Section 4.5 Amendment.
This Agreement may not be amended, changed, supplemented, or
otherwise modified or terminated, except upon the execution and delivery of a
written agreement executed by each of the parties hereto.
Section 4.6 Notices.
All demands, notices, consents, approvals, reports, requests and
other communications hereunder must be in writing, will be deemed to have been
duly given only if delivered personally or by facsimile transmission (with
confirmation of receipt) or by an internationally-recognized express courier
service or by mail (first class, postage prepaid) to the parties at the
addresses or telephone or facsimile numbers set forth in Section 9.7 of the
Purchase Agreement (or to such other address as the addressee shall have last
furnished in writing in accord with this provision to the addressor) and will be
deemed effective upon delivery; provided, however, that any communication by
facsimile shall be confirmed by an internationally-recognized express courier
service or regular mail.
Section 4.7 Severability.
Whenever possible, each provision or portion of any provision of
this Agreement will be interpreted in such manner as to be effective and valid
under applicable law but if any provision or portion of any provision of this
Agreement is held to be invalid, illegal or unenforceable in any respect under
any applicable law or rule in any jurisdiction, such invalidity, illegality or
unenforceability will not affect any other provision or portion of any provision
in such jurisdiction, and this Agreement will be reformed, construed and
enforced in such jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been contained herein.
Section 4.8 Waiver.
Any term or condition of this Agreement may be waived at any time
by the party that is entitled to the benefit thereof, but no such waiver shall
be effective unless set forth in a written instrument duly executed by or on
behalf of the party or parties waiving such term or condition. No waiver by any
party of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by law or otherwise afforded, will be cumulative and not
alternative.
Section 4.9 Headings.
The headings used in this Agreement have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
8
Section 4.10 Third Party Beneficiaries.
This Agreement shall be binding upon and inure solely to the
benefit of the parties hereto and their respective successors and assigns. None
of the provisions of this Agreement shall be for the benefit of or enforceable
by any third party, including any creditor of any party or any of their
affiliates. No such third party shall obtain any right under any provision of
this Agreement or shall by reasons of any such provision make any claim in
respect of any liability (or otherwise) against either party hereto.
Section 4.11 Assignment.
This Agreement may not be assigned by either party without the
prior written consent of the other party except as specifically provided herein.
Section 4.12 Choice of Law.
This Agreement shall be governed by and construed in accordance
with the laws of the State of New York (regardless of the laws that might
otherwise govern under applicable New York principles of conflicts of law).
Section 4.13 Facsimiles; Counterparts.
This Agreement may be executed by facsimile signatures by any
party and such signature shall be deemed binding for all purposes hereof,
without delivery of an original signature being thereafter required. This
Agreement may be executed in one or more counterparts, each of which, when
executed, shall be deemed to be an original and all of which together shall
constitute one and the same document.
Section 4.14 Consent to Jurisdiction.
Each party shall maintain at all times a duly appointed agent in
the State of New York, which may be changed upon ten (10) Business Days' notice
to the other party, for the service of any process or summons in connection with
any issue, litigation, action or proceeding brought in any such court. Any such
process or summons may also be served on it by mailing a copy of such process or
summons to it at its address set forth, and in the manner provided, above. Each
party hereby irrevocably consents to the exclusive personal jurisdiction and
venue of any New York State or United States Federal court of competent
jurisdiction sitting in New York County, New York, in any action, Claim or
proceeding arising out of or in connection with this Agreement and agrees not to
commence or prosecute any action, Claim or proceeding in any other court. Each
of the parties hereby expressly and irrevocably waives and agrees not to assert
the defense of lack of personal jurisdiction, forum non conveniens or any
similar defense with respect to the maintenance of any such action or proceeding
in New York County, New York.
9
Section 4.15 Waiver of Jury Trial.
THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY
OTHER DOCUMENT DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY.
EACH PARTY ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION (AND EACH OTHER PROVISION OF EACH OTHER
DOCUMENT DELIVERED IN CONNECTION HEREWITH TO WHICH IT IS A PARTY) AND THAT THIS
PROVISION IS A MATERIAL INDUCEMENT FOR SUCH PARTY ENTERING INTO THIS AGREEMENT
AND EACH SUCH OTHER DOCUMENT.
10
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
CMS GAS TRANSMISSION COMPANY
By:/s/ William J. Haener
---------------------
Name: William J. Haener
Title: President and CEO
SOUTHERN UNION COMPANY
By:/s/ Thomas F. Karam
-------------------
Name: Thomas F. Karam
Title: President and Chief Operating Officer
EXHIIBT 10(d)
AMENDMENT AGREEMENT
This AMENDMENT AGREEMENT, dated as of May 12, 2003 (this "Agreement"),
is made and entered into by and among CMS Gas Transmission Company (the
"Seller"), AIG Highstar Capital, L.P. ("Highstar"), AIG Highstar II Funding
Corp. ("Funding," and together with Highstar, the "Highstar Parties"), Southern
Union Company ("Southern Union"), and Southern Union Panhandle Corp. ("Buyer",
and together with Seller, the Highstar Parties and Southern Union, the "Purchase
Agreement Parties").
WHEREAS, the Purchase Agreement Parties are parties to that certain
Stock Purchase Agreement, dated as of December 21, 2002 (the "Purchase
Agreement"); and
WHEREAS, the Purchase Agreement Parties desire to amend the Purchase
Agreement so that the Highstar Parties are no longer parties to the Purchase
Agreement;
NOW, THEREFORE, for and in consideration of the foregoing and the
representations, warranties, covenants and agreements set forth herein, the
Purchase Agreement Parties, intending to be legally bound, hereby agree as
follows (capitalized terms used in this Agreement but not otherwise defined
shall have the meanings ascribed to such terms in the Purchase Agreement):
1. Effective immediately, the Purchase Agreement is hereby amended
pursuant to Section 9.20 of the Purchase Agreement such that the
Highstar Parties are no longer parties to the Purchase Agreement and
such that the Highstar Parties' participation in the sale of Panhandle
is terminated. As further set forth in paragraphs 4 and 5 below, the
Highstar Parties shall have no election, right, option, claim, or other
privilege or any obligation or liability arising under, in connection
with or relating to the Purchase Agreement or the transactions
contemplated by the Purchase Agreement except for those elections,
rights, options, claims or other privileges or any obligations or
liabilities expressly arising hereunder. In addition, the Highstar
Parties, Southern Union and Buyer agree that upon execution of this
Agreement, that certain letter agreement, dated as of December 20,
2002, by and among the Highstar Parties, Southern Union and Buyer
regarding the formation, capitalization and operation of the Buyer as
well as all other agreements, arrangements and commitments entered into
in connection therewith (together, the "Buyer Formation Agreements")
are hereby terminated. The Highstar Parties acknowledge that (i)
simultaneously with the execution of this Agreement, Seller, Buyer and
Southern Union intend to enter into an amended purchase agreement
relating to the sale of Panhandle to Buyer, pursuant to terms that will
differ from those set forth in the Purchase Agreement (such new
agreement, the "Amended Purchase Agreement"), (ii) as soon as
reasonably practicable thereafter, Seller, Southern Union and Buyer
intend to consummate the transactions contemplated by any Amended
Purchase Agreement (the "Amended Transactions"), and (iii) the Highstar
Parties shall have no
election, right, option, claim, or other privilege or any obligation or
liability arising under, in connection with, or relating to, the
Amended Purchase Agreement or the Amended Transactions. In addition,
the Highstar Parties and SU are simultaneously entering into a letter
agreement regarding the termination of certain other arrangements (the
"Highstar/SU Letter Agreement"). Notwithstanding anything to the
contrary contained herein, from and after the date of this Agreement,
in the event that any of the Highstar Parties suffer or incur any
Damages as a result of a Third Party Claim, the Highstar Parties shall
continue to be entitled to any and all rights to indemnification
provided under Article VIII of the Purchase Agreement with respect to
such Third Party Claim to the same extent as the Highstar Parties would
have been entitled to indemnification under Article VIII of the
Purchase Agreement for any such Third Party Claim had this Agreement
not been executed and, solely for purposes of determining the right of
the Highstar Parties to indemnification under this Agreement and
Article VIII of the Purchase Agreement, the Highstar Parties shall be
treated as if the Highstar Parties had completed the transactions
contemplated by the Purchase Agreement. Southern Union shall indemnify
CMS for fifty percent (50%) of any amount paid by CMS or its Affiliates
to the Highstar Parties pursuant to the preceding sentence. In
consideration for the termination by the Highstar Parties of their
participation in the sale of Panhandle, from and after the date hereof,
Southern Union shall assume any and all obligations of the Highstar
Parties to indemnify CMS or any other Person under Articles VII or VIII
of the Purchase Agreement, and Southern Union hereby assumes all
obligations of the Sponsors to pay those expenses of the Sponsors and
the Buyer with respect to the transactions contemplated by the Purchase
Agreement otherwise allocable to the Sponsors under the Purchase
Agreement and the Buyer Formation Documents.
2. The Highstar Parties do hereby unequivocally release and discharge
Seller, its parents, subsidiaries and affiliates, and any of their
respective officers, directors, agents, managers, employees,
representatives, legal and financial advisors, principals or partners,
and any heirs, executors, administrators, successors or assigns of any
said persons or entities (the "Seller Releasees"), from any and all
actions, causes of action, choses in action, cases, claims, suits,
debts, dues, sums of money, accounts, reckonings, bonds, bills,
specialties, covenants, contracts, controversies, agreements, promises,
variances, trespasses, injuries, harms, damages, judgments, remedies,
extents, executions, demands, liens and liabilities whatsoever, in law,
equity or otherwise (together, "Actions"), in any way arising under, in
connection with or relating to the Purchase Agreement or the
transactions contemplated thereby, or any action or failure to act
under the Purchase Agreement or in connection therewith or in
connection with the events leading to the removal of the Highstar
Parties as parties to the Purchase Agreement, which have been asserted
against the Seller Releasees or which, whether currently known or
unknown, the Highstar Parties, or any successors or assigns, ever could
assert, or ever do assert, against the Seller Releasees, relating to
any claims, or any transactions or occurrences from any time through
the date hereof in connection with the foregoing; provided, however,
the Seller Releasees
2
are not released from any Actions which may arise (i) under this
Agreement or (ii) under the Confidentiality Agreement.
3. The Highstar Parties do hereby unequivocally release and discharge
Southern Union and Buyer, their parents, subsidiaries and affiliates,
and any of their respective officers, directors, agents, managers,
employees, representatives, legal and financial advisors, principals or
partners, and any heirs, executors, administrators, successors or
assigns of any said persons or entities (the "Southern Union
Releasees"), from any and all Actions in any way arising under, in
connection with or relating to the Purchase Agreement and/or the Buyer
Formation Agreements or the transactions contemplated thereby
(including under that certain letter agreement, dated as of December
20, 2002, by and among the Highstar Parties and Southern Union), or any
action or failure to act under the Purchase Agreement and/or the Buyer
Formation Agreements or in connection therewith or in connection with
the events leading to the removal of the Highstar Parties as parties to
the Purchase Agreement, which have been asserted against the Southern
Union Releasees or which, whether currently known or unknown, the
Highstar Parties, or any successors or assigns, ever could assert, or
ever do assert, in any capacity, against the Southern Union Releasees,
relating to any claims, or any transactions or occurrences from any
time through the date hereof in connection with the foregoing;
provided, however, the Southern Union Releasees are not released from
any Actions which may arise (i) under this Agreement, (ii) the
Highstar/SU Agreement, or (iii) under the Confidentiality Agreement.
4. Seller does hereby unequivocally release and discharge the Highstar
Parties, their parents, subsidiaries and affiliates, and any of their
respective officers, directors, agents, managers, employees,
representatives, legal and financial advisors, principals or partners,
and any heirs, executors, administrators, successors or assigns of any
said persons or entities (the "Highstar Releasees"), from any and all
Actions in any way arising under, in connection with or relating to the
Purchase Agreement or the transactions contemplated thereby, or any
action or failure to act under the Purchase Agreement or in connection
therewith, or in connection with the events leading to the removal of
the Highstar Parties as parties to the Purchase Agreement, which have
been asserted against the Highstar Releasees or which, whether
currently known or unknown, Seller, Southern Union or Buyer, or any
successors or assigns, ever could assert, or ever do assert, in any
capacity, against the Highstar Releasees, relating to any claims, or
any transactions or occurrences from any time through the date hereof
in connection with the foregoing; provided, however; the Highstar
Releasees are not released from any Action which may arise (i) under
this Agreement or (ii) under the Confidentiality Agreement.
5. Southern Union and Buyer do hereby unequivocally release and discharge
the Highstar Releasees from any and all Actions arising under, in
connection with or relating to the Purchase Agreement and/or the Buyer
Formation Agreements or
3
the transactions contemplated thereby (including under that certain
letter agreement, dated as of December 20, 2002, by and among the
Highstar Parties and Southern Union), or any action or failure to act
under the Purchase Agreement and/or the Buyer Formation Agreements or
in connection therewith, or in connection with the events leading to
the removal of the Highstar Parties as parties to the Purchase
Agreement, which have been asserted against the Highstar Releasees or
which, whether currently known or unknown, Seller, Southern Union or
Buyer, or any successors or assigns, ever could assert, or ever do
assert, in any capacity, against the Highstar Releasees, relating to
any claims, or any transactions or occurrences from any time through
the date hereof in connection with the foregoing; provided, however;
the Highstar Releasees are not released from any Action which may arise
(i) under this Agreement, (ii) the Highstar/SU Agreement, or (iii)
under the Confidentiality Agreement.
6. The Highstar Parties agree that, if requested by the Federal Trade
Commission ("FTC") as a condition to the expiration or termination of
the waiting period under the HSR Act to permit Buyer's acquisition of
Panhandle or by the Missouri Attorney General as a condition to not
opposing Buyer's acquisition of Panhandle, the Highstar Parties and any
applicable subsidiary will negotiate in good faith, with the FTC, the
Missouri Attorney General, and the other parties to this Agreement, as
applicable, mutually acceptable terms and conditions of consent
order(s) governing the future interactions of the Highstar Parties and
their subsidiaries with Southern Union and its affiliates (including,
but not limited to, provisions that the Highstar Parties and their
subsidiaries will not acquire any interest in Buyer or Panhandle and/or
will not enter into any management agreement with Southern Union
relating to the Central Pipeline (as hereinafter defined), without
prior FTC or Missouri Attorney General approval), and the Highstar
Parties will sign such a consent order if the terms and conditions of
such consent order are reasonably acceptable to the Highstar Parties.
The "Central Pipeline" means the Central Pipeline acquired by Highstar,
through AIG Highstar Capital, L.P. and Southern Star Central Corp.,
from The Williams Companies, that distributes natural gas from
producing locations in Kansas, Oklahoma, Texas, Wyoming and Colorado to
consuming areas in the Midwest. In no event shall the Highstar Parties
be required to enter into any such consent with the FTC that would
prohibit the Highstar Parties or any applicable subsidiary from
acquiring Energy Worx, Inc. or from retaining management of Energy
Worx, Inc. to manage the Central Pipeline.
7. The parties hereby agree that the Confidentiality Agreement, which for
purposes of this Agreement, shall be deemed to also include (a) the
letter agreement, dated as of November 1, 2002, by and between the
Highstar Parties and Southern Union regarding the disclosure of
Confidential Information to Southern Union, and (b) the letter
agreement, dated as of December 6, 2002, among the Purchase Agreement
Parties, pursuant to which Southern Union agreed to be subject to the
Confidentiality Agreement, shall continue in full force and effect
pursuant to its terms. Seller hereby demands that the Highstar Parties
return or destroy the
4
Information (as defined in the Confidentiality Agreement) and all
copies thereof, pursuant to and otherwise subject to Section 4 of the
Confidentiality Agreement.
8. Attached hereto as Exhibits A and B are the respective forms of press
release to be issued by Seller and Southern Union on signing of this
Agreement, with respect to this Agreement and the removal of the
Highstar Parties as parties to the Purchase Agreement.
9. Each party agrees that it will not, and will cause its respective
subsidiaries not to, and will use its reasonable best efforts to cause
its directors, officers and employees not to, make any public
statements or any statements reasonably calculated to become public
(orally, in writing, electronically or otherwise), or instigate, assist
or participate in making any such statement, which would reasonably be
considered to disparage any other party or its business or operations,
or their respective businesses and operations, or any other party's
present and former officers, partners, directors, employees, agents,
stockholders or representatives, in their capacity as such. Until the
first anniversary of the date hereof, except as otherwise agreed by the
parties, Southern Union, Buyer and Seller shall not make any public
statements or any statements reasonably calculated to become public
regarding, or respond to inquiries from the media, analysts, investors
and other third parties, or otherwise comment on, the Highstar Parties
in connection with the Panhandle transaction and the reasons for the
removal of the Highstar Parties as parties to the Purchase Agreement,
except as provided in the form of the press releases attached hereto as
Exhibit A and Exhibit B or as required by law or a governmental or
regulatory authority. Until the first anniversary of the date hereof,
except as otherwise agreed by the parties, the Highstar Parties shall
not make any public statements or any statements reasonably calculated
to become public regarding, or respond to inquiries from the media,
analysts, investors and other third parties, or otherwise comment on,
Southern Union, Buyer, Seller, Panhandle and the Panhandle
Subsidiaries, the Panhandle transaction and the reasons for the removal
of the Highstar Parties as parties to the Purchase Agreement, except as
provided in the form of press releases attached hereto as Exhibit A and
Exhibit B or as required by law or a governmental or regulatory
authority. Notwithstanding the foregoing, each party shall have a fair
opportunity to make statements in response to statements made by any
other party or in response to requests of a governmental or regulatory
authority.
10. Each party represents to the other parties that: (a) it is duly
organized and validly existing under the laws of the jurisdiction of
its incorporation or formation and in good standing; (b) it has the
power to execute and perform its obligations under this Agreement and
has taken all necessary action to authorize such execution, delivery
and performance; (c) such execution, delivery and performance does not
violate or conflict with any law applicable to it, any provision of its
charter or bylaws or other similar governing documents or any order or
judgment of any court or other agency of government applicable to it or
any of its assets; (d) all
5
governmental and other consents that are required to have been obtained
by it with respect to this Agreement have been obtained and are in full
force and effect and all conditions of any such consents have been
complied with; and (e) its obligations under this Agreement constitute
its legal, valid and binding obligations, enforceable in accordance
with the terms hereof.
11. Any term or condition of this Agreement may be waived at any time by
the party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition.
No waiver by any party of any term or condition of this Agreement, in
any one or more instances, shall be deemed to be or construed as a
waiver of the same or any other term or condition of this Agreement on
any future occasion. All remedies, either under this Agreement or by
any laws or otherwise afforded, will be cumulative and not alternative.
12. This Agreement shall be binding upon and inure solely to the benefit of
the parties hereto and their respective successors and assigns. Except
as otherwise expressly contemplated hereby, none of the provisions of
this Agreement shall be for the benefit of or enforceable by any third
party, including any creditor of any party or any of their affiliates.
Except as otherwise expressly contemplated hereby, no such third party
shall obtain any right under any provision of this Agreement or shall
by reasons of any such provision make any Claim in respect of any
Liability (or otherwise) against any party hereto.
13. Except as otherwise expressly provided herein, this Agreement
constitutes the entire agreement, and supersedes all prior agreements
and understandings, written or oral, among the parties with respect to
the subject matter of this Agreement. This Agreement may be altered,
amended or changed only by a writing making specific reference to this
Agreement and signed by duly authorized representatives of each party.
14. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York (regardless of the laws that might
otherwise govern under applicable New York principles of conflicts of
law).
15. This Agreement may be executed by facsimile signatures by any party and
such signature shall be deemed binding for all purposes hereof, without
delivery of an original signature being thereafter required. This
Agreement may be executed in one or more counterparts, each of which,
when executed, shall be deemed to be an original and all of which
together shall constitute one and the same document.
16. Any disputes arising out of or relating to this Agreement or the
breach, termination or validity thereof or the parties' performance
hereunder shall be resolved as provided by Section 9.9 of the Purchase
Agreement.
6
17. All demands, notices, consents, approvals, reports, requests and other
communications hereunder must be in writing, will be deemed to have
been duly given only if delivered personally or by facsimile
transmission (with confirmation of receipt) or by an
internationally-recognized express courier service or by mail (first
class, postage prepaid) to the parties at the addresses or telephone or
facsimile numbers set forth in Section 9.7 of the Purchase Agreement
(or to such other address as the addressee shall have last furnished in
writing in accord with this provision to the addressor) and will be
deemed effective upon delivery; provided, however, that any
communication by facsimile shall be confirmed by an
internationally-recognized express courier service or regular mail.
18. Each party shall maintain at all times a duly appointed agent in the
State of New York, which may be changed upon ten (10) Business Days'
notice to the other party, for the service of any process or summons in
connection with any issue, litigation, action or proceeding brought in
any such court. Any such process or summons may also be served on a
party by mailing a copy of such process or summons to it at its address
set forth in Section 9.7 of the Purchase Agreement (or to such other
address as the addressee shall have last furnished in writing in accord
with this provision to the addressor) and will be deemed effective upon
delivery; provided, however, that any communication by facsimile shall
be confirmed by an internationally-recognized express courier service
or regular mail. Each party hereby irrevocably consents to the
exclusive personal jurisdiction and venue of any New York State or
United States Federal court of competent jurisdiction sitting in New
York County, New York, in any action, Claim or proceeding arising out
of or in connection with this Agreement and agrees not to commence or
prosecute any action, Claim or proceeding in any other court. Each of
the parties hereby expressly and irrevocably waives and agrees not to
assert the defense of lack of personal jurisdiction, forum non
conveniens or any similar defense with respect to the maintenance of
any such action or proceeding in New York County, New York.
19. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY
RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS
AGREEMENT OR ANY OTHER DOCUMENT DELIVERED IN CONNECTION HEREWITH, OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF ANY PARTY. EACH PARTY ACKNOWLEDGES AND AGREES
THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS
PROVISION (AND EACH OTHER PROVISION OF EACH OTHER DOCUMENT DELIVERED IN
CONNECTION HEREWITH TO WHICH IT IS A PARTY) AND THAT THIS PROVISION IS
A MATERIAL INDUCEMENT FOR SUCH PARTY ENTERING INTO THIS AGREEMENT AND
EACH SUCH OTHER DOCUMENT.
7
IN WITNESS WHEREOF, the Purchase Agreement Parties have executed this
agreement as of the date first written above.
CMS GAS TRANSMISSION COMPANY
By: /s/ William J. Haener
----------------------------------------------
Name: William J. Haener
Title: President and CEO
SOUTHERN UNION PANHANDLE CORP.
By: /s/ Thomas F. Karam
----------------------------------------------
Name: Thomas F. Karam
Title: President and Chief Operating Officer
SOUTHERN UNION COMPANY
By: /s/ Thomas F. Karam
----------------------------------------------
Name: Thomas F. Karam
Title: President and Chief Operating Officer
AIG HIGHSTAR CAPITAL, L.P.
By: /s/ Christopher H. Lee
----------------------------------------------
Name: Christopher H. Lee
Title: Managing Partner
AIG HIGHSTAR II FUNDING CORP.
By: /s/ Michael Walsh
----------------------------------------------
Name: Michael Walsh
Title: Treasurer
EXHIBIT (12)
CMS ENERGY CORPORATION
Ratio of Earnings to Fixed Charges and Preferred Securities
Dividends and Distributions
(Millions of Dollars)
Three Months Ended Years Ended December 31 -
March 31, 2003 2002 2001 2000 1999 1998
Restated Restated
(b) (c) (d) (e)
- --------------------------------------------------------------------------------------------------------------------------
Earnings as defined (a)
Consolidated net income $ 79 $(620) $(448) $ 43 $ 277 $ 242
Discontinued operations (27) 222 210 (83) 14 12
Income taxes 41 13 (98) 34 63 100
Exclude equity basis subsidiaries (31) (39) - (171) (84) (92)
Fixed charges as defined, adjusted to
exclude capitalized interest of $3, $16, $35,
$47, $41, and $29 million for the three months
ended March 31, 2003 and the years ended
December 31, 2002, 2001, 2000, 1999, and
1998, respectively 130 551 618 558 594 393
------------------------------------------------------------------
Earnings as defined $ 192 $ 127 $ 282 $ 381 $ 864 $ 655
==================================================================
Fixed charges as defined (a)
Interest on long-term debt $ 97 $ 401 $ 416 $ 420 $ 502 $ 318
Estimated interest portion of lease rental 1 5 6 7 8 8
Other interest charges 6 28 82 33 62 47
Preferred securities dividends and
distributions 28 132 149 144 96 77
------------------------------------------------------------------
Fixed charges as defined $ 132 $ 566 $ 653 $ 604 $ 668 $ 450
==================================================================
Ratio of earnings to fixed charges and
preferred securities dividends and distributions 1.45 - - - 1.29 1.46
==================================================================
NOTES:
(a) Earnings and fixed charges as defined in instructions for Item 503 of
Regulation S-K.
(b) For the year ended December 31, 2002, fixed charges exceeded earnings by
$439 million. Earnings as defined include $598 million of asset revaluations and
other charges. The ratio of earnings to fixed charges and preferred securities
dividends and distributions would have been 1.28 excluding these amounts.
(c) For the year ended December 31, 2001, fixed charges exceeded earnings by
$371 million. Earnings as defined include $240 million of asset revaluations and
other charges.
(d) For the year ended December 31, 2000, fixed charges exceeded earnings by
$224 million. Earnings as defined include a $329 million pretax impairment loss
on the Loy Yang investment. The ratio of earnings to fixed charges and preferred
securities dividends and distributions would have been 1.17 excluding this
amount.
(e) Excludes a cumulative effect of change in accounting after-tax gain of $43
million.
Exhibit (99)(a)
CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of CMS Energy Company (the
"Company") for the quarterly period ended March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), Kenneth
Whipple, as Chairman of the Board and Chief Executive Officer of the Company,
and Thomas J. Webb, as Executive Vice President and Chief Financial Officer of
the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of his knowledge:
(1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company.
/s/ Kenneth Whipple
- --------------------------------
Name: Kenneth Whipple
Title: Chairman of the Board and
Chief Executive Officer
Date: May 12, 2003
/s/ Thomas J. Webb
- -----------------------------------
Name: Thomas J. Webb
Title: Executive Vice President and
Chief Financial Officer
Date: May 12, 2003
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities and Exchange Act of 1934, as amended.
Exhibit (99)(b)
CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Consumers Energy Company
(the "Company") for the quarterly period ended March 31, 2003 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), Kenneth
Whipple, as Chairman of the Board and Chief Executive Officer of the Company,
and Thomas J. Webb, as Executive Vice President and Chief Financial Officer of
the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the
best of his knowledge:
(1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company.
/s/ Kenneth Whipple
- --------------------------------
Name: Kenneth Whipple
Title: Chairman of the Board and
Chief Executive Officer
Date: May 12, 2003
/s/ Thomas J. Webb
- -----------------------------------
Name: Thomas J. Webb
Title: Executive Vice President and
Chief Financial Officer
Date: May 12, 2003
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities and Exchange Act of 1934, as amended.
Exhibit (99)(c)
CERTIFICATION OF CEO AND CFO PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Panhandle Eastern Pipe
Line Company (the "Company") for the quarterly period ended March 31, 2003 as
filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Christopher A. Helms, as President and Chief Executive Officer of the
Company, and Thomas J. Webb, as Executive Vice President and Chief Financial
Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and results of operations of the
Company.
/s/ Christopher A. Helms
- -----------------------------------
Name: Christopher A. Helms
Title: President and
Chief Executive Officer
Date: May 12, 2003
/s/ Thomas J. Webb
- -----------------------------------
Name: Thomas J. Webb
Title: Executive Vice President and
Chief Financial Officer
Date: May 12, 2003
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of
Section 18 of the Securities and Exchange Act of 1934, as amended.
