-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LzI8ev88d92Eir+TJ5CJ4sPLyNAGRhbNyjXyFEiF3qCchbaJlnp8qDLsgPtALNoO F5BFynUvTcBHr2jdKozm4w== 0000950124-98-005712.txt : 19981019 0000950124-98-005712.hdr.sgml : 19981019 ACCESSION NUMBER: 0000950124-98-005712 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19981016 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONSUMERS ENERGY CO CENTRAL INDEX KEY: 0000201533 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC & OTHER SERVICES COMBINED [4931] IRS NUMBER: 380442310 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-65619 FILM NUMBER: 98727186 BUSINESS ADDRESS: STREET 1: 212 W MICHIGAN AVE CITY: JACKSON STATE: MI ZIP: 49201 BUSINESS PHONE: 5177880550 MAIL ADDRESS: STREET 1: 212 W MICHIGAN AVE STREET 2: M 946 CITY: JACKSON STATE: MI ZIP: 49201 FORMER COMPANY: FORMER CONFORMED NAME: CONSUMERS POWER CO DATE OF NAME CHANGE: 19920703 S-3/A 1 REGISTRATION STATEMENT OF FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1998 REGISTRATION NO. 333-65619 333-65619-01 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ CONSUMERS ENERGY COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MICHIGAN 38-0442310 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 212 WEST MICHIGAN AVENUE JACKSON, MICHIGAN 49201 517-788-0550 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ ALAN M. WRIGHT SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER CONSUMERS ENERGY COMPANY 212 WEST MICHIGAN AVENUE JACKSON, MICHIGAN 49201 517-788-0351 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ WITH COPIES TO: MICHAEL D. VAN HEMERT, ESQ. ASSISTANT GENERAL COUNSEL CMS ENERGY CORPORATION FAIRLANE PLAZA SOUTH, SUITE 1100 330 TOWN CENTER DRIVE DEARBORN, MICHIGAN 48126 (313) 436-9605 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box: [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box: [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 PROSPECTUS RATINGS: STANDARD & POOR'S: "AAA" MOODY'S: "AAA" $150,000,000 LOGO % Senior Secured Insured Quarterly Notes Due October 1, 2028 (IQ Notes(SM)*) ------------------------ The notes bear interest at the rate of % per year. Interest on the notes is payable quarterly on January 1, April 1, July 1 and October 1 of each year, beginning January 1, 1999. The notes will mature on October 1, 2028. We can redeem the notes on or after October 1, 2003. We will also redeem the notes, subject to certain conditions, at the option of the representative of any deceased noteholder. We will issue first mortgage bonds to secure the notes. On the date that we have retired all the first mortgage bonds, the notes will become unsecured and rank equally with all of our other unsecured senior indebtedness. AMBAC Logo The payment of principal and interest on the notes will be insured by a financial guaranty insurance policy issued by Ambac Assurance Corporation. The notes will be available for purchase in denominations of $1,000. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Edward D. Jones & Co., L.P. has agreed to purchase the notes at % of their principal amount ($ aggregate proceeds to Consumers Energy Company, before deducting our expenses, which we estimate to be $ ), subject to the terms of our purchase agreement. Edward D. Jones & Co., L.P. plans to sell the notes from time to time, in negotiated transactions or otherwise, at prices based on either the prevailing market or negotiated prices. We expect that the notes will be ready for delivery in book-entry form only through The Depository Trust Company ("DTC"), on or about October [ ], 1998. - ------------------------- *IQ Notes is a service mark of Edward D. Jones & Co., L.P. EDWARD D. JONES & CO., L.P. ------------------------ The date of this Prospectus is October [ ], 1998 3 WHERE YOU CAN FIND MORE INFORMATION We file reports, proxy statements and other information with the Securities and Exchange Commission (the "SEC"). Our SEC filings are also available over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any document we file at the SEC's public reference rooms at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; Seven World Trade Center, 13th Floor, New York, New York 10048; and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60601. Please call the SEC at 1-800-SEC-0330 for more information on the public reference rooms and their copy charges. You may also inspect our SEC reports and other information at the New York Stock Exchange, 20 Broad Street, New York, New York 10005. We have filed a registration statement on Form S-3 with the SEC covering the notes. For further information on Consumers and the notes, you should refer to our registration statement and its exhibits. This prospectus summarizes material provisions of contracts and other documents that we refer you to. Since the prospectus may not contain all the information that you may find important, you should review the full text of these documents. We have included copies of these documents as exhibits to our registration statement. FORWARD-LOOKING STATEMENTS This prospectus includes forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to risks, uncertainties, and assumptions about Consumers, including, among other things: - - our anticipated growth strategies; - - our intention to develop new services, energy sources and facilities; - - anticipated trends in our energy-related businesses; - - future expenditures for capital projects; and - - our ability to continue to control costs and maintain quality. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties, and assumptions, the forward-looking events discussed in this prospectus might not occur. You should rely only on the information contained or incorporated by reference in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus, as well as information we previously filed with the SEC and incorporated by reference, is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date. 2 4 PROSPECTUS SUMMARY This summary may not contain all the information that may be important to you. You should read the entire prospectus, including the financial data and related notes, before making an investment decision. The terms "Consumers", "our" and "we" as used in this prospectus refer to "Consumers Energy Company" and its subsidiaries and predecessors as a combined entity, except where it is made clear that such term means only the parent company. CONSUMERS ENERGY COMPANY We are a public utility that provides gas or electricity to almost six million of the nine and a half million residents in Michigan's Lower Peninsula. Our service areas include automotive, metal, chemical, food and wood products and a diversified group of other industries. At December 31, 1997, we provided service to 1.6 million electric customers and 1.5 million gas customers. Our consolidated operating revenues in 1997 were $3,769 million. 67% of our operating revenue was generated from our electric utility business, 32% from our gas utility business and 1% from our non-utility business. We generate, purchase, transmit and distribute electricity in 61 of the 68 counties in the Lower Peninsula. We generate electricity through 5 fossil-fueled plants, 1 nuclear plant, 1 pumped storage hydroelectric facility, 7 gas combustion turbine plants and 13 hydroelectric plants. Together, as of December 31, 1997, these facilities gave us the capacity to generate 6,255 megawatts ("MW") of electricity. In 1997, we also purchased 1,648 MW of net capacity from independent power producers. Our peak power demand during 1997 was 7,315 MW in July. We purchase, transport, store and distribute gas in 54 of the 68 counties in the Lower Peninsula. We distribute and transmit gas through 22,825 miles of distribution mains and 1,057 miles of transmission lines. We own and operate six compressor stations that have a total of 133,560 installed horsepower. We are subject to regulation by various federal, state and local agencies including the Michigan Public Service Commission, the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission. These agencies regulate various aspects of our business including the retail utility rates we charge, certain tariffs that affect our pricing, our accounting practices and our ability to acquire, construct, operate or dispose of certain gas and electric assets and facilities, including nuclear power plants. RECENT DEVELOPMENTS On October 2, 1998, we began to solicit bids to acquire our rights to 1240 MW of contract capacity and associated energy under our Power Purchase Agreement with Midland Cogeneration Venture Limited Partnership. We have reserved the right at any time, in our sole discretion, to terminate the auction process or to reject any or all bids. We will not consummate the transaction unless we believe important customer benefits will flow from the transaction. 3 5 THE OFFERING Notes Offered............................. Senior Secured Insured Quarterly Notes due October 1, 2028 Aggregate Principal Amount................ $150,000,000 Interest Rate............................. [ ]% Date of Maturity.......................... October 1, 2028. Interest Payment Date..................... January 1, April 1, July 1 and October 1 of each year, beginning January 1, 1999. Record Date for Interest Payments......... The 15th calendar day of the month preceding the month in which an Interest Payment Date occurs. Ranking................................... The notes will be secured by first mortgage bonds. On the date that we have retired all the first mortgage bonds, the notes will become unsecured and rank equally with all of our other unsecured senior indebtedness. Redemption of the Notes: Option of the Company..................... We will have the option to redeem the notes (in whole or in part), from time to time on or after October 1, 2003. If we redeem the notes, we will pay 100% of the principal amount plus the accrued interest through the redemption date. Redemption of the Notes: Option of a Deceased Noteholder's Representative.......................... We will also redeem the notes at the option of the representative of any deceased noteholder. We will pay 100% of the principal amount, plus accrued interest, subject to the following condition: the maximum principal amount we will redeem is $25,000 per deceased owner and $3,000,000 in the aggregate for all deceased owners during the initial period from the date of this prospectus until October 1, 1999 and during each twelve-month period thereafter. Insurance................................. The payment of the principal and interest on the notes will be insured by a financial guaranty insurance policy issued by Ambac Assurance Corporation that will be issued at the same time the notes are delivered. Form of Note.............................. One global security, held in the name of DTC. Settlement and Payment.................... Same-day immediately available funds.
4 6 Rating.................................... The notes will be rated "AAA" by Standard & Poor's Ratings Group and "AAA" by Moody's Investors Services, Inc. Ratio of Earnings to Fixed Charges........ Our ratio of earnings to fixed charges for the twelve months ended June 30, 1998 is 3.26. For each of the years ended December 31, 1993 through 1997 they are as follows: 2.46; 2.81; 2.82; 3.27; and 3.31. Use of Proceeds........................... We estimate that the net proceeds of the offering will be approximately $150 million before deducting expenses. We intend to use these proceeds from the offering of the notes to repay certain indebtedness outstanding under a credit facility, and for general corporate purposes, including paying down short-term debt.
5 7 CONSUMERS ENERGY COMPANY Consumers, incorporated in Michigan in 1968, is the successor to a corporation organized in Maine in 1910 that did business in Michigan from 1915 to 1968. Consumers was named Consumers Power Company from 1910 to the first quarter of 1997, when Consumers changed its name to Consumers Energy Company. Consumers is the principal subsidiary of CMS Energy Corporation, a Michigan corporation ("CMS Energy"). CMS Energy, through other subsidiaries, is also engaged in several domestic and international energy-related businesses including: oil and gas exploration and production; acquisition, development and operation of independent power production facilities; storage, transmission and processing of natural gas; energy marketing, services and trading; and international energy distribution. Consumers is a public utility serving gas or electricity to almost six million of Michigan's nine and a half million residents in all 68 counties in Michigan's Lower Peninsula. Consumers' service areas include automotive, metal, chemical, food and wood products and a diversified group of other industries. Consumers' electric operations include the generation, purchase, transmission and distribution of electricity in 61 of the 68 counties in the Lower Peninsula of Michigan. Consumers' gas operations include the purchase, transportation, storage and distribution of gas serving 54 of the 68 counties in the Lower Peninsula of Michigan. At December 31, 1997, Consumers provided service to 1.6 million electric customers and 1.5 million gas customers. Consumers' 1997 consolidated operating revenue of $3,769 million was derived 67% ($2,515 million) from its electric utility business, 32% ($1,204 million) from its gas utility business and 1% ($50 million) from its non-utility business. Consumers' electric generating system consists of five fossil-fueled plants, one nuclear plant, one pumped storage hydroelectric facility, seven gas combustion turbine plants and thirteen hydroelectric plants. Consumers-owned system generating capacity (including the pumped storage hydroelectric facility, of which Consumers has a 51% ownership) was 6,255 MW as of December 31, 1997. In 1997, Consumers purchased 1,648 MW of net capacity from independent power producers. Consumers' peak power demand for 1997 was 7,315 MW in July 1997. Consumers' gas distribution and transmission system consists of 22,825 miles of distribution mains and 1,057 miles of transmission lines throughout the Lower Peninsula of Michigan. Consumers owns and operates six compressor stations with a total of 133,560 installed horsepower. Consumers is subject to regulation by various federal, state and local agencies including the Michigan Public Service Commission ("MPSC"), the Federal Energy Regulatory Commission ("FERC") and the Nuclear Regulatory Commission ("NRC"). The MPSC regulates public utilities in Michigan with respect to retail utility rates, accounting, services, certain facilities and various other matters. The FERC has jurisdiction over certain aspects of Consumers' gas business relating, among other things, to the acquisition, operation and disposal of assets and facilities and to service provided and rates charged by Michigan Gas Storage Company, a subsidiary of Consumers. Under certain circumstances, the FERC also has the power to modify gas tariffs of interstate pipeline companies. Certain aspects of Consumers' gas business also are subject to regulation by the FERC including a blanket transportation tariff pursuant to which Consumers can transport gas in interstate commerce. Certain aspects of Consumers' electric operations also are subject to regulation by the FERC, 6 8 including compliance with the FERC's accounting rules and other regulations applicable to "public utilities" and "licensees," the transmission of electric energy in interstate commerce and the rates and charges for the sale of electric energy at wholesale, the consummation of certain mergers, the sale of certain facilities, the construction, operation and maintenance of hydroelectric projects and the issuance of securities, as provided by the Federal Power Act. Consumers is subject to NRC jurisdiction with respect to the design, construction, operation and decommissioning of its nuclear power plants. The foregoing information concerning Consumers does not purport to be comprehensive. For additional information concerning Consumers' business and affairs, including its capital requirements and external financing plans, pending legal and regulatory proceedings and descriptions of certain laws and regulations to which it is subject, prospective purchasers should refer to the Incorporated Documents. See Incorporation by Reference: Information we file with the SEC. RECENT DEVELOPMENTS On October 2, 1998, Consumers initiated a process for the solicitation of bids to acquire Consumers' rights to 1240 MW of contract capacity and associated energy ("PPA Rights") under its Power Purchase Agreement ("PPA") with Midland Cogeneration Venture Limited Partnership ("MCV"). The term of the PPA is for 35 years, which commenced on the date of commercial operation of the MCV's generating facilities in March 1990. The PPA Rights are being offered in one 1240 MW block or in two 620 MW pieces, for the period from the effective date in 1999 through either September 2007 or March 2025. Consumers has reserved the right at any time, in its sole discretion, to terminate the auction process or to reject any or all bids. Consumers will not consummate a transaction unless important customer benefits flow from that transaction. Any such transaction would be subject to the approval of Consumers' Board of Directors and obtaining satisfactory ratemaking and accounting treatment from the MPSC and the FERC with respect to the definitive agreements, including any necessary approval of the transfer of PPA Rights by FERC. In an order issued October 12, 1998, the MPSC delayed consideration of the auction until the definitive agreements with the winning bidder(s) are presented to the MPSC but stated that Consumers' approach offers legitimate way to utilize independent market forces to determine the above-market or stranded portion of Consumers' obligations under the PPA with the MCV. 7 9 SELECTED CONSOLIDATED FINANCIAL DATA The following is a summary of certain financial information of Consumers and its consolidated subsidiaries and is qualified in its entirety by, and should be read in conjunction with, the detailed information and Consumers consolidated financial statements and notes thereto included in the Incorporated Documents. See "Incorporation by Reference: Information We File with the SEC."
TWELVE MONTHS ENDED/AT YEAR ENDED/AT DECEMBER 31, JUNE 30, ---------------------------------------------- 1998 1997 1996 1995 1994 1993 ----------- ------ ------ ------ ------ ------ (UNAUDITED) (IN MILLIONS) Operating revenue........... $3,696 $3,769 $3,770 $3,511 $3,356 $3,243 Net income.................. 342 321 296 255 226 198 Net income available to common stockholder........ 305 284 260 227 202 187 Total assets................ 7,076 6,949 7,025 6,954 6,809 6,551 Long-term debt, excluding current maturities........ 2,159 1,369 1,900 1,922 1,953 1,839 Non-current portion of capital leases............ 77 74 100 104 108 106 Total preferred stock....... 238 238 356 356 356 163 Total trust preferred securities................ 220 220 100 -- -- --
RATIO OF EARNINGS TO FIXED CHARGES The ratios of earnings to fixed charges for the twelve months ended June 30, 1998 and for each of the years ended December 31, 1993 through 1997 are as follows:
TWELVE MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------------- 1998 1997 1996 1995 1994 1993 -------- ---- ---- ---- ---- ---- Ratio of earnings to fixed charges.................... 3.26 3.31 3.27 2.82 2.81 2.46
For the purpose of computing such ratio, earnings represent net income before income taxes, net interest charges and estimated interest portion of lease rentals. 8 10 CAPITALIZATION The following table sets forth the unaudited consolidated capitalization of Consumers Energy Company ("Consumers" or the "Company") at June 30, 1998 and as adjusted to reflect the sale of the % Senior Secured Insured Quarterly Notes due October 1, 2028 (the "Notes") offered hereby and the application of the estimated net proceeds from such sale. See "Use of Proceeds." The table should be read in conjunction with Consumers' consolidated financial statements and notes thereto included in the documents described under "Incorporation by Reference: Information We File with the SEC" (the "Incorporated Documents").
AT JUNE 30, 1998 ------------------ AS ACTUAL ADJUSTED ------ -------- (UNAUDITED) (IN MILLIONS) Common stockholder's equity................................. $1,748 $1,748 Preferred stock............................................. 238 238 Consumers-obligated mandatorily redeemable Trust Preferred Securities of: Consumers Power Company Financing I(a).................... 100 100 Consumers Energy Company Financing II(a).................. 120 120 Long-term debt (excluding current maturities)(b)............ 2,159 2,259 Non-current portion of capital leases....................... 77 77 ------ ------ Total capitalization........................................ 4,442 4,542 Current portion of long-term debt and capital leases(b)..... 94 94 ------ ------ Total capitalization and current portion of long-term debt and capital leases........................................ $4,536 $4,636 ====== ======
- ------------------------- (a) The primary asset of Consumers Power Company Financing I is $103 million principal amount of 8.36% subordinated deferrable interest notes due 2015 from the Consumers. The primary asset of Consumers Energy Company Financing II is $124 million principal amount of 8.20% subordinated deferrable interest notes due 2027 from Consumers. (b) Adjusted amount reflects issuance of $150 million of the Notes and the proceeds being used for general corporate purposes and for payment of long-term debt as described in "Use of Proceeds." USE OF PROCEEDS Fifty million dollars of the net proceeds from the sale of the Notes offered hereby will be used by Consumers to repay a portion of the indebtedness outstanding under the $225 million Term Loan Agreement, dated as of May 7, 1998, by and among Consumers, the banks named therein, the other lenders from time to time who may become parties thereto, and Barclays Bank PLC, as Administrative Agent (the "Credit Facility"). The term of the Credit Facility 9 11 is until May 7, 2003. The weighted average interest rate under the Credit Facility is 6.10%. The amounts borrowed under the Credit Facility were used to repay indebtedness outstanding under a $400 million term loan agreement which Consumers had entered into on November 1, 1994. The remaining approximately $100 million of net proceeds from the sale of the Notes will be used by Consumers for general corporate purposes, including paying down short-term debt. 10 12 DESCRIPTION OF THE NOTES GENERAL The Notes are to be issued pursuant to an Indenture, dated as of February 1, 1998, as supplemented (collectively, the "Indenture"), between Consumers and The Chase Manhattan Bank, as trustee (the "Trustee"). At October 1, 1998, four series of Senior Notes (as defined below) in an aggregate principal amount of $925 million were outstanding under the Indenture. The following summaries of certain provisions of the Indenture do not purport to be complete, make use of defined terms (some but not all of which are defined herein) and are subject to, and qualified in their entirety by, all of the provisions of the Indenture, which is incorporated herein by this reference and which is available upon request to the Trustee. Unless otherwise indicated, references to Section numbers under this caption are references to the Section numbers of the Indenture. In addition, capitalized terms used in this section and not otherwise defined herein shall have the meaning given to them in the Indenture. Until the Release Date (as defined below), all of the senior notes outstanding under the Indenture (the "Senior Notes") will be secured by one or more series of Consumers' First Mortgage Bonds (as defined below) issued and delivered by Consumers to the Trustee. See "-- Security; Release Date" below. ON THE RELEASE DATE, THE SENIOR NOTES (INCLUDING THE NOTES) WILL CEASE TO BE SECURED BY FIRST MORTGAGE BONDS, WILL BECOME UNSECURED GENERAL OBLIGATIONS OF CONSUMERS AND WILL RANK ON A PARITY WITH OTHER UNSECURED INDEBTEDNESS OF CONSUMERS. The Indenture provides that, in addition to the Notes offered hereby, additional Senior Notes may be issued thereunder, without limitation as to aggregate principal amount, provided that, prior to the Release Date, the principal amount of Senior Notes that may be issued and outstanding cannot exceed the principal amount of Senior Note Mortgage Bonds (as defined herein) then held by the Trustee. See "Description of First Mortgage Bonds -- Issuance of Additional First Mortgage Bonds." There is no requirement under the Indenture that future issues of debt securities of Consumers be issued exclusively under the Indenture, and Consumers will be free to employ other indentures (including, prior to the Release Date, the Mortgage (as defined below)) or documentation, containing provisions different from those included in the Indenture or applicable to one or more issues of Senior Notes (including the Notes), in connection with future issues of such other debt securities. INTEREST Each Note shall bear interest at % (the "Securities Rate") from the date of original issuance, payable quarterly in arrears on January 1, April 1, July 1 and October 1 of each year and on the date of maturity to the person in whose name such Note is registered at the close of business on the fifteenth calendar day of the month preceding the month in which the respective Interest Payment Date occurs. The initial Interest Payment Date is January 1, 1999. The amount of interest payable will be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the Notes is not a Business Day (as defined below), then payment of the interest payable on such date will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay). 11 13 SPECIAL INSURANCE PROVISIONS OF THE INDENTURE Notwithstanding any other provision of the Indenture, so long as Ambac Assurance Corporation (the "Insurer") is not in default under the financial guaranty insurance policy that insures the payment of the principal of and interest on the Notes when due (the "Policy"), the Insurer shall be entitled to control and direct the enforcement of all rights and remedies with respect to the Notes upon the occurrence and continuation of an Event of Default (as defined herein). The Trustee shall within one business day notify the Insurer of any Nonpayment (as defined in the Policy) and such notice shall specify the amount of the Nonpayment. The Trustee shall make a claim for Nonpayment under the Policy prior to exercising any other rights under the Indenture; provided, however, if the Insurer defaults under the Policy, the Trustee may assert any and all rights it has under the Indenture. OPTIONAL REDEMPTION The Company shall have the right to redeem the Notes, in whole or in part, at par without premium, from time to time, on or after October 1, 2003, upon not less than 30 nor more than 60 days' notice, at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest to the Redemption Date (the "Redemption Price"). If notice of redemption is given as aforesaid, the Notes so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price together with any accrued interest thereon, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Notes shall cease to bear interest. If any Note called for redemption shall not be paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at the Securities Rate. Subject to the foregoing and to applicable law (including, without limitation, United States federal securities laws), the Company or its affiliates may, at any time and from time to time, purchase outstanding Notes by tender, in the open market or by private agreement. LIMITED RIGHT OF REDEMPTION UPON DEATH OF BENEFICIAL OWNER Unless the Notes have been declared due and payable prior to their maturity by reason of an Event of Default, a person authorized to represent the estate of the deceased Beneficial Owner (as defined herein) or from a surviving joint tenant(s) or tenants(s) by the entirety (each a "Representative") of a deceased Beneficial Owner has the right to request redemption at par of all or part of such interest, expressed in integral multiples of $1,000 principal amount, in the Notes for payment prior to maturity, and the Company will redeem the same subject to the limitations that the Company will not be obligated to redeem during the period from the original issuance of the Notes through and including October 1, 1999 (the "Initial Period"), and during any twelve-month period which ends on and includes each October 1 thereafter (each such twelve-month period being hereinafter referred to as a "Subsequent Period") (i) on behalf of a deceased Beneficial Owner any interest in the Notes which exceeds an aggregate principal amount of $25,000 or (ii) interests in the Notes in an aggregate principal amount exceeding $3,000,000. A "Beneficial Owner" is a person who has the right to sell, transfer or otherwise dispose of an interest in a Note and the right to receive the proceeds therefrom, as well as the principal and interest payable to the holder thereof. A 12 14 request for redemption may be initiated by the Representative of a deceased Beneficial Owner at any time and in any principal amount in integral multiples of $1,000. Representatives of deceased Beneficial Owners must make arrangements with the Participant through whom such interest is owned in order that timely presentation of redemption requests can be made by the Participant to the Trustee. If the Company, although not obligated to do so, chooses to redeem interests of a deceased Beneficial Owner in the Notes in the Initial Period or in any Subsequent Period in excess of the $25,000 limitation, such redemption, to the extent that it exceeds the $25,000 limitation for any deceased Beneficial Owner, shall not be included in the computation of the $3,000,000 aggregate limitation for such Initial Period or such Subsequent Period, as the case may be, or for any succeeding Subsequent Period. Any Note (or portion thereof) tendered pursuant to a redemption request may be withdrawn by a written request by the Representative received by the Trustee at least 10 days prior to its repayment. Subject to the $25,000 and the $3,000,000 limitations, the Company will, after the death of any Beneficial Owner, redeem the interest of the Beneficial Owner in the Notes on the next Interest Payment Date following receipt by the Trustee of a redemption request received at least 20 days in advance of the next Interest Payment Date. If, during the Initial Period or any Subsequent Period, redemption requests exceed the aggregate principal amount of interests in Notes required to be redeemed, then such excess redemption requests will be applied to successive Subsequent Periods, regardless of the number of Subsequent Periods required to redeem such interests. All redemption requests will be redeemed in the order in which the Trustee receives the redemption request. To obtain repayment pursuant to a redemption request, the Representative must provide to the Participant (i) a written request for repayment signed by the Representative, and such signature must be guaranteed by a member firm of a registered national securities exchange or of the NASD or a commercial bank or trust company having an office or correspondent in the United States, (ii) appropriate evidence satisfactory to the Company and the Trustee that (A) the Representative has authority to act on behalf of the deceased Beneficial Owner, (B) the death of such Beneficial Owner has occurred and (C) the deceased was the owner of a beneficial interest in such Note at the time of death, (iii) if applicable, a properly executed assignment or endorsement, and (iv) if the beneficial interest in such Notes is held by a nominee of the deceased Beneficial Owner, a certificate satisfactory to the Trustee from such nominee attesting to the deceased's ownership of a beneficial interest in such Note. The Participant will provide these documents to the Trustee. All questions as to the eligibility or validity of any exercise of redemption on behalf of a deceased Beneficial Owner will be determined by the Company, in its sole discretion, which determinations will be final and binding on all parties. Interests in the Notes held in tenancy by the entirety, joint tenancy or by tenants in common will be deemed to be held by a single Beneficial Owner, and the death of a tenant in common, tenant by the entirety or joint tenant will be deemed the death of a Beneficial Owner. The death of a person who, during such person's lifetime, was entitled to substantially all of the rights of a Beneficial Owner of an interest in the Notes will be deemed the death of the Beneficial Owner, regardless of the recordation of such interest on the records of the Participant, if such rights can be established to the satisfaction of the Participant and the Company. In the case of a redemption request which is presented on behalf of a deceased Beneficial Owner and which has not been fulfilled at the time the Company gives notice of its election to redeem the Notes, the interests in the Notes which are the subject of such redemption request 13 15 shall not be eligible for redemption pursuant to the Company's option to redeem but shall remain subject to redemption pursuant to such redemption request. Because of the limitations of the Company's requirement to redeem, no Beneficial Owner can have any assurance that its interest in the Notes will be paid prior to maturity. REGISTRATION, TRANSFER AND EXCHANGE The Notes will initially be issued in the form of one or more Global Notes, in registered form, without coupons, in denominations of $1,000 or an integral multiple thereof as described under "Book-Entry Only Issuance -- The Depository Trust Company." The Global Notes will be registered in the name of a nominee of DTC. Except as set forth herein under "Book-Entry Only Issuance -- The Depository Trust Company," owners of beneficial interests in a Global Note will not be entitled to have Notes registered in their names, will not receive or be entitled to receive physical delivery of any such Note and will not be considered the registered holder thereof under the Indenture. Senior Notes of any series will be exchangeable for other Senior Notes of the same series of any authorized denominations and of a like aggregate principal amount and tenor. (Section 2.06) Senior Notes may be presented for exchange or registration of transfer (duly endorsed or accompanied by a duly executed written instrument of transfer), at the office of the Trustee maintained in the Borough of Manhattan, The City of New York, for such purpose with respect to any series of Senior Notes, without service charge but upon payment of any taxes and other governmental charges as described in the Indenture. Such transfer or exchange will be effected upon Consumers and the Trustee being satisfied with the documents of title and indemnity of the person making the request. (Sections 2.06, 2.07 and 6.02) In the event of any redemption of Senior Notes of any series, the Trustee will not be required to exchange or register a transfer of any Senior Notes of such series selected, called or being called for redemption except, in the case of any Senior Note to be redeemed in part, the portion thereof not to be so redeemed. (Section 2.06) PAYMENT AND PAYING AGENTS Payments of principal of, and interest and/or premium, if any, on Notes issued in the form of Global Notes shall be made by wire transfer of immediately available funds to the account specified by the registered holder of such Global Note, which shall initially be a nominee of DTC. Interest on Notes (other than interest at maturity) that are in the form of certificated notes ("Certificated Notes") will be paid by check mailed to the person entitled thereto at such person's address as it appears in the register for the Notes maintained by the Trustee; however, a holder of Senior Notes of one or more series under the Indenture in the aggregate principal amount of $10 million or more having the same interest payment dates will be entitled to receive payments of interest on such series by wire transfer of immediately available funds to a bank within the continental United States if appropriate wire transfer instructions have been received by the Trustee on or prior to the applicable Regular Record Date. The principal of, and interest at maturity and premium, if any, on Notes in the form of Certificated Notes will be payable in immediately available funds at the office of the Trustee or at the authorized office of any paying agent. (Section 2.12) 14 16 If and to the extent that Consumers fails to make timely payment of interest on any Note, that interest shall cease to be payable to the persons who were the holders of such Notes at the applicable Regular Record Date, and shall instead become payable to the holder of such Note at the close of business on a special record date established by the Trustee, which special record date shall be not more than 15 or fewer than 10 days prior to the date of the proposed payment. (Section 2.11) All monies paid by Consumers to the Trustee for the payment of principal of, interest and/or premium, if any, on any Note which remain unclaimed at the end of two years after such principal, interest or premium shall have become due and payable will be repaid to Consumers, subject to applicable abandoned property laws, and the holder of such Note will thereafter look only to Consumers for payment thereof. (Section 5.04) In any case where the date of maturity of the principal of or any premium or interest on any Note or the date fixed for redemption of any Note is not a Business Day, then payment of such principal or any premium or interest need not be made on such date but may be made on the next succeeding Business Day with the same force and effect as if made on the date of maturity or the date fixed for redemption, and, in the case of timely payment thereof, no interest shall accrue for the period from and after such interest payment date or the date on which the principal or premium of the Note is stated to be payable to such next succeeding Business Day. (Section 15.06) "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banks or trust companies in the Borough of Manhattan, The City of New York, or in any other city where the corporate trust office of the Trustee may be located, are obligated or authorized by law or executive order to close. SECURITY; RELEASE DATE Until the Release Date, the Senior Notes (including the Notes) will be secured by one or more series of Consumers' First Mortgage Bonds ("Senior Note Mortgage Bonds") issued and delivered by Consumers to the Trustee (see "Description of First Mortgage Bonds"). Upon the issuance of a series of Senior Notes (including the Notes) prior to the Release Date, Consumers will simultaneously issue and deliver to the Trustee, as security for all Senior Notes, a series of Senior Note Mortgage Bonds that will have the same stated maturity date and corresponding redemption provisions, and will be in the same aggregate principal amount as the series of the Senior Notes (including the Notes) being issued. Any series of Senior Note Mortgage Bonds may, but need not, bear interest. The series of Senior Note Mortgage Bonds to be issued to the Trustee concurrently with the issuance of the Notes will bear interest at the same rate as is borne by the Notes. Any payment by Consumers to the Trustee of principal of, interest and/or premium, if any, on a series of Senior Note Mortgage Bonds will be applied by the Trustee to satisfy Consumers' obligations with respect to principal of, interest and/or premium, if any, on the Senior Notes. (Sections 2.12(c), 4.10 and 4.11) THE RELEASE DATE WILL BE THE DATE THAT ALL FIRST MORTGAGE BONDS ("FIRST MORTGAGE BONDS") OF CONSUMERS ISSUED AND OUTSTANDING UNDER THE MORTGAGE, OTHER THAN SENIOR NOTE MORTGAGE BONDS, HAVE BEEN RETIRED (AT, BEFORE OR AFTER THE MATURITY THEREOF) THROUGH PAYMENT, REDEMPTION OR OTHERWISE. ON THE RELEASE DATE, THE TRUSTEE WILL DELIVER TO CONSUMERS FOR CANCELLATION ALL SENIOR NOTE MORTGAGE BONDS AND NOT LATER THAN 30 DAYS THEREAFTER, WILL PROVIDE NOTICE TO ALL HOLDERS OF SENIOR NOTES (INCLUDING THE NOTES) OF THE OCCURRENCE OF THE RELEASE DATE. AS A RESULT, ON THE RELEASE DATE, THE SENIOR NOTE MORTGAGE BONDS SHALL CEASE TO 15 17 SECURE THE SENIOR NOTES (INCLUDING THE NOTES), AND THE SENIOR NOTES (INCLUDING THE NOTES) WILL BECOME UNSECURED GENERAL OBLIGATIONS OF CONSUMERS. (Section 4.11.) Each series of Senior Note Mortgage Bonds will be a series of First Mortgage Bonds of Consumers, all of which are secured by a lien on certain property owned by Consumers. See "Description of First Mortgage Bonds -- Priority and Security." Upon the payment or cancellation of any outstanding Senior Notes, the Trustee shall surrender to the Company for cancellation an equal principal amount of the related series of Senior Note Mortgage Bonds. Consumers shall not permit, at any time prior to the Release Date, the aggregate principal amount of Senior Note Mortgage Bonds held by the Trustee to be less than the aggregate principal amount of Senior Notes outstanding. (Section 4.08.) Following the Release Date, Consumers will cause the Mortgage to be discharged and will not issue any additional First Mortgage Bonds under the Mortgage. (Section 4.11.) While Consumers will be precluded after the Release Date from issuing additional First Mortgage Bonds, it will not be precluded under the Indenture or Notes from issuing or assuming other secured debt, or incurring liens on its property, except to the extent indicated below under "-- Certain Covenants of Consumers -- Limitation on Liens." EVENTS OF DEFAULT The following constitute events of default under the Indenture: (a) default in the payment of principal of and premium, if any, on any Senior Note when due and payable; (b) default in the payment of interest on any Senior Note when due which continues for 60 days; (c) default in the performance or breach of any other covenant or agreement of Consumers in the Senior Notes or in the Indenture and the continuation thereof for 90 days after written notice thereof to Consumers by the Trustee or the holders of at least 33% in aggregate principal amount of the outstanding Senior Notes; (d) prior to the Release Date, the occurrence of a default as defined in the Mortgage; provided, however, that the waiver or cure of such default and the rescission and annulment of the consequences thereof under the Mortgage shall constitute a waiver of the corresponding event of default under the Indenture and a rescission and annulment of the consequences thereof under the Indenture; and (e) certain events of bankruptcy, insolvency, reorganization, assignment or receivership of Consumers. (Section 8.01) If an event of default occurs and is continuing, either the Trustee or the holders of a majority in aggregate principal amount of the outstanding Senior Notes may declare the principal amount of all Senior Notes to be due and payable immediately. Upon such acceleration of the Senior Notes, the Senior Note Mortgage Bonds shall be immediately redeemed upon demand of the Trustee (and surrender thereof to the Mortgage Trustee) at a redemption price of 100% of the principal amount thereof, together with interest to the redemption date. See "Description of First Mortgage Bonds -- Redemption Provisions." At any time after an acceleration of the Senior Notes has been declared but before a judgment or decree for the payment of the principal amount of the Senior Notes has been obtained (and provided the acceleration of all First Mortgage Bonds has not occurred), if Consumers pays or deposits with the Trustee a sum sufficient to pay all matured installments of interest and the principal and any premium which has become due otherwise than by acceleration and all defaults shall have been cured or waived, then such payment or deposit will cause an automatic rescission and annulment of the acceleration of the Senior Notes. (Section 8.01) 16 18 The Indenture provides that the Trustee generally will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the holders of Senior Notes unless such holders have offered to the Trustee reasonable security or indemnity. (Section 9.02.) Subject to such provisions for indemnity and certain other limitations contained in the Indenture, the holders of a majority in principal amount of the outstanding Senior Notes generally will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or of exercising any trust or power conferred on the Trustee. The holders of a majority in principal amount of the outstanding Senior Notes generally will have the right to waive any past default or event of default (other than a payment default) on behalf of all holders of Senior Notes. (Section 8.07.) The Indenture provides that no holder of Senior Notes may institute any action against Consumers under the Indenture unless such holder previously shall have given to the Trustee written notice of default and continuance thereof and unless the holders of not less than a majority in aggregate principal amount of Senior Notes then outstanding affected by such event of default shall have requested the Trustee to institute such action and shall have offered the Trustee reasonable indemnity, and the Trustee shall not have instituted such action within 60 days of such request. Furthermore, no holder of Senior Notes will be entitled to institute any such action if and to the extent that such action would disturb or prejudice the rights of other holders of Senior Notes. Notwithstanding that the right of a holder of Senior Notes to institute a proceeding with respect to the Indenture is subject to certain conditions precedent, each holder of a Senior Note has the right, which is absolute and unconditional, to receive payment of the principal of, and interest and/or premium, if any, on such Senior Note when due and to institute suit for the enforcement of any such payment, and such rights may not be impaired without the consent of such holder of Senior Notes. (Section 8.04.) The Indenture provides that the Trustee, within 90 days after the occurrence of a default with respect to the Senior Notes, is required to give the holders of the Senior Notes notice of any such default known to the Trustee, unless cured or waived, but, except in the case of default in the payment of principal of, and interest and/or premium, if any, on any Senior Notes, the Trustee may withhold such notice if it determines in good faith that it is in the interest of such holders to do so. (Section 8.08.) Consumers is required to deliver to the Trustee each year a certificate as to whether or not, to the knowledge of the officers signing such certificate, Consumers is in compliance with the conditions and covenants under the Indenture. (Section 6.06) MODIFICATION Modification and amendment of the Indenture may be effected by Consumers and the Trustee with the consent of the holders of a majority in principal amount of the outstanding Senior Notes affected thereby, provided that no such modification or amendment may, without the consent of the holder of each outstanding Senior Note affected thereby, (a) change the maturity date of any Senior Note; (b) reduce the rate (or change the method of calculation thereof) or extend the time of payment of interest on any Senior Note; (c) reduce the principal amount of, or premium payable on, any Senior Note; (d) change the coin or currency of any payment of principal of, and interest and/or premium on any Senior Note; (e) change the date on which any Senior Note may be redeemed or repaid at the option of the holder thereof or adversely affect the rights of a holder to institute suit for the enforcement of any payment on or with respect to any Senior Note; (f) impair the interest of the Trustee in the Senior Note Mortgage Bonds held by it or, prior to the Release Date, 17 19 reduce the principal amount of any series of Senior Note Mortgage Bonds securing the Senior Notes to an amount less than the principal amount of the related series of Senior Notes or alter the payment provisions of such Senior Note Mortgage Bonds in a manner adverse to the holders of the Senior Notes; or (g) modify the foregoing requirements or reduce the percentage of outstanding Senior Notes necessary to modify or amend the Indenture or to waive any past default to less than a majority. (Section 13.02.) Modification and amendment of the Indenture may be effected by Consumers and the Trustee without the consent of the holders in certain cases, including (a) to add to the covenants of Consumers for the benefit of the holders or to surrender a right conferred on Consumers in the Indenture; (b) to add further security for the Senior Notes; (c) to add provisions enabling Consumers to be released with respect to one or more series of outstanding Senior Notes from its obligations under the covenants described under "-- Certain Covenants of Consumers -- Limitation on Liens" and "-- Limitation on Sale and Lease-Back Transactions" and "-- Consolidation, Merger and Sale or Disposition of Assets" below, upon satisfaction of conditions with respect to such series of Senior Notes which are the same as those described below under "-- Defeasance and Discharge" (except that the opinion of tax counsel referred to therein need not be based upon an External Tax Pronouncement (as defined in the Indenture)); (d) to supply omissions, cure ambiguities or correct defects which actions, in each case, are not prejudicial to the interests of the holders in any material respect; or (e) to make any other change that is not prejudicial to the holders of Senior Notes in any material respect. (Section 13.01) A supplemental indenture which changes or eliminates any covenant or other provision of the Indenture (or any supplemental indenture) which has expressly been included solely for the benefit of one or more series of Senior Notes, or which modifies the rights of the holders of Senior Notes of such series with respect to such covenant or provision, will be deemed not to affect the rights under the Indenture of the holders of Senior Notes of any other series. (Section 13.02) DEFEASANCE AND DISCHARGE The Indenture provides that Consumers will be discharged from any and all obligations in respect to the Senior Notes and the Indenture (except for certain obligations such as obligations to register the transfer or exchange of Senior Notes, replace stolen, lost or mutilated Senior Notes and maintain paying agencies) if, among other things, Consumers irrevocably deposits with the Trustee, in trust for the benefit of holders of Senior Notes, money or certain United States government obligations, or any combination thereof, which through the payment of interest thereon and principal thereof in accordance with their terms will provide money in an amount sufficient, without reinvestment, to make all payments of principal of, and any premium and interest on, the Senior Notes on the dates such payments are due in accordance with the terms of the Indenture and the Senior Notes; provided that, unless all of the Senior Notes are to be due within 90 days of such deposit by redemption or otherwise, Consumers shall also have delivered to the Trustee an opinion of counsel to the effect that the holders of the Senior Notes will not recognize income, gain or loss for federal income tax purposes as a result of such defeasance or discharge of the Indenture. Thereafter, the holders of Senior Notes must look only to such deposit for payment of the principal of, and interest and any premium on, the Senior Notes. (Section 5.01) 18 20 CONSOLIDATION, MERGER AND SALE OR DISPOSITION OF ASSETS Consumers will not consolidate with or merge into any other corporation or sell or otherwise dispose of its properties as or substantially as an entirety unless (i) the successor or transferee corporation shall be a corporation organized and existing under the laws of the United States of America, any State thereof, or the District of Columbia, (ii) the successor or transferee corporation assumes by supplemental indenture the due and punctual payment of the principal of and premium and interest on all the Senior Notes and the performance of every covenant of the Indenture to be performed or observed by Consumers and (iii) if prior to the Release Date, the successor or transferee corporation assumes Consumers' obligations under the Mortgage (as defined below) with respect to the Senior Note Mortgage Bonds. (Section 12.01.) Upon any such consolidation, merger, sale, transfer or other disposition of the properties of Consumers substantially as an entirety, the successor corporation formed by such consolidation or into which Consumers is merged or to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, Consumers under the Indenture with the same effect as if such successor corporation had been named as Consumers therein and Consumers will be released from all obligations under the Indenture. (Section 12.02.) For purposes of the Indenture, the conveyance or other transfer by Consumers of (a) all or any portion of its facilities for the generation of electric energy, (b) all of its facilities for the transmission of electric energy or (c) all of its facilities for the distribution of natural gas, in each case considered alone or in any combination with properties described in any other clause, shall in no event be deemed to constitute a conveyance or other transfer of all the properties of Consumers, as or substantially as an entirety. (Section 12.01) CERTAIN COVENANTS OF CONSUMERS Limitation on Liens The Indenture provides that, so long as any such Senior Notes are outstanding, Consumers may not issue, assume, guarantee or permit to exist after the Release Date any Debt (as defined below) that is secured by any mortgage, security interest, pledge or lien ("Lien") of or upon any Operating Property of Consumers, whether owned at the date of the Indenture or thereafter acquired, without in any such case effectively securing the Senior Notes (together with, if Consumers shall so determine, any other indebtedness of Consumers ranking equally with the Senior Notes) equally and ratably with such Debt (but only so long as such Debt is so secured). The foregoing restriction will not apply to: (1) Liens on any Operating Property existing at the time of its acquisition (which Liens may also extend to subsequent repairs, alterations and improvements to such Operating Property); (2) Liens on Operating Property of a corporation existing at the time such corporation is merged into or consolidated with, or such corporation disposes of its properties (or those of a division) as or substantially as an entirety to, Consumers; (3) Liens on Operating Property to secure the cost of acquisition, construction, development or substantial repair, alteration or improvement of property or to secure indebtedness incurred to provide funds for any such purpose or for reimbursement of funds previously expended for any such purpose, provided such Liens are created or assumed contemporaneously with, or within 18 months after, such acquisition or the completion of substantial repair or alteration, construction, development or substantial improvement; (4) Liens in favor of any State or any department, agency or instrumentality or political 19 21 subdivision of any State, or for the benefit of holders of securities issued by any such entity (or providers of credit enhancement with respect to such securities), to secure any Debt (including, without limitation, obligations of Consumers with respect to industrial development, pollution control or similar revenue bonds) incurred for the purpose of financing all or any part of the purchase price or the cost of substantially repairing or altering, constructing, developing or substantially improving Operating Property of Consumers; or (5) any extension, renewal or replacement (or successive extensions, renewals or replacements), in whole or in part, of any Lien referred to in clauses (1) through (4), provided, however, that the principal amount of Debt secured thereby and not otherwise authorized by said clauses (1) to (4), inclusive, shall not exceed the principal amount of Debt, plus any premium or fee payable in connection with any such extension, renewal or replacement, so secured at the time of such extension, renewal or replacement. However, the foregoing restriction will not apply to the issuance, assumption or guarantee by Consumers of Debt secured by a Lien which would otherwise be subject to the foregoing restriction up to an aggregate amount which, together with all other secured Debt of Consumers (not including secured Debt permitted under any of the foregoing exceptions) and the Value (as defined below) of Sale and Lease-Back Transactions (as defined below) existing at such time (other than Sale and Lease-Back Transactions the proceeds of which have been applied to the retirement of certain indebtedness, Sale and Lease-Back Transactions in which the property involved would have been permitted to be subjected to a Lien under any of the foregoing exceptions in clauses (1) to (5) and Sale and Lease-Back Transactions that are permitted by the first sentence of "Limitation on Sale and Lease-Back Transactions" below), does not exceed the greater of 15% of Net Tangible Assets or 15% of Capitalization. (Section 6.07). Limitation on Sale and Lease-Back Transactions The Indenture provides that so long as such Senior Notes are outstanding, Consumers may not enter into or permit to exist after the Release Date any Sale and Lease-Back Transaction with respect to any Operating Property (except for transactions involving leases for a term, including renewals, of not more than 48 months), if the purchaser's commitment is obtained more than 18 months after the later of the completion of the acquisition, construction or development of such Operating Property or the placing in operation of such Operating Property or of such Operating Property as constructed or developed or substantially repaired, altered or improved. This restriction will not apply if (a) Consumers would be entitled pursuant to any of the provisions described in clauses (1) to (5) of the first sentence of the second paragraph under "Limitation on Liens" above to issue, assume, guarantee or permit to exist Debt secured by a Lien on such Operating Property without equally and ratably securing the Senior Notes, (b) after giving effect to such Sale and Lease-Back Transaction, Consumers could incur pursuant to the provisions described in the second sentence of the second paragraph under "Limitation on Liens," at least $1.00 of additional Debt secured by Liens (other than Liens permitted by clause (a)), or (c) Consumers applies within 180 days an amount equal to, in the case of a sale or transfer for cash, the net proceeds (not exceeding the net book value), and, otherwise, an amount equal to the fair value (as determined by its Board of Directors) of the Operating Property so leased to the retirement of Senior Notes or other Debt of Consumers ranking equally with, the Senior Notes, subject to reduction for Senior Notes and such Debt retired during such 180-day period otherwise than pursuant to mandatory sinking fund or prepayment provisions and payments at stated maturity. (Section 6.08). 20 22 Certain Definitions "Capitalization" means the total of all the following items appearing on, or included in, the consolidated balance sheet of Consumers: (i) liabilities for indebtedness maturing more than twelve (12) months from the date of determination; and (ii) common stock, preferred stock, Hybrid Preferred Securities (as defined in the Indenture), premium on capital stock, capital surplus, capital in excess of par value, and retained earnings (however the foregoing may be designated), less, to the extent not otherwise deducted, the cost of shares of capital stock of Consumers held in its treasury. "Debt" means any outstanding debt for money borrowed evidenced by notes, debentures, bonds or other securities, or guarantees of any thereof. "Net Tangible Assets" means the amount shown as total assets on the consolidated balance sheet of Consumers, less the following: (i) intangible assets including, but without limitation, such items as goodwill, trademarks, trade names, patents, and unamortized debt discount and expense and (ii) appropriate adjustments, if any, on account of minority interests. Net Tangible Assets shall be determined in accordance with generally accepted accounting principles ("GAAP") and practices applicable to the type of business in which Consumers is engaged and that are approved by the independent accountants regularly retained by Consumers, and may be determined as of a date not more than sixty (60) days prior to the happening of the event for which such determination is being made. "Operating Property" means (i) any interest in real property owned by Consumers and (ii) any asset owned by Consumers that is depreciable in accordance with GAAP, excluding, in either case, any interest of Consumers as lessee under any lease (except for a lease that results from a Sale and Lease-Back Transaction) which has been or would be capitalized on the books of the lessee in accordance with GAAP. "Sale and Lease-Back Transaction" means any arrangement with any person providing for the leasing to Consumers of any Operating Property (except for leases for a term, including any renewals thereof, of not more than 48 months), which Operating Property has been or is to be sold or transferred by Consumers to such person; provided, however, Sale and Lease-Back Transaction does not include any arrangement first entered into prior to the date of the Indenture. "Value" means, with respect to a Sale and Lease-Back Transaction, as of any particular time, the amount equal to the greater of (i) the net proceeds to Consumers from the sale or transfer of the property leased pursuant to such Sale and Lease-Back Transaction or (ii) the net book value of such property, as determined in accordance with GAAP by Consumers at the time of entering into such Sale and Lease-Back Transaction, in either case multiplied by a fraction, the numerator of which shall be equal to the number of full years of the term of the lease that is part of such Sale and Lease-Back Transaction remaining at the time of determination and the denominator of which shall be equal to the number of full years of such term, without regard, in any case, to any renewal or extension options contained in such lease. VOTING OF SENIOR NOTE MORTGAGE BONDS HELD BY TRUSTEE The Trustee, as the holder of Senior Note Mortgage Bonds, will attend any meeting of bondholders under the Mortgage, or, at its option, will deliver its proxy in connection therewith as it relates to matters with respect to which it is entitled to vote or consent. So long 21 23 as no Event of Default as defined in the Indenture has occurred and is continuing, the Trustee will vote or consent: (a) in favor of amendments or modifications of the Mortgage of substantially the same tenor and effect as follows: (i) to eliminate the maintenance and replacement fund and to recover amounts of net property additions previously applied in satisfaction thereof so that the same would become available as a basis for the issuance of First Mortgage Bonds; (ii) to eliminate sinking funds or improvement funds ("S&I Funds") and to recover amounts of net property additions previously applied in satisfaction thereof so that the same would become available as a basis for the issuance of First Mortgage Bonds; (iii) to eliminate the restriction on the payment of dividends on common stock and to eliminate the requirements in connection with the periodic examination of the mortgaged and pledged property by an independent engineer; (iv) to permit First Mortgage Bonds to be issued under the Mortgage in a principal amount equal to 70% of unfunded net property additions instead of 60%, to permit S&I Fund requirements (to the extent not otherwise eliminated) under the Mortgage to be satisfied by the application of net property additions in an amount equal to 70% of such additions instead of 60%, and to permit the acquisition of property subject to certain liens prior to the lien of the Mortgage if the principal amount of indebtedness secured by such liens does not exceed 70% of the cost of such property instead of 60%; (v) to eliminate requirements that Consumers deliver a net earnings certificate for any purpose under the Mortgage; (vi) to raise the minimum dollar amount of insurance proceeds on account of loss or damage that must be payable to the Trustee from $50,000 to an amount equal to the greater of (A) $5,000,000 and (B) three per centum (3%) of the aggregate principal amount of First Mortgage Bonds outstanding; (vii) to increase the amount of the fair value of property which may be sold or disposed of free from the lien of the Mortgage, without any release or consent by the Trustee, from not more than $25,000 in any calendar year to not more than an amount equal to the greater of (A) $5,000,000 and (B) three per centum (3%) of the aggregate principal amount of First Mortgage Bonds then outstanding; (viii) to permit certain mortgaged and pledged property to be released from the lien of the Mortgage if, in addition to certain other conditions, the Trustee receives purchase money obligations of not more than 70% of the fair value of such property instead of 60% and to eliminate the further requirement for the release of such property that the aggregate principal amount of purchase money obligations held by the Trustee not exceed 20% of the principal amount of First Mortgage Bonds outstanding; (ix) to eliminate the restriction prohibiting the Mortgage Trustee from applying cash held by it pursuant to the Mortgage to the purchase of bonds not otherwise 22 24 redeemable at a price exceeding 110% of the principal of such bonds, plus accrued interest; and (b) with respect to any other amendments or modifications of the Mortgage, as follows: the Trustee shall vote all Senior Note Mortgage Bonds then held by it, or consent with respect thereto, proportionately with the vote or consent of the holders of all other first mortgage bonds outstanding under the Mortgage, the holders of which are eligible to vote or consent; provided, however, that the Trustee shall not so vote in favor of, or so consent to, any amendment or modification of the Mortgage which, if it were an amendment or modification of the Indenture, would require the consent of Holders of Senior Notes as described under "Modification," without the prior consent of Holders of Senior Notes which would be required for such an amendment or modification of the Indenture. (Section 4.03) RESIGNATION OR REMOVAL OF TRUSTEE The Trustee may resign at any time upon written notice to Consumers specifying the day upon which the resignation is to take effect and such resignation will take effect immediately upon the later of the appointment of a successor Trustee and such specified day. (Section 9.10) The Trustee may be removed at any time by an instrument or concurrent instruments in writing filed with the Trustee and signed by the holders, or their attorneys-in-fact, of at least a majority in principal amount of the then outstanding Senior Notes. In addition, so long as no Event of Default or event which, with the giving of notice or lapse of time or both, would become an Event of Default has occurred and is continuing, Consumers may remove the Trustee upon notice to the holder of each Senior Note outstanding and the Trustee, and appointment of a successor Trustee. (Section 9.10) CONCERNING THE TRUSTEE The Chase Manhattan Bank is both the Trustee under the Indenture and the Mortgage Trustee under the Mortgage. Consumers and its affiliates maintain depository and other normal banking relationships with The Chase Manhattan Bank. The Chase Manhattan Bank is also a lender to Consumers and its affiliates. The Indenture provides that Consumers' obligations to compensate the Trustee and reimburse the Trustee for expenses, disbursements and advances will constitute indebtedness which will be secured by a lien generally prior to that of the Senior Notes upon all property and funds held or collected by the Trustee as such. GOVERNING LAW The Indenture and each Senior Note will be governed by Michigan Law. BOOK-ENTRY ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY DTC will act as the initial securities depositary for the Notes. The Notes will be issued only as fully registered securities registered in the name of Cede & Co., DTC's nominee. One or more fully registered global Notes certificates will be issued, representing in the aggregate the total principal amount of Notes, and will be deposited with DTC (collectively, the "Global Notes"). 23 25 DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the 1934 Act. DTC holds securities that its participants ("Participants") deposit with DTC. DTC also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participant's accounts, thereby eliminating the need for physical movement of securities certificates. Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations ("Direct Participants"). DTC is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National Association of Securities Dealers, Inc. Access to the DTC system is also available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly ("Indirect Participants"). The rules applicable to DTC and its Participants are on file with the SEC. Purchases of Notes within the DTC system must be made by or through Direct Participants, which will receive a credit for the Notes on DTC's records. The ownership interest of each actual purchaser of Notes (such purchaser, or the person to whom such purchaser conveys his or her ownership interest, a "Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from DTC of their purchases, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owners purchased Notes. Transfers of ownership interests in the Notes are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Notes, except in the event that use of the book-entry system for the Notes is discontinued, the Company determines that Beneficial Owners may exchange their ownership interests for such certificates or there shall have occurred an Event of Default. DTC has no knowledge of the actual Beneficial Owners of the Notes. DTC's records reflect only the identity of the Direct Participants to whose accounts such Notes are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices shall be sent to DTC. If less than all of the Notes are being redeemed, DTC will reduce the amount of the interest of each Direct Participant in the Notes in accordance with its procedures. Although voting with respect to the Notes is limited, in those cases where a vote is required, neither DTC nor Cede & Co. will itself consent or vote with respect to Notes. Under its usual procedures, DTC would mail an Omnibus Proxy to the Company as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to 24 26 those Direct Participants to whose accounts the Notes are credited on the record date (identified in a listing attached to the Omnibus Proxy). Payments on the Notes will be made to DTC. DTC's practice is to credit Direct Participants' accounts on the Interest Payment Date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payments on such Interest Payment Date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the account of customers registered in "street name," and will be the responsibility of such Participant and not of DTC or the Company, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment to DTC is the responsibility of the Company, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants. Except as provided herein, a Beneficial Owner of an interest in a Global Note will not be entitled to receive physical delivery of Notes. Accordingly, each Beneficial Owner must rely on the procedures of DTC to exercise any rights under the Notes. The laws of some jurisdictions require that certain purchasers of securities take physical delivery of securities in definitive form. Such laws may impair the ability to transfer beneficial interests in a Global Note. DTC may discontinue providing its services as security depositary with respect to the Notes at any time by giving reasonable notice to the Company. Under such circumstances, in the event that a successor securities depositary is not obtained, Notes certificates will be printed and delivered to the holders of record. Additionally, the Company may decide to discontinue use of the system of book-entry transfers through DTC (or a successor depositary) with respect to the Notes. In that event, certificates for the Notes will be printed and delivered to the holders of record. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Company believes to be reliable, but the Company takes no responsibility for the accuracy thereof. The Company has no responsibility for the performance by DTC or its Participants of their respective obligations as described herein or under the rules and procedures governing their respective operations. 25 27 DESCRIPTION OF FIRST MORTGAGE BONDS GENERAL The Senior Note Mortgage Bonds are to be issued under an Indenture dated as of September 1, 1945, between Consumers and The Chase Manhattan Bank, as trustee (the "Mortgage Trustee"), as amended and supplemented by various supplemental indentures and as supplemented by a Supplemental Indenture dated as of October , 1998 providing for the series of Senior Note Mortgage Bonds relating to the Notes (the "Mortgage"). In connection with the change of the state of incorporation from Maine to Michigan in 1968, Consumers succeeded to and was substituted for the Maine corporation under the Mortgage. At September 30, 1998, four series of First Mortgage Bonds in an aggregate principal amount of approximately $674 million were outstanding under the Mortgage, excluding four series of First Mortgage Bonds in an aggregate principal amount of $925 million to secure outstanding Senior Notes and one series of First Mortgage Bonds in an aggregate principal amount of $30 million to secure outstanding pollution control revenue bonds. The statements herein concerning the Senior Note Mortgage Bonds and the Mortgage are an outline and do not purport to be complete and are subject to, and qualified in their entirety by, all of the provisions of the Mortgage, which is incorporated herein by this reference. They make use of defined terms and are qualified in their entirety by express reference to the cited sections and articles of the Mortgage a copy of which will be available upon request to the Trustee. The Senior Note Mortgage Bonds relating to the Notes ("Senior IQ Mortgage Bonds") will be issued as security for Consumers' obligations under the Indenture and will be immediately delivered to and registered in the name of the Trustee. The Senior Note Mortgage Bonds will be issued as security for the Notes and will secure the Notes until the Release Date. For purposes of the Indenture, the Senior IQ Note Mortgage Bonds shall be deemed to be the "related series" of Senior Note Mortgage Bonds in respect of the Notes. The Indenture provides that the Trustee shall not transfer any Senior Note Mortgage Bonds except to a successor trustee, to Consumers (as provided in the Indenture) or in compliance with a court order in connection with a bankruptcy or reorganization proceeding of Consumers. The Trustee shall generally vote the Senior Note Mortgage Bonds proportionately with what it believes to be the vote of all other First Mortgage Bonds then outstanding except in connection with certain amendments or modifications of the Mortgage, as described under "Description of the Notes -- Voting of Senior Note Mortgage Bonds Held by Trustee." The Senior IQ Mortgage Bonds will correspond to the Notes in respect of principal amount, interest rate, maturity date and redemption provisions. Upon payment of the principal or premium, if any, or interest on the Notes, Senior IQ Mortgage Bonds in a principal amount equal to the principal amount of such Notes will, to the extent of such payment of principal, premium or interest, be deemed fully paid and the obligation of Consumers to make such payment shall be discharged. The Mortgage Trustee may conclusively assume that the obligation to make payments on the Senior IQ Mortgage Bonds has been discharged unless it has received a written notice from the Trustee stating that timely payment on the Notes has not been made. REDEMPTION PROVISIONS The Senior IQ Mortgage Bonds will be redeemed on the respective dates and in the respective principal amounts which correspond to the redemption dates for, and the principal 26 28 amounts to be redeemed of, the Notes. The Senior IQ Mortgage Bonds are not redeemable by operation of the improvement fund or the maintenance or replacement provisions of the Mortgage, or with the proceeds of released property. In the event of an Event of Default under the Indenture and acceleration of the Notes, the Senior IQ Mortgage Bonds will be immediately redeemable in whole, upon demand of the Trustee, at a redemption price of 100% of the principal amount thereof, together with accrued interest to the redemption date. See "Description of the Notes -- Events of Default." PRIORITY AND SECURITY The Senior Mortgage Bonds will rank pari passu as to security with bonds of other series now outstanding or hereafter issued under the Mortgage, which is a direct first lien on substantially all of Consumers' property and franchises (other than certain property expressly excluded from the lien thereof (such as cash, bonds, stock and certain other securities, contracts, accounts and bills receivables, judgments and other evidences of indebtedness, stock in trade, materials or supplies manufactured or acquired for the purpose of sale and/or resale in the usual course of business or consumable in the operation of any of the properties of Consumers, natural gas, oil and minerals, motor vehicles and certain real property listed in Schedule A to the Mortgage)), and subject to excepted encumbrances (and certain other limitations) as defined and described in the Mortgage and subject to the provisions of MCL 324.20138. MCL 324.20138 provides that under certain circumstances, the State of Michigan's lien against property on which it has incurred costs related to any response activity that is subordinate to prior recorded liens can become superior to such prior liens pursuant to court order. The Mortgage permits, with certain limitations specified in Section 7.05, the acquisition of property subject to prior liens and, under certain conditions specified in Section 7.14, permits the issuance of additional indebtedness under such prior liens to the extent of 60% of net property additions made by Consumers to the property subject to such prior liens. (Granting Clauses, Article I.) IMPROVEMENT FUND REQUIREMENT The supplemental indentures under which certain series of outstanding bonds have been issued provide for annual improvement fund payments, in cash and/or bonds, in the amount of an "improvement fund requirement" (which generally is 1% of the principal amount of such bonds, less certain bonds retired), which may also be satisfied with, and cash withdrawn to the extent of, 60% of unfunded net property additions. The Senior IQ Mortgage Bonds will not have the benefit of any sinking or improvement fund. MAINTENANCE AND REPLACEMENT REQUIREMENT The supplemental indentures under which all series of outstanding bonds prior to the Sixty-seventh Supplemental Indenture have been issued have incorporated certain covenants contained in Section 7.07 of the Mortgage. Such covenants, in addition to a general covenant with respect to maintenance of the mortgaged property, require Consumers as of the end of each calendar year to have applied certain amounts for maintenance, renewals and replacements of the mortgaged and pledged property. The supplemental indenture relating to the Senior IQ Mortgage Bonds does not incorporate Section 7.07 of the Mortgage. 27 29 ISSUANCE OF ADDITIONAL FIRST MORTGAGE BONDS Additional bonds may be issued under the Mortgage to the extent of 60% of unfunded net property additions or against the deposit of an equal amount of cash, if, for any period of twelve consecutive months within the fifteen preceding calendar months the net earnings of Consumers (before income or excess profit taxes) shall have been at least twice the interest requirement for one year on all bonds outstanding and to be issued and on indebtedness of prior or equal rank. Additional bonds may also be issued to refund bonds theretofore outstanding under the Mortgage. Deposited cash may be applied to the retirement of bonds or be withdrawn in an amount equal to the principal amount of bonds which may be issued on the basis of unfunded net property additions. (Articles I, IV, V and VI.) As of June 30, 1998, unfunded net property additions were $2.8 billion, and Consumers could issue $1.7 billion of additional bonds on the basis of such property additions. In addition, at June 30, 1998, Consumers could issue $731 million of additional bonds on the basis of bonds previously retired. The Senior IQ Mortgage Bonds are to be issued upon the basis of retired bonds. RELEASE AND SUBSTITUTION OF PROPERTY The Mortgage provides that, subject to various limitations, property may be released from the lien thereof when sold or exchanged, or contracted to be sold or exchanged, upon the basis of cash deposited with the Mortgage Trustee, bonds or purchase money obligations delivered to the Mortgage Trustee, prior lien bonds delivered to the Mortgage Trustee or reduced or assumed by the purchaser, property additions acquired in exchange for the property released, or upon a showing that unfunded net property additions exist. The Mortgage also permits the withdrawal of cash upon a showing that unfunded net property additions exist or against the deposit of bonds or the application thereof to the retirement of bonds. (Articles VI, VII and X.) LIMITATIONS ON DIVIDENDS The supplemental indenture relating to the Senior IQ Mortgage Bonds does not restrict Consumers' ability to pay dividends on its Common Stock. However, supplemental indentures relating to certain series of outstanding bonds prohibit the payment of common dividends except out of retained earnings which have accumulated since September 30, 1945 less the amount, if any, that actual charges to income or retained earnings since December 31, 1945 for repairs, maintenance and depreciation of certain of the property subject to the Indenture are less than the maintenance and replacement requirements applicable pursuant to Section 7.07 of the Indenture for the equivalent period. MODIFICATION OF MORTGAGE The Mortgage, the rights and obligations of Consumers and the rights of the bondholders may be modified by Consumers with the consent of the holders of 75% in principal amount of the bonds and of not less than 60% of the principal amount of each series affected. In general, however, no modification of the terms of payment of principal or interest and no modification affecting the lien or reducing the percentage required for modification is effective against any bondholder without the bondholder's consent. (Article XVII.) Consumers has reserved the right without any consent or other action by the holders of bonds of any series created after September 15, 1993 (including the Senior IQ Mortgage Bonds) or by the holder of any 28 30 Senior Note or Exchange Note, to amend the Mortgage in order to substitute a majority in principal amount of bonds outstanding under the Mortgage for the 75% requirement set forth above (and then only in respect of such series of outstanding bonds as shall be affected by the proposed action) and to eliminate the requirement for a series-by-series consent requirement. CONCERNING THE MORTGAGE TRUSTEE As of July 16, 1984, Citibank, N.A. resigned as Trustee under the Mortgage and was replaced by Manufacturers Hanover Trust Company. As of June 19, 1992 Chemical Bank became successor Mortgage Trustee, and as of July 15, 1996 The Chase Manhattan Bank became successor Mortgage Trustee. The Chase Manhattan Bank is also the Trustee under the Indenture. Consumers and its affiliates maintain depository and other normal banking relationships with The Chase Manhattan Bank. The Chase Manhattan Bank is also a lender to Consumers and its affiliates. The Mortgage provides that Consumers' obligations to compensate the Mortgage Trustee and reimburse the Trustee for expenses, disbursements and advances will constitute indebtedness which will be secured by a lien generally prior to that of the Senior Note Mortgage Bonds upon all property and funds held or collected by the Mortgage Trustee as such. The Mortgage Trustee or the holders of 20% in aggregate principal amount of the bonds may declare the principal due on default, but the holders of a majority in aggregate principal amount may annul such declaration and waive the default if the default has been cured. (Section 11.05.) Subject to certain limitations, the holders of a majority in aggregate principal amount may generally direct the time, method and place of conducting any proceeding for the enforcement of the Mortgage. (Sections 11.01 and 11.12.) No bondholder has the right to institute any proceedings for the enforcement of the Mortgage unless such holder shall have given the Mortgage Trustee written notice of a default, the holders of 20% of outstanding bonds shall have tendered to the Mortgage Trustee reasonable security or indemnity against costs, expenses and liabilities and requested the Mortgage Trustee to take action, the Mortgage Trustee shall have declined to take action or failed to do so within sixty days and no inconsistent directions shall have been given by the holders of a majority in aggregate principal amount of the bonds. (Section 11.14.) The Mortgage Trustee is not required to advance or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties if there is reasonable ground for believing that repayment is not reasonably assured to it. (Section 16.03.) DEFAULTS By Section 11.01 of the Mortgage, the following are defined as "defaults": failure to pay principal when due; failure to pay interest for sixty days; failure to pay any installment of any sinking or other purchase fund for ninety days; certain events in bankruptcy, insolvency or reorganization; failure to perform any other covenant for ninety days following written demand by the Mortgage Trustee for Consumers to cure such failure. Consumers has covenanted to pay interest on any overdue principal and (to the extent permitted by law) on overdue installments of interest, if any, on the bonds under the Mortgage at the rate of 6% per annum. The Mortgage does not contain a provision requiring any periodic evidence to be furnished as to the absence of default or as to compliance with the terms thereof. However, Consumers is required by law to furnish annually to the Trustee a certificate as to compliance with all conditions and covenants under the Mortgage. 29 31 AMBAC ASSURANCE CORPORATION The information set forth in this section has been provided by Ambac Assurance Corporation (the "Insurer"). No representation is made by the Company or the Underwriter as to the accuracy or completeness of any such information. THE POLICY The Insurer will issue a financial guaranty insurance policy relating to the Notes (the "Policy"). The following summary of the terms of the Policy does not purport to be complete and is qualified in its entirety by reference to the Policy. The Insurer has made a commitment to issue the Policy effective as of the date of issuance of the Notes. Under the terms of the Policy, the Insurer will pay to the United States Trust Company of New York, in New York, New York, or any successor thereto (the "Insurance Trustee") that portion of the principal of and interest on the Notes which shall become Due for Payment but shall be unpaid by reason of Nonpayment (as such terms are defined in the Policy) by the Company. The Insurer will make such payments to the Insurance Trustee on the later of the date on which such principal and interest becomes Due for Payment or within one business day following the date on which the Insurer shall have received notice of Nonpayment from the Trustee. The insurance will extend for the term of the Notes and, once issued, cannot be canceled by the Insurer. The Policy will insure payment only on the stated date of maturity, in the case of principal, and on Interest Payment Dates, in the case of interest. In the event of any acceleration of the principal of the Notes which occurs prior to the Release Date, the Insurer will continue to pay interest on the Interest Payment Dates as would have been made had there not been an acceleration until such time, if at all, as the Insurer has received payment pursuant to the remedies under the Mortgage Indenture ("Mortgage Indenture Proceeds"). Any and all Mortgage Indenture Proceeds received by the Insurer shall immediately be paid over to the Noteholders of record at the time the Mortgage Indenture Proceeds are received by the Insurer. In the event of any acceleration of the principal of the Notes which occurs after the Release Date, the insured payments will be made at such times and in such amounts as would have been made had there not been an acceleration. In the event the Trustee has received notice that any payment of principal of or interest on a Note which has become Due for Payment and which is made to a holder by or on behalf of the Company has been deemed a preferential transfer and therefore recovered from its registered owner pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction, such registered owner will be entitled to payment from the Insurer to the extent of such recovery if sufficient funds are not otherwise available. The Policy does NOT insure any risk other than Nonpayment, as defined in the Policy. Specifically, the Policy does NOT cover: 1. payment on acceleration, as a result of a call for redemption (including any redemption in connection with a Beneficial Owner's Redemption Request) or as a result of any other advancement of maturity. 2. payment of any redemption, prepayment or acceleration premium. 30 32 3. nonpayment of principal or interest caused by the insolvency or negligence of the Trustee. If it becomes necessary to call upon the Policy, payment of principal requires surrender of Notes to the Insurance Trustee together with an appropriate instrument of assignment so as to permit ownership of such Notes to be registered in the name of the Insurer to the extent of the payment under the Policy. Payment of interest pursuant to the Policy requires proof of holder entitlement to interest payments and an appropriate assignment of the holder's right to payment to the Insurer. Each holder of Notes will be responsible for preparing and submitting to the Insurance Trustee such required documentation, and the Policy does not provide for payment of any interest to a holder in respect of any period of time between a scheduled payment date under the Notes and the date of actual disbursement of related insurance benefits by the Insurance Trustee. Upon payment of the insurance benefits, in the case of the payment of principal, whether at maturity or acceleration, the Insurer will become the owner of the Notes and shall be entitled to all the rights as a noteholder thereunder, and in the case of payment of interest, the Insurer will be fully subrogated to the rights of the holders of the Notes under the Indenture to the extent of the insurance payments made by the Insurer. The insurance provided by the Policy is not covered by the property/casualty insurance security fund specified by the insurance laws of the State of New York. THE INSURER The Insurer is a Wisconsin-domiciled stock insurance corporation regulated by the Office of the Commissioner of Insurance of the State of Wisconsin and licensed to do business in 50 states, the District of Columbia, the Commonwealth of Puerto Rico and Guam. The Insurer primarily insures newly issued municipal and structured finance obligations. The Insurer is a wholly-owned subsidiary of Ambac Financial Group, Inc. (formerly AMBAC Inc.) (the "Parent"), a 100% publicly-held company. Moody's Investor Services, Inc. ("Moody's"), Standard & Poor's Ratings Services ("S&P") have each assigned a triple-A financial strength rating to the Insurer. Fitch IBCA has assigned a rating of "AAA" to the claims-paying ability of the Insurer. The Parent is subject to the informational requirements of the 1934 Act, and in accordance therewith files reports, proxy statements and other information with the SEC. Such reports, proxy statements and other information may be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices at 7 World Trade Center, New York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained from the public reference section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the aforementioned material may also be inspected at the offices of the New York Stock Exchange, Inc. (at the "NYSE") at 20 Broad Street, New York, New York 10005. The Parent's Common Stock is listed on the NYSE. 31 33 The following documents filed by the Parent with the SEC (File No. 1-10777) are incorporated by reference herein: (1) The Parent's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and filed on March 31, 1998; (2) The Parent's Current Report on Form 8-K dated March 27, 1998 and filed on March 27, 1998; (3) The Parent's Amendment to its Annual Report on Form 10-K/A for the fiscal year ended December 31, 1997 and filed on March 31, 1998; (4) The Parent's Quarterly Report on Form 10-Q for the fiscal quarterly period ended March 31, 1998 and filed on May 15, 1998; and (5) The Parent's Quarterly Report on Form 10-Q for the fiscal quarterly period ended June 30, 1998 and filed on August 14, 1998. All documents subsequently filed by the Parent pursuant to the requirements of the 1934 Act after the date of this Prospectus will be available in the same manner as described in the second preceding paragraph. Any statement contained in a document incorporated herein by reference shall be modified or superseded for the purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is incorporated by reference herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. All financial statements of the Insurer and its subsidiaries included in documents filed by the Parent with the SEC pursuant to Section 13(a), 13(c), 14 or 15(d) of the 1934 Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Notes shall be deemed to be incorporated by reference into this Prospectus and to be a part hereof from the respective dates of filing such documents. The following table sets forth the capitalization of the Insurer as of December 31, 1995, December 31, 1996, December 31, 1997 and June 30, 1998, in conformity with generally accepted accounting principles. 32 34 AMBAC ASSURANCE CORPORATION CONSOLIDATED CAPITALIZATION TABLE
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, 1995 1996 1997 1998 ------------ ------------ ------------ -------- (DOLLARS IN MILLIONS) (UNAUDITED) Unearned premiums........... $ 906 $ 995 $1,184 $1,228 Other liabilities........... 295 259 562 657 ------ ------ ------ ------ Total liabilities........... 1,201 1,254 1,746 1,885 ------ ------ ------ ------ Stockholder's equity: Common stock.............. 82 82 82 82 Additional paid-in capital................ 481 515 521 526 Accumulated other comprehensive income... 87 66 118 124 Retained earnings......... 907 992 1,180 1,290 ------ ------ ------ ------ Total stockholder's equity.................... 1,557 1,655 1,901 2,022 ------ ------ ------ ------ Total liabilities and stockholder's equity...... $2,758 $2,909 $3,647 $3,907 ====== ====== ====== ======
- ------------------------- (1) Components of stockholder's equity have been restated for all periods presented to reflect "accumulated other comprehensive income" in accordance with the Statement of Financial Accounting Standards No 130 "Reporting Comprehensive Income" adopted by the Insurer effective January 1, 1998. As this new standard only requires additional information in the financial statements, it does not affect the Insurer's financial position or results of operations. For additional financial information concerning the Insurer, see the audited and unaudited financial statements of the Insurer incorporated by reference herein. Copies of the financial statements of the Insurer incorporated by reference and copies of the Insurer's annual statement for the year ended December 31, 1997 prepared in accordance with statutory accounting standards are available, without charge from the Insurer, at One State Street Plaza, 17th Floor, New York, New York 10004 and its telephone number is (212) 668-0340. The Insurer makes no representation regarding the Notes or the advisability of investing in the Notes and makes no representation regarding, nor has it participated in the preparation of, this Prospectus other than the information supplied by the Insurer and presented under the heading "Ambac Assurance Corporation" and in the financial statements incorporated herein by reference. 33 35 RATINGS It is anticipated that S&P and Moody's will assign the Notes the ratings set forth on the cover page hereof conditioned upon the issuance and delivery by the Insurer at the time of delivery of the Notes of the Policy, insuring the timely payment of the principal of and interest on the Notes. Such ratings reflect only the views of such rating agencies, and an explanation of the significance of such ratings may be obtained only from such rating agencies at the following addresses: Moody's Investors Service, Inc., 99 Church Street, New York, New York 10007; and Standard & Poor's, 25 Broadway, New York, New York 10004. There is no assurance that such ratings will remain in effect for any period of time or that they will not be revised downward or withdrawn entirely by the rating agencies if, in their judgment, circumstances warrant. The Insurer does not guarantee the market price of the Notes nor does it guarantee that the ratings on the Notes will not be revised or withdrawn. Neither the Company nor the Underwriter has undertaken any responsibility to oppose any proposed downward revision or withdrawal of a rating on the Notes. Any such downward revision or withdrawal of such ratings may have an adverse effect on the market price of the Notes. At present, each of such rating agencies maintains four categories of investment grade ratings. They are for S&P -- AAA, AA, A and BBB and for Moody's - -- aa, Aa, A and Baa. S&P defines "AAA" as the highest rating assigned to a debt obligation. Moody's defines "Aaa" as representing the best quality debt obligation carrying the smallest degree of investment risk. 34 36 UNDERWRITING Subject to the terms and conditions of the underwriting agreement relating to the offering of Notes (the "Underwriting Agreement"), between the Company and Edward D. Jones & Co., L.P. (the "Underwriter"), a form of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part, the Company has agreed to sell to the Underwriter, and the Underwriter has agreed to purchase from the Company, the entire principal amount of the Notes. The Underwriter has advised the Company that it proposes to offer the Notes from time to time for sale in one or more negotiated transactions or otherwise, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. The Underwriter may effect such transactions by selling the Notes to or through dealers, and such dealers may receive compensation in the form of underwriting discounts, concessions or commissions from the Underwriter and/or the purchasers of the Notes for whom they may act as agent. The Underwriter and any dealers that participate with the Underwriter in the distribution of the Notes may be deemed to be underwriters, and any discounts or commissions received by them and any profit on the resale of the Notes by them may be deemed to be underwriting discounts or commissions, under the 1933 Act. The Company has agreed, during the period of 10 days from the date on which the Notes are purchased by the Underwriters, not to sell, offer to sell, grant any option for the sale of, or otherwise dispose of any Notes, any security convertible into or exchangeable into or exercisable for Notes or any debt securities substantially similar to the Notes (except for the Notes issued pursuant to the Underwriting Agreement and any offering of Senior Note Mortgage Bonds), without the prior written consent of the Underwriter. Prior to this Offering, there has been no public market for the Notes. The Underwriter has advised the Company that it intends to make a market in the Notes. The Underwriter will have no obligation to make a market in the Notes, however, and may cease market making activities, if commenced, at any time. The Company has agreed to indemnify the Underwriter against certain liabilities, including liabilities under the 1933 Act and to contribute to payments the Underwriter may be required to make in respect thereof. LEGAL MATTERS Certain legal matters relating to the Notes will be passed upon for the Company by Michael D. VanHemert, Assistant General Counsel for CMS Energy. Certain legal matters relating to the Notes will be passed upon for any underwriters, dealers or agents by Skadden, Arps, Slate, Meagher & Flom LLP. As of June 30, 1998, an attorney currently employed by Skadden, Arps, Slate, Meagher & Flom LLP, and formerly employed by CMS Energy, owned approximately 50,326 shares of CMS Energy Common Stock, $.01 par value ("CMS Energy Common Stock"), 2,000 shares of CMS Energy Class G Common Stock, no par value, options to acquire approximately 142,000 shares of CMS Energy Common Stock, 10 shares of Consumers $4.50 Series Preferred Stock, $100 par value, and $50,000 aggregate principal amount of certain debt securities issued by CMS Energy. As of June 30, 1998, Mr. VanHemert beneficially owned approximately 2,785 shares of CMS Energy Common Stock. 35 37 EXPERTS The consolidated financial statements and schedules of Consumers as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997 incorporated by reference in this Offering Memorandum, have been audited by Arthur Andersen LLP (formerly Arthur Andersen & Co.), independent public accountants, as indicated in their reports with respect thereto. With respect to the unaudited interim consolidated financial information for the periods ended March 31 and June 30, 1998 and 1997, Arthur Andersen LLP has applied limited procedures in accordance with professional standards for a review of such information. However, their separate reports thereon state that they did not audit and they did not express an opinion on that interim consolidated financial information. Accordingly, the degree of reliance on their reports on that information should be restricted in light of the limited nature of the review procedures applied. In addition, the accountants are not subject to the liability provisions of Section 11 of the Securities Act, for their reports on the unaudited interim consolidated financial information because these reports are not "reports" or part of a registration statement prepared or certified by the accountants within the meaning of Sections 7 and 11 of the Securities Act. The consolidated financial statements of the Insurer, Ambac Assurance Corporation, as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997, are incorporated by reference herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing. 36 38 INCORPORATION BY REFERENCE: INFORMATION WE FILE WITH THE SEC The SEC allows us to "incorporate by reference" the information we file with them, which means: - - incorporated documents are considered part of the prospectus; - - we can disclose important information to you by referring you to those documents; and - - information that we file with the SEC will automatically update and supersede certain information in this prospectus. We incorporate by reference the documents listed below which were filed with the SEC under the Securities Exchange Act of 1934 ("Exchange Act"): - - our Annual Report on Form 10-K for the year ended December 31, 1997; - - our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31 and June 30, 1998; and - - our Current Report on Form 8-K, dated October 2, 1998. We also incorporate by reference each of the following documents that we will file with the SEC after the date of this prospectus but before the end of the notes offering: - - reports filed under Sections 13(a) and (c) of the Exchange Act; - - definitive proxy or information statements filed under Section 14 of the Exchange Act in connection with any subsequent stockholders' meeting; and - - any reports filed under Section 15(d) of the Exchange Act. You may request a copy of any filings referred to above (excluding exhibits), at no cost, by contacting us at the following address: Consumers Energy Company Attention: Chief Financial Officer 212 West Michigan Avenue Jackson, Michigan 49201 517-788-0550 37 39 --------------------------------------------------------------- --------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE SENIOR SECURED INSURED QUARTERLY NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ------------------ TABLE OF CONTENTS
PAGE ---- Where You Can Find More Information........... 2 Forward-Looking Statements.................... 2 Prospectus Summary............................ 3 Consumers Energy Company...................... 6 Selected Consolidated Financial Data.......... 8 Ratio of Earnings to Fixed Charges............ 8 Capitalization................................ 9 Use of Proceeds............................... 9 Description of the Notes...................... 11 Description of First Mortgage Bonds........... 26 Ambac Assurance Corporation................... 30 Ratings....................................... 34 Underwriting.................................. 35 Legal Matters................................. 35 Experts....................................... 36 Incorporation by Reference.................... 37
--------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- $150,000,000 LOGO [ ]% SENIOR SECURED INSURED QUARTERLY NOTES DUE OCTOBER 1, 2028 (IQ NOTES(SM)) -------------------- PROSPECTUS -------------------- EDWARD D. JONES & CO., L.P. OCTOBER [ ], 1998 --------------------------------------------------------------- --------------------------------------------------------------- 40 PART II. INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
AMOUNT ------ Securities and Exchange Commission filing fee............... $ 44,250 *Trustees expenses.......................................... 18,000 *Printing and engraving..................................... 80,000 *Services of counsel........................................ 50,000 *Services of independent public accountants, Arthur Anderson LLP....................................................... 10,000 *Rating Agency Fees......................................... 80,000 *Blue Sky fees and expenses................................. 20,000 *Miscellaneous.............................................. 5,000 -------- *Total.................................................... $307,250 ========
- ------------------------- * Estimated ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The following resolution was adopted by the Board of Directors of Consumers on May 6, 1987: RESOLVED: That effective March 1, 1987 the Company shall indemnify to the full extent permitted by law every person (including the estate, heirs and legal representatives of such person in the event of the decease, incompetency, insolvency or bankruptcy of such person) who is or was a director, officer, partner, trustee, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all liability, costs, expenses, including attorneys' fees, judgments, penalties, fines and amounts paid in settlement, incurred by or imposed upon the person in connection with or resulting from any claim or any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative, investigative or of whatever nature, arising from the person's service or capacity as, or by reason of the fact that the person is or was, a director, officer, partner, trustee, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, partner, trustee, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. Such right of indemnification shall not be deemed exclusive of any other rights to which the person may be entitled under statute, bylaw, agreement, vote of shareholders or otherwise. Article XIII, Section 1 of Consumers' Bylaws provides: The Company may purchase and maintain liability insurance, to the full extent permitted by law, on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other II-1 41 enterprise against any liability asserted against such person and incurred by such person in any such capacity. Article V of Consumers Restated Articles of Incorporation, as amended reads: A director shall not be personally liable to the Company or its shareholders for monetary damages for breach of duty as a director except (i) for a breach of the director's duty of loyalty to the Company or its shareholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for a violation of Section 551(1) of the Michigan Business Corporation Act, and (iv) any transaction from which the director derived an improper personal benefit. No amendment to or repeal of this Article V, and no modification to its provisions by law, shall apply to, or have any effect upon, the liability or alleged liability of any director of the Company for or with respect to any acts or omissions of such director occurring prior to such amendment, repeal or modification. Article VI of Consumers Restated Articles of Incorporation, as amended reads: Each director and each officer of the Company shall be indemnified by the Company to the fullest extent permitted by law against expenses (including attorneys' fees), judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with the defense of any proceeding in which he or she was or is a party or is threatened to be made a party by reason of being or having been a director or an officer of the Company. Such right of indemnification is not exclusive of any other rights to which such director or officer may be entitled under any now or thereafter existing statute, any other provision of these Articles, bylaw, agreement, vote of shareholders or otherwise. If the Business Corporation Act of the State of Michigan is amended after approval by the shareholders of this Article VI to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by the Business Corporation Act of the State of Michigan, as so amended. Any repeal or modification of this Article VI by the shareholders of the Company shall not adversely affect any right or protection of a director of the Company existing at the time of such repeal or modification. Sections 561 through 571 of the Michigan Business Corporation Act provides Consumers with the power to indemnify directors, officers, employees and agents against certain expenses and payments, and to purchase and maintain insurance on behalf of directors, officers, employees and agents. Officers and directors are covered within specified monetary limits by insurance against certain losses arising from claims made by reason of their being directors or officers of Consumers or of Consumers' subsidiaries and Consumers' officers and directors are indemnified against such losses by reason of their being or having been directors of officers of another corporation, partnership, joint venture, trust or other enterprise at Consumers' request. In addition, Consumers has indemnified each of its present directors by contracts that contain affirmative provisions essentially similar to those in sections 561 through 571 of the Michigan Business Corporation Act cited above. II-2 42 ITEM 16. EXHIBITS.
EXHIBIT NO. DESCRIPTION - ------- ----------- 1 -- Form of Underwriting Agreement. *3(a) -- Certificate of Amendment to the Articles of Incorporation of Consumers dated March 10, 1997 and Restated Articles of Incorporation of Consumers. (Designated in Consumers' Form 10-K for the year ended December 31, 1996, File No. 1-5611, as Exhibit 3(c).) *3(b) -- By-Laws of Consumers. (Designated in Consumers' Form 10-K for the year ended December 31, 1996, File No. 1-5611 as Exhibit 3(d).) *4(a) -- Indenture dated as of February 1, 1998 between Consumers Energy Company and The Chase Manhattan Bank, as Trustee. (Designated in Consumers' Form 10-K for the year ended December 31, 1997, File No. 1-5611, as Exhibit (4)(c).) -- First Supplemental Indenture dated as of May 1, 1998 between Consumers Energy Company and The Chase Manhattan Bank, as Trustee (Designated in Consumers= Form 10-Q for the quarter ended March 31, 1998, File No. 1-5611, as Exhibit (4)(a).) *4(b) -- Second Supplemental Indenture dated as of June 15, 1998 between Consumers Energy Company and The Chase Manhattan Bank, as Trustee. (Designated in Consumers Energy Company's Registration Statement on Form S-4 dated July 13, 1998, File No. 333-58943, as Exhibit 4(b).) 4(c) -- Third Supplemental Indenture dated as of October , 1998 between Consumers Energy Company and The Chase Manhattan Bank, as Trustee. *4(d) -- Indenture dated as of September 1, 1945, between Consumers Energy Company and Chemical Bank (successor to Manufacturers Hanover Trust Company, as Trustee, including therein indentures supplemental thereto through the Forty-third supplemental Indenture dated as of May 1, 1979. (Designated in Consumers Energy Company's Registration Statement No. 2-65973 as Exhibit (b)(1)-(4).) Indentures Supplemental thereto:
CONSUMERS ENERGY COMPANY SUP IND/DATED AS OF FILE REFERENCE EXHIBITS ------------------- -------------- -------- 67th 11/15/89 (4)(d) Reg. No. 33-31866 68th 06/15/93 (4)(d) Reg. No. 33-41126 69th 09/15/93 (4) Form 8-K dated September 21, 1993, File No. 1-5611 70th 02/01/98 (4) Form 10-K for year ended December 31, 1997, File No. 1-5611 71st 03/01/98 (4) Form 10-K for year ended December 31, 1997, File No. 1-5611 72nd 05/01/98 (4)(b) Form 10-Q for period ended March 31, 1998, File No. 1-5611 73rd 06/15/98 (4)(d) Reg. No. 333-58943 4(e) Form of 74th 10/ /98
II-3 43
EXHIBIT NO. DESCRIPTION - ------- ----------- 4(f) -- Form of Financial Guaranty Insurance Policy issued by Ambac Assurance Corporation 4(g) -- Instruments defining the rights of security holders, including indentures. Consumers Energy Company hereby agrees to furnish to the Commission upon request a copy of any instrument covering securities the amount of which does not exceed 10% of the total assets of Consumers Energy Company and its subsidiaries on a consolidated basis. *5 -- Opinion of Michael D. Van Hemert, Assistant General Counsel for CMS Energy. *12 -- Statement re: computation of Ratios of Earnings to Fixed Charges. (Designated in Consumers Energy Company's Registration Statement on Form S-4 dated September 22, 1998, File No. 333-63969, as Exhibit 12.) *15 -- Letter re: unaudited interim financial information. *23(a) -- Consent of Michael D. Van Hemert, Assistant General Counsel for CMS Energy (included in Exhibit 5 above). *23(c) -- Consent of Arthur Andersen LLP. *24 -- Powers of Attorney of Directors whose names are signed to this registration statement pursuant to such powers. *25 -- Statement of Eligibility and Qualification of The Chase Manhattan Bank (Designated in Consumers Energy Company's Registration Statement on Form S-4 dated July 13, 1998, File No. 333-58943, as Exhibit 25).
- ------------------------- * Previously filed Exhibits listed above which have been filed with the Securities and Exchange Commission are incorporated herein by reference with the same effect as if filed with this Registration Statement. ITEM 17. UNDERTAKINGS. The undersigned registrants hereby undertake: (1) That, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that is incorporated by reference in this registration statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (2) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 20 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that as claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of II-4 44 the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and be governed by the final adjudication of such issue. (3) That (1) for purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and (2) for the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-5 45 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Amendment No. 1 to its Registration Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Jackson, and State of Michigan, on the 16th day of October 1998. CONSUMERS ENERGY COMPANY By: /s/ AM WRIGHT ----------------------------------- Alan M. Wright Senior Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to its Registration Statement on Form S-3 has been signed below by the following persons in the capacities and on the dates indicated.
NAME TITLE DATE ---- ----- ---- (i) Principal executive officer: /s/ VICTOR J. FRYLING President October 16, 1998 - --------------------------------------------- Victor J. Fryling (ii) Principal financial officer: /s/ AM WRIGHT Senior Vice President and October 16, 1998 - --------------------------------------------- Chief Financial Officer Alan M. Wright (iii) Controller or principal accounting officer: /s/ DENNIS DAPRA Vice President and October 16, 1998 - --------------------------------------------- Controller Dennis DaPra * Director October 16, 1998 - --------------------------------------------- (William T. McCormick, Jr.) * Director October 16, 1998 - --------------------------------------------- (John M. Deutch) * Director October 16, 1998 - --------------------------------------------- (James J. Duderstadt) * Director October 16, 1998 - --------------------------------------------- (Kathleen R. Flaherty) * Director October 16, 1998 - --------------------------------------------- (Victor J. Fryling)
II-6 46
NAME TITLE DATE ---- ----- ---- * Director October 16, 1998 - --------------------------------------------- (Earl D. Holton) * Director October 16, 1998 - --------------------------------------------- (William U. Parfet) * Director October 16, 1998 - --------------------------------------------- (Percy A. Pierre) * Director October 16, 1998 - --------------------------------------------- (Kenneth L. Way) * Director October 16, 1998 - --------------------------------------------- (Kenneth Whipple) * Director October 16, 1998 - --------------------------------------------- (John B. Yasinsky) *By: /s/ AM WRIGHT --------------------------------------- Alan M. Wright Attorney in-fact
II-7 47 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ----------- 1 -- Form of Underwriting Agreement. *3(a) -- Certificate of Amendment to the Articles of Incorporation of Consumers dated March 10, 1997 and Restated Articles of Incorporation of Consumers. (Designated in Consumers' Form 10-K for the year ended December 31, 1996, File No. 1-5611, as Exhibit 3(c).) *3(b) -- By-Laws of Consumers. (Designated in Consumers' Form 10-K for the year ended December 31, 1996, File No. 1-5611 as Exhibit 3(d).) *4(a) -- Indenture dated as of February 1, 1998 between Consumers Energy Company and The Chase Manhattan Bank, as Trustee. (Designated in Consumers' Form 10-K for the year ended December 31, 1997, File No. 1-5611, as Exhibit (4)(c).) -- First Supplemental Indenture dated as of May 1, 1998 between Consumers Energy Company and The Chase Manhattan Bank, as Trustee (Designated in Consumers' Form 10-Q for the quarter ended March 31, 1998, File No. 1-5611, as Exhibit (4)(a).) *4(b) -- Second Supplemental Indenture dated as of June 15, 1998 between Consumers Energy Company and The Chase Manhattan Bank, as Trustee. (Designated in Consumers Energy Company's Registration Statement on Form S-4 dated July 13, 1998, File No. 333-58943, as Exhibit 4(b).) 4(c) -- Third Supplemental Indenture dated as of October , 1998 between Consumers Energy Company and The Chase Manhattan Bank, as Trustee. *4(d) -- Indenture dated as of September 1, 1945, between Consumers Energy Company and Chemical Bank (successor to Manufacturers Hanover Trust Company, as Trustee, including therein indentures supplemental thereto through the Forty-third supplemental Indenture dated as of May 1, 1979. (Designated in Consumers Energy Company's Registration Statement No. 2-65973 as Exhibit (b)(1)-(4).) Indentures Supplemental thereto:
CONSUMERS ENERGY COMPANY SUP IND/DATED AS OF FILE REFERENCE EXHIBITS ------------------- -------------- -------- 67th 11/15/89 (4)(d) Reg. No. 33-31866 68th 06/15/93 (4)(d) Reg. No. 33-41126 69th 09/15/93 (4) Form 8-K dated September 21, 1993, File No. 1-5611 70th 02/01/98 (4) Form 10-K for year ended December 31, 1997, File No. 1-5611 71st 03/01/98 (4) Form 10-K for year ended December 31, 1997, File No. 1-5611 72nd 05/01/98 (4)(b) Form 10-Q for period ended March 31, 1998, File No. 1-5611 73rd 06/15/98 (4)(d) Reg. No. 333-58943 4(e) Form of 74th 10/ /98
48
EXHIBIT NO. DESCRIPTION - ------- ----------- 4(f) -- Form of Financial Guaranty Insurance Policy issued by Ambac Assurance Corporation. 4(g) -- Instruments defining the rights of security holders, including indentures. Consumers Energy Company hereby agrees to furnish to the Commission upon request a copy of any instrument covering securities the amount of which does not exceed 10% of the total assets of Consumers Energy Company and its subsidiaries on a consolidated basis. *5 -- Opinion of Michael D. Van Hemert, Assistant General Counsel for CMS Energy. *12 -- Statement re: computation of Ratios of Earnings to Fixed Charges. (Designated in Consumers Energy Company's Registration Statement on Form S-4 dated September 22, 1998, File No. 333-63969, as Exhibit 12.) *15 -- Letter re: unaudited interim financial information. *23(a) -- Consent of Michael D. Van Hemert, Assistant General Counsel for CMS Energy (included in Exhibit 5 above). *23(c) -- Consent of Arthur Andersen LLP. *24 -- Powers of Attorney of Directors whose names are signed to this registration statement pursuant to such powers. *25 -- Statement of Eligibility and Qualification of The Chase Manhattan Bank (Designated in Consumers Energy Company's Registration Statement on Form S-4 dated July 13, 1998, File No. 333-58943, as Exhibit 25).
- ------------------------- * Previously filed Exhibits listed above which have been filed with the Securities and Exchange Commission are incorporated herein by reference with the same effect as if filed with this Registration Statement. EX-1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT (1) $____________ CONSUMERS ENERGY COMPANY __% Senior Secured Insured Quarterly Notes Due 2028 Underwriting Agreement October , 1998 To the Representatives named in Schedule I hereto of the Underwriters named in Schedule II hereto Dear Sirs: Consumers Energy Company, a Michigan corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the several Underwriters (as defined in Section 14 hereof) certain debt securities, to be in the aggregate principal amount, to mature in the year and to have the interest rate specified in Schedule III hereto (the "Securities"), and hereby confirms its agreement with the Underwriters as set forth herein. The Securities shall be issued pursuant to the Indenture dated as of February 1, 1998, between the Company and The Chase Manhattan Bank, as Trustee (the "Trustee"), as amended and supplemented and to be supplemented by various supplemental indentures, including the Third Supplemental Indenture dated as of October __, 1998 relating to the Securities (such Indenture as so amended and supplemented and to be supplemented, the "Indenture"). The Underwriters have designated the Representa- 2 tives to execute this Agreement on their behalf and to act for them in the manner provided in this Agreement. The Company has prepared and filed with the Securities and Exchange Commission (the "Commission"), in accordance with the provisions of the Securities Act of 1933, as amended (the "Act"), a registration statement on Form S-3 (Registration No. 333-65619) including a prospectus relating to the Securities and such registration statement has become effective under the Act. The registration statement, at the time such registration statement became effective and as it may have been thereafter amended to the date of this Agreement (including the documents then incorporated by reference therein) is hereinafter referred to as the "Registration Statement." The prospectus forming a part of the Registration Statement at the time the Registration Statement became effective (including the documents then incorporated by reference therein) is hereinafter referred to as the "Basic Prospectus," provided that in the event that the Basic Prospectus shall have been amended, revised or supplemented prior to the date of this Agreement, or if the Company shall have supplemented the Basic Prospectus by filing any documents pursuant to Section 13 or 14 or 15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after the time the Registration Statement became effective and prior to the date of this Agreement, which documents are deemed to be incorporated in the Basic Prospectus, the term "Basic Prospectus" shall also mean such prospectus as so amended, revised or supplemented. The Basic Prospectus, as it shall be revised or supplemented to reflect the final terms of the offering and sale of the Securities by a prospectus supplement relating to the Securities, and in the form to be filed with, or transmitted for filing to, the Commission pursuant to Rule 424 under the Act, is hereinafter referred to as the "Prospectus." Any reference herein to the terms "amend," "amendment" or "supplement" with respect to the Registration Statement or the Prospectus shall be deemed to include only amendments or supplements to the Registration Statement or Prospectus, as the case may be, and documents incorporated by reference therein after the date of this Agreement and prior to the termination of the offering of the Securities by the Underwriters. Each of the Securities will be secured by First Mortgage Bonds ("First Mortgage Bonds"), in the same aggregate principal amount, having the same stated interest rate, maturity date and other terms as the Securities they secure, as described in the Prospectus (as defined below). The First Mortgage Bonds are to be issued by the Company under its Indenture, dated as of September 1, 1945, between the Company and The Chase Manhattan Bank, as trustee (in such capacity, the "Mortgage Trustee"), as amended and supplemented and to be supplemented by various supplemental indentures (such Indenture, as so amended and supplemented and to be supplemented, the "Mortgage"). 2 3 1. Purchase and Sale: Upon the basis of the representations and warranties and on the terms and subject to the conditions herein set forth, the Company agrees to sell to the respective Underwriters, severally and not jointly, and the respective Underwriters, severally and not jointly, agree to purchase from the Company, at the purchase price specified in Schedule III hereto, the respective principal amounts of Securities set opposite their names in Schedule II hereto. The Company is advised by the Representatives that the Underwriter propose to make a public offering of their respective portions of the Securities as soon as practicable, in their judgment, after this Agreement has become effective. The Company is further advised by the Representatives that the Securities are to be offered to the public initially at ___% of the principal amount of the Securities and to certain dealers selected by you at a price that represents a concession not in excess of __% of the principal amount of the Securities, and that any Underwriter may allow, and such dealers may reallow, a concession not in excess of __% of the principal amount of the Securities to certain other dealers. 2. Payment and Delivery: Payment for the Securities shall be made to the Company or its order in Federal or other immediately available funds in New York City (or such other place or places of payment as shall be agreed upon by the Company and the Representatives in writing), upon the delivery of the Securities at the offices of ________________(or such other place or places of delivery as shall be agreed upon by the Company and the 2. Representatives) to the Representatives for the respective accounts of the Underwriters against receipt therefor signed by the Representatives on behalf of themselves and as agent for the other Underwriters. Such payment and delivery shall be made at 10:00 A.M., New York time on __________________(or on such later business day as shall be agreed upon by the Company and the Representatives in writing), unless postponed in accordance with the provisions of Section 10 hereof. The day and time at which payment and delivery for the Securities are to be made is herein called the "Time of Purchase." Delivery of the Securities shall be made in definitive, fully registered form in authorized denominations registered in such names as the Representatives may request in writing to the Company not later than two full business days prior to the Time of Purchase, or if no such request is received, in the names of the respective Underwriters for the respective principal amounts of Securities set forth opposite the name of each Underwriter in Schedule II, in denominations selected by the Company. The Company agrees to make the Securities available for inspection by the Underwriters at the offices of _________________________________ at least 24 hours 3 4 prior to the Time of Purchase, in definitive, fully registered form, and as requested pursuant to the preceding paragraph. 3. Conditions of Underwriters' Obligations: The several obligations of the Underwriters hereunder are subject to the accuracy of the warranties and representations on the part of the Company and to the following other conditions: (a) That all legal proceedings to be taken in connection with the issue and sale of the Securities shall be reasonably satisfactory in form and substance to Skadden, Arps, Slate Meagher & Flom, L.L.P. ("Skadden, Arps"), counsel to the Underwriters. (b) That, at the Time of Purchase, the Representatives shall be furnished with the following opinions, dated the day of the Time of Purchase: (1) Opinion of Michael D. VanHemert, Esq.,counsel to the Company, substantially to the effect set forth in Exhibit A to this Agreement; and (2) Opinion of Skadden, Arps, counsel to the Underwriters, substantially to the effect set forth in Exhibit B to this Agreement. (c) That on the date of the Time of Purchase the Representatives shall have received a letter from Arthur Andersen LLP ("Arthur Andersen") in form and substance satisfactory to the Representatives, dated as of such date, (i) confirming that they are independent public accountants within the meaning of the Act and the applicable published rules and regulations of the Commission thereunder, (ii) stating that in their opinion the financial statements examined by them and included or incorporated by reference in the Registration Statement complied as to form in all material respects with the applicable accounting requirements of the Commission, including applicable published rules and regulations of the Commission, and (iii) covering, as of a date not more than 4 5 five business days prior to the date of such letter, such other matters as the Representatives reasonably request. (d) That, between the date of the execution of this Agreement and the Time of Purchase, no material and adverse change shall have occurred in the business, properties or financial condition of the Company which, in the judgment of the Representatives, after reasonable inquiries on the part of the Representatives, impairs the marketability of the Securities (other than changes referred to in or contemplated by the Registration Statement or Prospectus). (e) That, prior to the Time of Purchase, no stop order suspending the effectiveness of the Registration Statement shall have been issued under the Act by the Commission or proceedings therefor initiated or threatened. (f) That, at the Time of Purchase, the Company shall have delivered to the Representatives a certificate of an executive officer of the Company to the effect that, to the best of his knowledge, information and belief there shall have been no material adverse change in the business, properties or financial condition of the Company from that set forth in the Registration Statement or Prospectus (other than changes referred to in or contemplated by the Registration Statement or Prospectus). (g) That the Company shall have performed such of its obligations under this Agreement as are to be performed at or before the Time of Purchase by the terms hereof. (h) That any additional documents or agreements reasonably requested by the Representatives or their counsel to permit the Underwriters to perform their obligations or permit their counsel to deliver opinions hereunder shall have been provided to them. (i) That between the date of the execution of this Agreement and the day of the Time of Purchase there has been no 5 6 downgrading of the investment ratings of any of the Company's securities by Standard & Poor's Corporation, Moody's Investors Service, Inc. or Duff & Phelps Credit Rating Co., and the Company shall not have been placed on "credit watch" or "credit review" with negative implications by any of such statistical rating organizations if any of such occurrences shall, in the reasonable judgment of the Representatives, after reasonable inquiries on the part of the Representatives, impair the marketability of the Securities. (j) That any filing of the Prospectus and any supplements thereto required pursuant to Rule 424 under the Act have been made in compliance with Rule 424 in the time periods provided by Rule 424. 4. Conditions of the Company's Obligations: The obligations of the Company hereunder are subject to the satisfaction of the condition set forth in Section 3(e). 5. Certain Covenants of the Company: In further consideration of the agreements of the Underwriters herein contained, the Company covenants as follows: (a) To use its best efforts to cause any post-effective amendments to the Registration Statement to become effective as promptly as possible. During the time when a Prospectus is required to be delivered under the Act, the Company will comply so far as it is able with all requirements imposed upon it by the Act and the rules and regulations of the Commission to the extent necessary to permit the continuance of sales of or dealings in the Securities in accordance with the provisions hereof and of the Prospectus. (b) To deliver to each of the Representatives a conformed copy of the Registration Statement and any amendments thereto (including all exhibits thereto) and full and complete sets of all comments of the Commission or its staff and all responses thereto with respect to the Registration Statement and any amendments thereto, and to furnish to the Representatives, for each of the Underwriters, conformed 6 7 copies of the Registration Statement and any amendments thereto, without exhibits. (c) As soon as the Company is advised thereof, the Company will advise the Representatives and confirm the advice in writing of: (i) the effectiveness of any amendment to the Registration Statement, (ii) any request made by the Commission for amendments to the Registration Statement or Prospectus or for additional information with respect thereto, (iii) the suspension of qualification of the Securities for sale under Blue Sky or state securities laws, and (iv) the entry of a stop order suspending the effectiveness of the Registration Statement or of the initiation or threat or any proceedings for that purpose and, if such a stop order should be entered by the Commission, to make every reasonable effort to obtain the lifting or removal thereof. (d) To deliver to the Underwriters, without charge, as soon as practicable, and from time to time during such period of time (not exceeding nine months) after the date of the Prospectus as they are required by law to deliver a prospectus, as many copies of the Prospectus (as supplemented or amended if the Company shall have made any supplements or amendments thereto) as the Representatives may reasonably request; and in case any Underwriter is required to deliver a prospectus after the expiration of nine months after the date of the Prospectus, to furnish to the Representatives, upon request, at the expense of such Underwriter, a reasonable quantity of a supplemental prospectus or of supplements to the Prospectus complying with Section 10(a)(3) of the Act. (e) The Company shall not, for a period of ten (10) days from the Time of Purchase, without the prior written consent of the Underwriter, offer or sell, enter into any agreement to sell, grant any option for the sale of or otherwise dispose of any Securities, any security convertible into or exchangeable into or exercisable for Securities or any debt securities substantially similar to the Securities (except for Securities 7 8 issued pursuant to this Agreement and any offering of Senior Note Mortgage Bonds), (f) For such period of time (not exceeding nine months) after the date of the Prospectus as the Underwriters are required by law to deliver a prospectus in respect of the Securities, if any event shall have occurred as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein, in light of the circumstances when the Prospectus is delivered to a purchaser, not misleading, or if it becomes necessary to amend or supplement the Prospectus to comply with law, to forthwith prepare and file with the Commission an appropriate amendment or supplement to the Prospectus and deliver to the Underwriters, without charge, such number of copies thereof as may be reasonably requested. (g) To use its best efforts to qualify the Securities for offer and sale under the securities or Blue Sky laws of such jurisdictions as the Representatives may designate and to pay (or cause to be paid), or reimburse (or cause to be reimbursed) the Underwriters and their counsel for, reasonable filing fees and expenses in connection therewith (including the reasonable fees and disbursements of counsel to the Underwriters and filing fees and expenses paid and incurred prior to the date hereof), provided, however, that the Company shall not be required to qualify to do business as a foreign corporation or as a securities dealer or to file a general consent to service of process or to file annual reports or to comply with any other requirements deemed by the Company to be unduly burdensome. (h) To pay all expenses, fees and taxes (other than transfer taxes on sales by the respective Underwriters) in connection with the issuance and delivery of the Securities, except that the Company shall be required to pay the fees and disbursements (other than disbursements referred to in paragraph (g) of this Section 5) of Skadden, Arps, counsel to the Underwriters, only in the events provided in paragraph 8 9 (i) of this Section 5, the Underwriters hereby agreeing to pay such fees and disbursements in any other event, and that except as provided in Section (i), the Company shall not be responsible for any out-of-pocket expenses of the Underwriters in connection with their services hereunder (i) If the Underwriters shall not take up and pay for the Securities due to the failure of the Company to comply with any of the conditions specified in Section 3 hereof, or, if this Agreement shall be terminated in accordance with the provisions of Section 11 hereof prior to the Time of Purchase, to pay the reasonable fees and disbursements of Skadden, Arps, counsel to the Underwriters, and, if the Underwriters shall not take up and pay for the Securities due to the failure of the Company to comply with any of the conditions specified in Section 3 hereof, to reimburse the Underwriters for their reasonable out-of-pocket expenses, in an aggregate amount not exceeding a total of $____________, incurred in connection with the financing contemplated by this Agreement. (j) Prior to the termination of the offering of the Securities, to not file any amendment to the Registration Statement or supplement to the Prospectus (including the Basic Prospectus) unless the Company has furnished the Representatives and counsel to the Underwriters with a copy for their review and comment a reasonable time prior to filing and has reasonably considered any comments of the Representatives, or any such amendment or supplement to which such counsel shall reasonably object on legal grounds in writing, after consultation with the Representatives. (k) To furnish the Representatives with copies of all documents required to be filed with the Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act subsequent to the time the Registration Statement becomes effective and prior to the termination of the offering of the Securities. 9 10 (l) So long as may be required by law for the distribution of the Securities by the Underwriters or by any dealers that participate in the distribution thereof, the Company will comply with all requirements under the Exchange Act relating to the timely filing with the Commission of its reports pursuant to Section 13 of the Exchange Act and of its proxy statements pursuant to Section 14 of the Exchange Act. 6. Representations and Warranties of the Company: The Company represents and warrants to, and agrees with, each of the Underwriters that: (a) The Registration Statement has become effective under the Act; a true and correct copy of the Registration Statement in the form in which it became effective has been delivered to each of the Representatives and to the Representatives for each of the Underwriters (except that copies delivered for the Underwriters excluded exhibits to such Registration Statement); any filing of the Prospectus and any supplements thereto required pursuant to Rule 424(b) has been or will be made in the manner required by Rule 424(b) and within the time period required by Section 3(j) hereof; no stop order suspending the effectiveness of the Registration Statement is in effect, and no proceedings for such purposes are pending before or, to the knowledge of the Company, threatened by the Commission. On the effective date of the Registration Statement, the Registration Statement and the Basic Prospectus complied, or were deemed to have complied, and on its respective issue date, each preliminary prospectus filed pursuant to Rule 424(b) complied, and the Basic Prospectus complied, and on its issue date, the Prospectus will comply, or will be deemed to comply, in all material respects with the applicable provisions of the Act, the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and the published rules and regulations of the Commission, none of the Registration Statement on its effective date, the Basic Prospectus on its issue date, or any other preliminary prospectus, on its issue date, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus, as of its issue date and, as amended or supplemented, if applicable, as of the Time of Purchase, will not contain any untrue statement 10 11 of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the Company makes no warranty or representation to any Underwriter with respect to any statements or omissions made therein in reliance upon and in conformity with information furnished in writing to the Company by, or through the Representatives on behalf of, any Underwriter expressly for use therein, or to any statements in or omissions from that part of the Registration Statement that shall constitute the Statement of Eligibility and Qualification under the Trust Indenture Act of the Trustee under the Indenture. (b) The documents incorporated by reference in the Registration Statement, any preliminary prospectus, the Basic Prospectus and the Prospectus, when they were filed (or, if an amendment with respect to any such document was filed, when such amendment was filed) with the Commission, conformed in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and any further documents so filed and incorporated by reference will, when they are filed with the Commission, conform in all material respects to the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder; none of such documents, when it was filed (or, if an amendment with respect to any such document was filed, when such amendment was filed), contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and no such further document, when it is filed, will contain an untrue statement 11 12 of a material fact or will omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading. (c) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Michigan and has all requisite authority to own or lease its properties and conduct its business as described in the Prospectus and to consummate the transactions contemplated hereby, and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business as described in the Prospectus or its ownership or leasing of property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Company. (d) The Securities are in the form contemplated by the Indenture and have been duly authorized by the Company. At the Time of Purchase, the Securities will have been duly executed and delivered by the Company and, when authenticated by the Trustee in the manner provided for in the Indenture and delivered against payment therefor as provided in this Agreement, will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally or by general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity). The Securities conform in all material respects to the descriptions thereof in the Prospectus. (e) This Agreement has been duly authorized, executed and delivered by the Company, and the Company has full corporate power and authority to enter into this Agreement. 12 13 (f) Each of the Indenture and the Mortgage has been duly authorized by the Company. At the Time of Purchase, the Indenture and the Mortgage will have been duly executed and delivered by the Company and will constitute a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally or by general principles of equity (regardless of whether enforcement is considered in a proceeding at law or in equity); the Indenture and the Mortgage conform in all material respects to the description thereof in the Prospectus; and the Indenture and the Mortgage conform to the requirements of the Trust Indenture Act. (g) The First Mortgage Bonds are in the form contemplated by the Mortgage and have been duly authorized by the Company. At the Time of Purchase, the First Mortgage Bonds (i) will have been duly executed and delivered by the Company and, when authenticated by the Mortgage Trustee in the manner provided for in the Mortgage, (ii) will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except to the extent that enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally or by general principals of equity (regardless of whether enforcement is considered in a proceeding at law or in equity), will be entitled to the security afforded by the Mortgage equally and ratably with all securities outstanding thereunder and (iii) will be owned and held by the Trustee, in trust, for the benefit of the holders of all securities from time to time outstanding under the Indenture. The First Mortgage Bonds conform in all material respects to the descriptions thereof in the Prospectus. (h) The Company has all necessary consents, authorizations, approvals, orders, certificates and permits of and from, and has made all declarations and filings with, all federal, state, 13 14 local and other governmental authorities, all self-regulatory organizations and all courts and other tribunals, to own, lease, license and use its properties and assets and to conduct its business in the manner described in the Prospectus, except to the extent that the failure to obtain or file would not have a material adverse effect on the Company. (i) An appropriate order has been entered by the Federal Energy Regulatory Commission under the Federal Power Act authorizing the issuance and sale of the Securities and the issuance of the First Mortgage Bonds, and such order is in full force and effect. No other order, license, consent, authorization or approval of, or exemption by, or the giving of notice to, or the registration with any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, and no filing, recording, publication or registration in any public office or any other place, was or is now required to be obtained by the Company to authorize its execution or delivery of, or the performance of its obligations under, this Agreement or the Securities, except such as have been obtained or may be required under state securities or Blue Sky laws or as referred to in the Basic Prospectus. (j) None of the issuance and sale of the Securities, or the First Mortgage Bonds, or the execution or delivery by the Company of, or the performance by the Company of its obligations under, this Agreement did or will conflict with, result in a breach of any of the terms or provisions of, or constitute a default or require the consent of any party under the Company's Articles of Incorporation or by-laws, any material agreement or instrument to which it is a party, any existing applicable law, rule or regulation or any judgment, order or decree of any government, governmental instrumentality or court, domestic or foreign, having jurisdiction over the Company or any of its properties or assets, or did or will result in the creation or imposition of any lien on the Company's properties or assets. 14 15 (k) Except as disclosed in the Basic Prospectus, there is no action, suit, proceeding, inquiry or investigation (at law or in equity or otherwise) pending or, to the knowledge of the Company, threatened against the Company, by any governmental authority that (i) questions the validity, enforceability or performance of this Agreement or the Securities or (ii) if determined adversely, is likely to have a material adverse effect on the business or financial condition of the Company, or materially adversely affect the ability of the Company to perform its obligations hereunder or the consummation of the transactions contemplated by this Agreement. (l) There has not been any material and adverse change in the business, properties or financial condition of the Company from that set forth in the Registration Statement (other than changes referred to in or contemplated by the Registration Statement or the Basic Prospectus). (m) Except as set forth in the Basic Prospectus, no event or condition exists that constitutes, or with the giving of notice or lapse of time or both would constitute, a default or any breach or failure to perform by the Company in any material respect under any indenture, mortgage, loan agreement, lease or other material agreement or instrument to which the Company is a party or by which it or any of its properties may be bound. (n) The Company has duly authorized all necessary action to be taken by it for the procurement of an irrevocable financial guarantee insurance policy issued by Ambac Assurance Corporation, insuring the payment of principal and interest on the Securities when due. 7. Representation and Warranties of Underwriters: Each Underwriter warrants and represents that the information, if any, furnished in writing to the Company through the Representatives expressly for use in the Registration Statement and Prospectus is correct in all material respects as to such Underwriter. Each Underwriter, in addition to other information furnished to the Company for use in the Registration Statement and 15 16 Prospectus, herewith furnishes to the Company for use in the Registration Statement and Prospectus, the information stated herein with regard to the public offering, if any, by such Underwriter and represents and warrants that such information is correct in all material respects as to such Underwriter. 8. Indemnification: (a) The Company agrees, to the extent permitted by law, to indemnify and hold harmless each of the Underwriters and each person, if any, who controls any such Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, against any and all losses, claims, damages or liabilities, joint or several, to which they or any of them may become subject under the Act or otherwise, and to reimburse the Underwriters and such controlling person or persons, if any, for any legal or other expenses incurred by them in connection with defending any action, suit or proceeding (including governmental investigations) as provided in Section 8(c) hereof, insofar as such losses, claims, damages, liabilities or actions, suits or proceedings (including governmental investigations) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any preliminary prospectus as of its issue date (if used prior to the date of the Basic Prospectus), the Basic Prospectus (if used prior to the date of the Prospectus), the Prospectus, or, if the Prospectus shall be amended or supplemented, in the Prospectus as so amended or supplemented (if such Prospectus or such Prospectus as amended or supplemented is used after the period of time referred to in Section 5(e) hereof, it shall contain or be used with such amendments or supplements as the Company deems necessary to comply with Section 10(a) of the Act), or arise out of or are based upon any omission or 16 17 alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or actions arise out of or are based upon any such untrue statement or alleged untrue statement or omission or alleged omission which was made in such preliminary prospectus, Basic Prospectus, Registration Statement or Prospectus, or in the Prospectus as so amended or supplemented, in reliance upon and in conformity with information furnished in writing to the Company by, or through the Representatives on behalf of, any Underwriter expressly for use therein or with any statements in or omissions from that part of the Registration Statement that shall constitute the Statement of Eligibility and Qualification under the Trust Indenture Act of the Trustee under the Indenture, and except that this indemnity shall not inure to the benefit of any Underwriter (or any person controlling such Underwriter) on account of any losses, claims, damages, liabilities or actions, suits or proceedings arising from the sale of the Securities to any person if a copy of the Prospectus, as the same may then be supplemented or amended (excluding, however, any document then incorporated or deemed incorporated therein by reference), was not sent or given by or on behalf of such Underwriter to such person (i) with or prior to the written confirmation of sale involved or (ii) as soon as available after such written confirmation, relating to an event occurring prior to the payment for and delivery to such person of the Securities involved in such sale, and the omission or alleged omission or untrue statement or alleged untrue statement was corrected in the Prospectus as supplemented or amended at such time. The Company's indemnity agreement contained in this Section 8(a), and the covenants, representations and warranties of the Company contained in this Agreement, shall remain in full force and effect regardless of any investigation made by or on behalf of any person, and shall survive the delivery of and payment for the Securities hereunder, and the indemnity agreement contained in this Section 8 shall survive any termination of this Agreement. The liabilities of the Company in this Section 8(a) are in addition to any other liabilities of the Company under this Agreement or otherwise. (b) Each Underwriter agrees, severally and not jointly, to the extent permitted by law, to indemnify, hold harmless and 17 18 reimburse the Company, its directors and such of its officers as shall have signed the Registration Statement, each other Underwriter and each person, if any, who controls the Company or any such other Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act, to the same extent and upon the same terms as the indemnity agreement of the Company set forth in Section 8(a) hereof, but only with respect to alleged untrue statements or omissions made in the Registration Statement, the Basic Prospectus or in the Prospectus, as amended or supplemented, (if applicable) in reliance upon and in conformity with information furnished in writing to the Company by such Underwriter expressly for use therein. The indemnity agreement on the part of each Underwriter contained in this Section 8(b) and the representations and warranties of such Underwriter contained in this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any other person, and shall survive the delivery of and payment for the Securities hereunder, and the indemnity agreement contained in this Section 8(b) shall survive any termination of this Agreement. The liabilities of each Underwriter in Section 8(b) are in addition to any other liabilities of such Underwriter under this Agreement or otherwise. 18 19 (c) If a claim is made or an action, suit or proceeding (including governmental investigations) is commenced or threatened against any person as to which indemnity may be sought under Section 8(a) or 8(b), such person (the "Indemnified Person") shall notify the person against whom such indemnity may be sought (the "Indemnifying Person") promptly after any assertion of such claim threatening to institute an action, suit or proceeding or if such an action, suit or proceeding is commenced against such Indemnified Person, promptly after such Indemnified Person shall have been served with a summons or other first legal process, giving information as to the nature and basis of the claim. Failure to so notify the Indemnifying Person shall not, however, relieve the Indemnifying Person from any liability which it may have on account of the indemnity under Section 8(a) or 8(b) if the Indemnifying Person has not been prejudiced in any material respect by such failure. Subject to the immediately succeeding sentence, the Indemnifying Person shall assume the defense of any such litigation or proceeding, including the employment of counsel and the payment of all expenses, with such counsel being designated, subject to the immediately succeeding sentence, in writing by the Representatives in the case of parties indemnified pursuant to Section 8(b) and by the Company in the case of parties indemnified pursuant to Section 8(a). Any Indemnified Person shall have the right to participate in such litigation or proceeding and to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless (i) the Indemnifying Person and the Indemnified Person shall have mutually agreed to the retention of such counsel or (ii) the named parties to any such proceeding (including any impleaded parties) include (x) the Indemnifying Person and (y) the Indemnified Person and, in the written opinion of counsel to such Indemnified Person, representation of both parties by the same counsel would be inappropriate due to actual or likely conflicts of interest between them, in either of which cases the reasonable fees and expenses of counsel (including disbursements) for such Indemnified Person shall 19 20 be reimbursed by the Indemnifying Person to the Indemnified Person. If there is a conflict as described in clause (ii) above, and the Indemnified Persons have participated in the litigation or proceeding utilizing separate counsel whose fees and expenses have been reimbursed by the Indemnifying Person and the Indemnified Persons, or any of them, are found to be solely liable, such Indemnified Persons shall repay to the Indemnifying Person such fees and expenses of such separate counsel as the Indemnifying Person shall have reimbursed. It is understood that the Indemnifying Person shall not, in connection with any litigation or proceeding or related litigation or proceedings in the same jurisdiction as to which the Indemnified Persons are entitled to such separate representation, be liable under this Agreement for the reasonable fees and out-of-pocket expenses of more than one separate firm (together with not more than one appropriate local counsel) for all such Indemnified Persons. Subject to the next paragraph, all such fees and expenses shall be reimbursed by payment to the Indemnified Persons of such reasonable fees and expenses of counsel promptly after payment thereof by the Indemnified Persons. In furtherance of the requirement above that fees and expenses of any separate counsel for the Indemnified Persons shall be reasonable, the Representatives and the Company agree that the Indemnifying Person's obligations to pay such fees and expenses shall be conditioned upon the following: (1) in case separate counsel is proposed to be retained by the Indemnified Persons pursuant to clause (ii) of the preceding paragraph, the Indemnified Persons shall in good faith fully consult with the Indemnifying Person in advance as to the selection of such counsel; (2) reimbursable fees and expenses of such separate counsel shall be detailed and supported in a manner reasonably acceptable to the Indemnifying Person (but nothing herein shall be deemed to require the furnishing to the Indemnifying Person of any information, including without 20 21 limitation, computer print-outs of lawyers' daily time entries, to the extent that, in the judgment of such counsel, furnishing such information might reasonably be expected to result in a waiver of any attorney-client privilege); and (3) the Company and the Representatives shall cooperate in monitoring and controlling the fees and expenses of separate counsel for Indemnified Persons for which the Indemnifying Person is liable hereunder, and the Indemnified Person shall use every reasonable effort to cause such separate counsel to minimize the duplication of activities as between themselves and counsel to the Indemnifying Person. The Indemnifying Person shall not be liable for any settlement of any litigation or proceeding effected without the written consent of the Indemnifying Person, but if settled with such consent or if there be a final judgment for the plaintiff, the Indemnifying Person agrees, subject to the provisions of this Section 8, to indemnify the Indemnified Person from and against any loss, damage, liability or expenses by reason of such settlement or judgment. The Indemnifying Person shall not, without the prior written consent of the Indemnified Persons, effect any settlement of any pending or threatened litigation, proceeding or claim in respect of which indemnity has been properly sought by the Indemnified Persons hereunder, unless such settlement includes an unconditional release by the claimant of all Indemnified Persons from all liability with respect to claims which are the subject matter of such litigation, proceeding or claim. 9. Contribution: If the indemnification provided for in Section 8 above is unavailable to or insufficient to hold harmless an Indemnified Person under such Section in respect of any losses, claims, damages or liabilities (or actions, suits or proceedings (including governmental investigations) in respect thereof) referred to therein, then each Indemnifying Person under Section 8 shall contribute to the amount paid or payable by such Indemnified Person as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Person on the one hand and the Indemnified Person on the other from the offering of the Securities. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then each Indemnifying Person shall contribute to such amount paid or payable by such Indemnified Person in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of each Indemnifying Person, if any, on the one hand and the Indemnified Person on the other in connection with the statements or omissions which 21 22 resulted in such losses, claims, damages or liabilities (or actions, suits or proceedings (including governmental investigations) in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the total underwriting discounts and commission received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus, bear to the aggregate public offering price of the Securities. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 9 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 9. The amount paid or payable by an Indemnified Person as a result of the losses, claims, damages or liabilities (or actions, suits or proceedings (including governmental proceedings) in respect thereof) referred to above in this Section 9 shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Person in connection with investigating or defending any such action, suits or proceedings (including governmental proceedings) or claim, provided that the provisions of Section 8 have been complied with (in all material respects) in respect of any separate counsel for such Indemnified Person. Notwithstanding the provisions of this Section 9, no Underwriter shall be required to contribute any amount greater than the excess of (i) the total price at which the Securities underwritten by it and distributed to the public were offered to the public over (ii) the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Underwriters' obligations in this Section 9 to contribute are several in proportion to their respective underwriting obligations and not joint. The agreement with respect to contribution contained in Section 9 hereof shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any Underwriter, and shall survive delivery of and payment for the Securities hereunder and any termination of this Agreement. 22 23 10. Substitution of Underwriters: If any Underwriter under this agreement shall fail or refuse (otherwise than for some reason sufficient to justify in accordance with the terms hereof, the termination of its obligations hereunder) to purchase the Securities which it had agreed to purchase on the Time of Purchase, the Representatives shall immediately notify the Company and the Representatives and the other Underwriters may, within 36 hours of the giving of such notice, determine to purchase, or to procure one or more other members of the National Association of Securities Dealers, Inc. ("NASD") (or, if not members of the NASD, who are foreign banks, dealers or institutions not registered under the Exchange Act and who agree in making sales to comply with the NASD's Rules of Fair Practice), satisfactory to the Company, to purchase, upon the terms herein set forth, the principal amount of Securities which the defaulting Underwriter had agreed to purchase. If any non-defaulting Underwriter or Underwriters shall determine to exercise such right, the Representatives shall give written notice to the Company of such determination within 36 hours after the Company shall have received notice of any such default, and thereupon the Time of Purchase shall be postponed for such period, not exceeding three business days, as the Company shall determine. If in the event of such a default, the Representatives shall fail to give such notice, or shall within such 36-hour period give written notice to the Company that no other Underwriter or Underwriters, or others, will exercise such right, then this Agreement may be terminated by the Company, upon like notice given to the Representatives within a further period of 36 hours. If in such case the Company shall not elect to terminate this Agreement, it shall have the right, irrespective of such default: (a) to require such non-defaulting Underwriters to purchase and pay for the respective principal amounts of Securities which they had severally agreed to purchase hereunder, as herein above provided, and, in addition, the principal amount of Securities which the defaulting Underwriter shall have so failed to purchase up to a principal amount thereof equal to one-ninth (1/9) of the respective principal amounts of Securities which such non-defaulting Underwriters have otherwise agreed to purchase hereunder; and/or (b) to procure one or more other members of the NASD (or, if not members of the NASD, who are foreign banks, dealers or institutions not registered under the Exchange Act and who agree in making sales to comply with the NASD's Rules of Fair Practice), to purchase, upon the terms herein set forth, the principal amount of Securities which such 23 24 defaulting Underwriter had agreed to purchase, or that portion thereof which the remaining Underwriters shall not be obligated to purchase pursuant to the foregoing clause (a). In the event the Company shall exercise its rights under clause (a) and/or (b) above, the Company shall give written notice thereof to the Representatives within such further period of 36 hours, and thereupon the Time of Purchase shall be postponed for such period, not exceeding five business days, as the Company shall determine. In the event the Company shall be entitled to but shall not elect to exercise its rights under clause (a) and/or (b), the Company shall be deemed to have elected to terminate this Agreement. Any action taken by the Company under this Section 10 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. Termination by the Company under this Section 10 shall be without any liability on the part of the Company or any non-defaulting Underwriter. In the computation of any period of 36 hours referred to in this Section 10, there shall be excluded a period of 24 hours in respect of each Saturday, Sunday or legal holiday which would otherwise be included in such period of time. 11. Termination of Agreement: This Agreement may be terminated at any time prior to the Time of Purchase by the Representatives, if, prior to such time (i) trading generally in securities on the New York Stock Exchange shall have been suspended by the Commission or the New York Stock Exchange, (ii) trading of any securities of the Company shall have been suspended on any exchange or over-the-counter market, (iii) a general moratorium on commercial banking activities in New York shall have been declared by federal or New York State authorities or (iv) there shall have occurred any outbreak or material escalation of hostilities or any material adverse disruption in financial markets or any other calamity or crisis, the effect of which on the financial markets of the United States is such as to impair, in the Representatives' reasonable judgment, after having made due inquiry, the marketability of the Securities. If the Representatives elect to terminate this Agreement, as provided in this Section 11, the Representatives will promptly notify the Company and each other Underwriter by telephone or telecopy, confirmed by letter. If this Agreement shall not be carried out by any Underwriter for any reason permitted hereunder, or if the sale of the Securities to the Underwriters as herein contemplated shall not be carried out because the Company is not able to comply with the terms hereof, the Company shall not be under any obligation 24 25 under this Agreement and shall not be liable to any Underwriter or to any member of any selling group for the loss of anticipated profits from the transactions contemplated by this Agreement and the Underwriters shall be under no liability to the Company nor be under any liability under this Agreement to one another. Notwithstanding the foregoing, the provisions of Sections 5(g), 5(i), 8 and 9 shall survive any termination of this Agreement. 12. Notices: All notices hereunder shall, unless otherwise expressly provided, be in writing and be delivered at or mailed to the following addresses or be sent by telecopy as follows: if to the Underwriters or the Representatives, to the Representatives at the address or number, as appropriate, designated in Schedule I hereto, and, if to the Company, to Consumers Energy Company, 212 West Michigan Avenue, Jackson, Michigan, 49201, Attention: Senior Vice President and Chief Financial Officer (Telecopy: 517-788-0351). 13. Parties in Interest: The Agreement herein set forth has been and is made solely for the benefit of the Underwriters, the Company (including the directors thereof and such of the officers thereof as shall have signed the Registration Statement), and the controlling persons, if any, referred to in Section 8 hereof, and their respective successors, assigns, executors and administrators, and, except as expressly otherwise provided in Section 10 hereof, no other person shall acquire or have any right under or by virtue of this Agreement. 14. Definition of Certain Terms: The term "Underwriters," as used herein, shall be deemed to mean the several persons, firms or corporations, named in Schedule II hereto (including the Representatives herein mentioned, if so named), and the term "Representatives," as used herein, shall be deemed to mean the representative or representatives designated by, or in the manner authorized by, the Underwriters in Schedule I hereto. All obligations of the Underwriters hereunder are several and not joint. If there shall be only one person, firm or corporation named in Schedule I and Schedule II hereto, the term "Underwriters" and the term "Representatives," as used herein, shall mean such person, firm or corporation. If the firm or firms listed in Schedule I hereto are the same as the firm or firms listed in Schedule II hereto, then the terms "Underwriters" and "Representatives," as used herein, shall each be deemed to refer to such firm or firms. The term "successors" as used in this Agreement shall not include any purchaser, as such purchaser, of any of the Securities from any of the respective Underwriters. 25 26 15. Governing Law: This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. 16. Counterparts: This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. If the foregoing is in accordance with your understanding, please sign and return to us counterparts hereof, and upon the acceptance hereof by you, this letter and such acceptance hereof shall constitute a binding agreement between each of the Underwriters and the Company. Very truly yours, CONSUMERS ENERGY COMPANY By: Accepted: [DATE] - ------------------------------------- - ------------------------------------- - ------------------------------------- - ------------------------------------- As Representatives By: ---------------------------------- By: 26 27 Schedule I - ------------------------------------- - ------------------------------------- - ------------------------------------- - ------------------------------------- Attention: Syndicate Desk Telecopy: 27 28 Schedule II Underwriters Principal Amount of Securities to be Purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . __________ . . . . . . . . . . . . . . . . . . . . . . . . . . . __________ . . . . . . . . . . . . . . . . . . . . . . . . . . . __________ . . . . . . . . . . . . . . . . . . . . . . . . . . . __________ Total. . . . . . . __________ 28 29 Schedule III Information Regarding the Securities 1. Aggregate Principal Amount: 2. Maturity Date: 3. Interest Rate: ___% 4. Price to be paid to the Company: ___% of the principal amount 29 EX-4.C 3 INDENTURE BETWEEN CONSUMERS ENERGY & CHEMICAL BANK 1 EXHIBIT 4(c) THIRD SUPPLEMENTAL INDENTURE DATED AS OF OCTOBER __, 1998 -------------------- This Third Supplemental Indenture, dated as of the ___ day of October, 1998 between Consumers Energy Company, a corporation duly organized and existing under the laws of the State of Michigan (hereinafter called the "Company") and having its principal office at 212 West Michigan Avenue, Jackson, Michigan 49201, and The Chase Manhattan Bank, a New York banking corporation (hereinafter called the "Trustee") and having its principal Corporate Trust Office at 450 W. 33rd Street, 15th Floor, New York, New York, 10001. WITNESSETH: WHEREAS, the Company and the Trustee entered into an Indenture, dated as of February 1, 1998 (the "Original Indenture"), pursuant to which one or more series of debt of the Company (the "Notes") may be issued from time to time; and WHEREAS, Section 2.01 of the Original Indenture permits the terms of any series of Notes to be established in an indenture supplemental to the Original Indenture; and WHEREAS, Section 13.01 of the Original Indenture provides that a supplemental indenture may be entered into by the Company and the Trustee without the consent of any Holders of the Notes to establish the form and terms of the Notes of any series; and WHEREAS, the Company has requested the Trustee to join with it in the execution and delivery of this Third Supplemental Indenture in order to supplement and amend the Original Indenture by, among other things, establishing the form and terms of a series of Notes to be known as the Company's " ___% Senior Secured Insured Quarterly Notes due __, 2028" (the "Senior Secured Insured Quarterly Notes"); and WHEREAS, the Company and the Trustee desire to enter into this Third Supplemental Indenture for the purposes set forth in Sections 2.01 and 13.01 of the Original Indenture as referred to above; and WHEREAS, the Company has furnished the Trustee with a Board Resolution authorizing the execution of this Third Supplemental Indenture; and 2 WHEREAS, all things necessary to make this Third Supplemental Indenture a valid agreement of the Company and the Trustee and a valid supplement to the Original Indenture have been done, NOW, THEREFORE, THIS THIRD SUPPLEMENTAL INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Senior Secured Insured Quarterly Notes to be issued hereunder by holders thereof, the Company and the Trustee mutually covenant and agree, for the equal and proportionate benefit of the respective holders from time to time of the Senior Secured Insured Quarterly Notes as follows: ARTICLE I STANDARD PROVISIONS; DEFINITIONS SECTION 1.01. Standard Provisions. The Original Indenture together with this Third Supplemental Indenture are hereinafter sometimes collectively referred to as the "Indenture." All capitalized terms which are used herein and not otherwise defined herein or in Exhibit A hereto are defined in the Original Indenture and are used herein with the same meanings as in the Original Indenture. ARTICLE II DESIGNATION AND TERMS OF THE NOTES; FORMS SECTION 2.01. Establishment of Series. There is hereby created a series of Notes to be known and designated as the " ___% Senior Secured Insured Quarterly Notes due ________, 2028," such series limited in aggregate principal amount (except as contemplated in Section 2.05(c) of the Original Indenture) to $150,000,000. The form and terms of the Senior Secured Insured Quarterly Notes are established in the form of Senior Secured Insured Quarterly Notes attached hereto as Exhibit A. ARTICLE III DEFINITIONS SECTION 3.01. Definitions. The following defined terms used herein shall, unless the context otherwise requires, have the meanings specified below. "Holder" means any person in whose name a Senior Secured Insured Quarterly Note is registered on the records of the Depository. "Insurance Trustee" means United States Trust Company of New York, or any successor thereto, as the Insurance Trustee under the Policy. 2 3 "Insurer" means Ambac Assurance Corporation, a Wisconsin-domiciled stock insurance company. "Interest Payment Dates" means January 1, April 1, July 1 and October 1 of each year. "Original Issue Date" means October __, 1998. "Paying Agent" means any Person (including the Company acting as Paying Agent) authorized by the Company to pay the principal of or interest on the Senior Secured Insured Quarterly Notes on behalf of the Company. "Policy" shall mean the financial guaranty insurance policy issued by the Insurer insuring the payment when due of the principal of and interest on the Senior Secured Insured Quarterly Notes as provided therein. "Redemption Date" means with respect to any Senior Secured Insured Quarterly Note to be redeemed, in whole or in part, the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price" means with respect to any Senior Secured Insured Quarterly Note to be redeemed, the price at which it is to be redeemed pursuant to this Indenture. "Regular Record Date" means the 15th calendar day of the month preceding the month in which the respective Interest Payment Date occurs (whether or not a Business Day). "Stated Maturity" means October 1, 2028. ARTICLE IV PAYMENT OF PRINCIPAL AND INTEREST SECTION 4.01. Payment of Principal and Interest. The principal of the Senior Secured Insured Quarterly Notes shall be due at Stated Maturity (unless earlier redeemed). The unpaid principal amount of the Senior Secured Insured Quarterly Notes shall bear interest at the rate of ____% per annum until paid or duly provided for. Interest shall be paid quarterly in arrears on each Interest Payment Date to the Person in whose name the Senior Secured Insured Quarterly Notes are registered on the Regular Record Date for such Interest Payment Date. Any such interest that is not so punctually paid or duly provided for will forthwith cease to be payable to the Holders on such Regular Record Date and may either be paid to the Person or Persons in whose name the Senior Secured Insured Quarterly Notes are registered at the close of business on a Special Record Date for the payment of such defaulted interest to be fixed by the Trustee, notice whereof shall be given to Holders of the Senior Secured Insured Quarterly Notes not less than ten days prior to such Special Record Date. 3 4 Payments of interest on the Senior Secured Insured Quarterly Notes will include interest accrued to but excluding the respective Interest Payment Dates. Interest payments for the Senior Secured Insured Quarterly Notes shall be computed and paid on the basis of a 360-day year of twelve 30 day months. ARTICLE V REDEMPTION SECTION 5.01. Redemption at the Company's Option. The Senior Secured Insured Quarterly Notes shall be subject to redemption at the option of the Company, in whole or in part, without premium or penalty, at any time or from time to time on or after October 1, 2003, upon not less than 30 nor more than 60 days' notice, at a Redemption Price equal to 100% of the principal amount to be redeemed plus accrued but unpaid interest to the Redemption Date. If notice of redemption is given as aforesaid, the Senior Secured Insured Quarterly Notes so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price together with any accrued interest thereon, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) the Senior Secured Insured Quarterly Notes hall cease to bear interest. If any Senior Secured Insured Quarterly Note called for redemption shall not be paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at __%. Subject to the foregoing and applicable law (including without limitation, United States federal securities laws), the Company or its affiliates may, at any time and from time to time, purchase outstanding Senior Secured Insured Quarterly Notes by tender, in the open market or by private agreement. SECTION 5.02. Redemption at the Holder's Option. For purposes of this Section 5.02 a "Beneficial Owner" means the Person who has the right to sell, transfer or otherwise dispose of an interest in Senior Secured Insured Quarterly Notes and the right to receive the proceeds therefrom, as well as the interest and principal payable to the Holder thereof. In general, a determination of beneficial ownership in the Senior Secured Insured Quarterly Notes wil be determined by the Company, in its sole discretion, which determinations shall be final and binding on all parties. Unless the Senior Secured Insured Quarterly Notes have been declared due and payable prior to their maturity by reason of an Event of Default, the personal representative or other Person authorized to represent the estate of the deceased Beneficial Owner or from a surviving joint tenant(s) or tenant(s) by the entirety (each, a "Representative") of a deceased Beneficial Owner has the right to request redemption prior to Stated Maturity of all or part of such interest, expressed in integral multiples of $1,000 principal amount, in the Senior Secured Insured Quarterly Notes, and the Company will redeem the same subject to the limitations that the Company will not be obligated to redeem, during the period from the Original Issue Date through and including October 1, 1999 (the "Initial Period"), and during any twelve-month period which ends on and includes each October 1 thereafter (each such twelve-month period being hereinafter referred to as a "Subsequent Period"), 4 5 (i) on behalf of a deceased Beneficial Owner any interest in the Senior Secured Insured Quarterly Notes which exceeds an aggregate principal amount of $25,000 or (ii) interests in the Senior Secured Insured Quarterly Notes in an aggregate principal amount exceeding $3,000,000. A request for redemption may be initiated by the Representative of a deceased Beneficial Owner at any time and in any principal amount in integral multiples of $1,000. Representatives of deceased Beneficial Owners must make arrangements with the Participant through whom such interest is owned in order that timely presentation of redemption requests can be made by the Participant to the Trustee. If the Company, although not obligated to do so, chooses to redeem interests of any deceased Beneficial Owner in the Senior Secured Insured Quarterly Notes in the Initial Period or any Subsequent Period in excess of the $25,000 limitation, such redemption, to the extent that it exceeds the $25,000 limitation for any deceased Beneficial Owner, shall not be included in the computation of the $3,000,000 limitation for such Initial Period or such Subsequent Period, as the case may be, or for any succeeding Subsequent Period. Any Senior Secured Insured Note (or portion thereof) tendered pursuant to a redemption request may be withdrawn by a written request by the Representative received by the Trustee at least 10 days prior to its repayment. Subject to the $25,000 and $3,000,000 limitations, the Company will, after the death of any Beneficial Owner, redeem the interest of such Beneficial Owner in the Senior Secured Insured Quarterly Notes on the next Interest Payment Date following receipt by the Trustee of a redemption request received at least 20 days in advance of the next Interest Payment Date. The Trustee will notify the Company promptly after receipt of any redemption request and the Company will provide all funds necessary for such redemption prior to the date of redemption to the Paying Agent. If redemption requests exceed the aggregate principal amount of interests in Senior Secured Insured Quarterly Notes required to be redeemed during the Initial Period or during any Subsequent Period, then such excess redemption requests will be applied in the order received by the Trustee to successive Subsequent Periods, regardless of the number of Subsequent Periods required to redeem such interests. All redemption requests will be redeemed in the order in which the trustee receives the redemption request. To obtain repayment pursuant to a redemption request, the Representative must provide to the Participant (i) a written request for repayment signed by the Representative, and such signature must be guaranteed by a member firm of a registered national securities exchange or of the NASD or a commercial bank or trust company having an office or correspondent in the United States, (ii) appropriate evidence satisfactory to the Company and the Trustee that (A) the Representative has authority to act on behalf of the deceased Beneficial Owner, (B) the death of such Beneficial Owner has occurred and (C) the deceased was the owner of a beneficial interest in such Senior Secured Insured Quarterly Note at the time of death, (iii) if applicable, a properly executed assignment or endorsement, and (iv) if the beneficial interest in such Senior Secured Insured Quarterly Note is held by a nominee of the deceased Beneficial Owner, a certificate satisfactory to the Trustee from such nominee attesting to the deceased's ownership of a beneficial interest in such Senior Secured Insured Quarterly Note. The Participant will provide these documents to the Trustee. All questions as to the eligibility or validity of any exercise of redemption on behalf of a deceased Beneficial Owner will be determined by the Company, in its sole discretion, which determinations will be final and binding on all parties. 5 6 For purposes of this Section 5.02 an interest in Senior Secured Insured Quarterly Notes held in tenancy by the entirety, joint tenancy or by tenants in common will be deemed to be held by a single Beneficial Owner and the death of a tenant by the entirety, joint tenant or tenant in common will be deemed the death of a Beneficial Owner. The death of a Person who, during his lifetime, was entitled to substantially all of the rights of a Beneficial Owner of an interest in the Senior Secured Insured Quarterly Notes will be deemed the death of the Beneficial Owner, regardless of the recordation of such interest on the records of the Participant, if such rights can be established to the satisfaction of the Participant and the Company. In the case of any redemption request which is presented pursuant to this Section 5.02 and which has not been fulfilled at the time the Company gives notice of its election to partially redeem Senior Secured Insured Quarterly Notes pursuant to Section 5.01 hereof, such interest or portion thereof shall not be subject to redemption pursuant to such Section 5.01, but shall remain subject to redemption pursuant to this Section 5.02 ARTICLE VI SPECIAL INSURANCE PROVISIONS SECTION 6.01. Insurer as Third Party Beneficiary. To the extent that the Indenture confers upon or gives or grants to the Insurer any right, remedy or claim, the Insurer is hereby explicitly recognized as being a third-party beneficiary hereunder and may enforce any such right remedy or claim conferred, given or granted hereunder. SECTION 6.02. Notices and Information. (a) The Company shall furnish to the Insurer: (i) Any notice that is required to be given to a Holder of the Senior Secured Insured Quarterly Notes or to the Trustee pursuant to the Indenture. (ii) As soon as practicable after the filing thereof, a copy of any financial statement of the Company and a copy of any audit and annual report of the Company; a copy of any notice to be given to the registered owners of the Senior Secured Insured Quarterly Notes including, without limitation, notice of any redemption of or defeasance of the Senior Secured Insured Quarterly Notes; and such additional information it may reasonably request. (b) The Company will permit the Insurer to have access to and to make copies of all books and records relating to the Senior Secured Insured Quarterly Notes at any reasonable time. (c) Notwithstanding any other provision of the Indenture, the Trustee and the Company shall immediately notify the Insurer in accordance with Section 6.06 if at any time after 6 7 such amounts are due to be paid to the Trustee or Paying Agent there are insufficient moneys to make any payments of principal and/or interest as required and promptly upon the occurrence of any Event of Default hereunder. All notices and information required to be given to the Insurer shall be in writing and shall be sent by overnight delivery to Ambac Assurance Corporation, One State Street Plaza, New York, NY 10004, Attention: Dennis Pidherny. SECTION 6.03. Concerning the Special Insurance Provisions. The provisions of this Article VI shall apply notwithstanding anything in the Indenture to the contrary, but only so long as the Policy shall be in full force and effect and the Insurer is not in default thereunder. SECTION 6.04. Amendments. Any provision of the Indenture expressly recognizing or granting rights in or to the Insurer may not be amended in any manner which affects the rights of the Insurer hereunder without the prior written consent of the Insurer. SECTION 6.05. Defeasance. Notwithstanding anything herein to the contrary, in the event that the principal and/or interest due on the Senior Secured Insured Quarterly Notes shall be paid by the Insurer pursuant to the Policy, the Senior Secured Insured Quarterly Notes shall remain Outstanding for all purposes, not be defeased or otherwise satisfied and not be considered paid by the Company, and the assignment and pledge of moneys held in trust by the Trustee and all covenants, agreements and other obligations of the Company to the registered owners shall continue to exist and shall run to the benefit of the Insurer, and the Insurer shall be subrogated to the rights of such registered owners. SECTION 6.06. Insurer's Rights to Notice; Subrogation.As long as the Policy shall be in full force and effect, the Company, the Trustee and any Paying Agent agree to comply with the following provisions: (a) If the Trustee or Paying Agent determines that there will be insufficient funds to pay the principal of or interest on the Senior Secured Insured Quarterly Notes on an Interest Payment Date, the Trustee or Paying Agent shall so notify the Insurer within one business day after such determination. Such notice shall specify the amount of the anticipated deficiency, the Senior Secured Insured Quarterly Notes to which such deficiency is applicable and whether such Senior Secured Insured Quarterly Notes will be deficient as to principal or interest, or both. The Insurer will make payments of principal or interest due on the Senior Secured Insured Quarterly Notes on or before the first day next following the date on which the Insurer shall have received notice of nonpayment from the Trustee or Paying Agent. (b) The Trustee or Paying Agent shall, after giving notice to the Insurer as provided in (a) above, make available to the Insurer and, at the Insurer's direction, to the Insurance 7 8 Trustee, the registration books of the Company maintained by the Trustee or Paying Agent and all records relating to the Senior Secured Insured Quarterly Notes maintained under the Indenture. (c) The Trustee or Paying Agent shall provide the Insurer and the Insurance Trustee with a list of registered owners of Senior Secured Insured Quarterly Notes entitled to receive principal or interest payments from the Insurer under the terms of the Policy, and shall make arrangements with the Insurance Trustee (i) to mail checks or pay by wire transfer to the registered owners of Senior Secured Insured Quarterly Notes entitled to receive all or partial interest payments from the Insurer and (ii) to pay principal upon Senior Secured Insured Quarterly Notes surrendered to the Insurance Trustee by the registered owners of Senior Secured Insured Quarterly Notes entitled to receive full or partial principal payments from the Insurer. (d) The Trustee or Paying Agent shall, at the time it provides notice to the Insurer pursuant to (a) above, notify registered owners of Senior Secured Insured Quarterly Notes entitled to receive the payment of principal or interest thereon from the Insurer (i) as to the fact of such entitlement, (ii) that the Insurer will remit to them all or a part of the interest payments next coming due upon proof of any Holder's entitlement to interest payments and delivery to the Insurance Trustee, in form satisfactory to the Insurance Trustee, of an appropriate assignment of the registered owner's right to payment, (iii) that should they be entitled to receive full payment of principal from the Insurer, they must surrender their Senior Secured Insured Quarterly Notes (along with an appropriate instrument of assignment in form satisfactory to the Insurance Trustee to permit ownership of such Senior Secured Insured Quarterly Notes to be registered in the name of the Insurer) for payment to the Insurance Trustee, and not the Trustee or Paying Agent and (iv) that should they be entitled to receive partial payment of principal from the Insurer, they must surrender their Senior Secured Insured Quarterly Notes for payment thereon first to the Trustee or Paying Agent who shall note on such Senior Secured Insured Quarterly Notes the portion of the principal paid by the Company through the Trustee or Paying Agent and then, along with an appropriate instrument of assignment in form satisfactory to the Insurance Trustee, to the Insurance Trustee, which will then pay the unpaid portion of principal. (e) In the event that the Trustee or Paying Agent has notice that any payment of principal of or interest on Senior Secured Insured Quarterly Notes which has become Due for Payment (as defined in the Policy) and which is made to a Holder of Senior Secured Insured Quarterly Notes by or on behalf of the Company has been deemed a preferential transfer and theretofore recovered from its registered owner pursuant to the United States Bankruptcy Code by a trustee in bankruptcy in accordance with the final, nonappealable order of a court having competent jurisdiction, the Trustee or Paying Agent shall, at the time the Insurer is notified pursuant to (a) above, notify all registered owners that in the event that any registered owner's payment is so recovered, such registered owner will be entitled to payment from the Insurer to the extent of such recovery if sufficient funds are not otherwise available, and the Trustee or Paying Agent shall furnish to the Insurer its records evidencing the payments of principal of and interest on the Senior Secured Insured Quarterly Notes which have been made by the Trustee or Paying Agent and subsequently recovered from registered owners and the dates on which such payments were made. 8 9 (f) In addition to those rights granted the Insurer under the Indenture, the Insurer shall, to the extent it makes payment of principal of or interest on the Senior Secured Insured Quarterly Notes, become subrogated to the rights of the recipients of such payments in accordance with the terms of the Policy, and to evidence such subrogation (i) in the case of subrogation as to claims for past due interest, the Trustee or Paying Agent shall note the Insurer's rights as subrogee on the registration books of the Company maintained by the Trustee or Paying Agent upon receipt from the Insurer of proof of the payment of interest thereon to the registered owners of the Senior Secured Insured Quarterly Notes, and (ii) in the case of subrogation as to claims for past due principal, the Trustee or Paying Agent shall note the Insurer's rights as subrogee on the registration books of the Company maintained by the Trustee or Paying Agent upon surrender of the Senior Secured Insured Quarterly Notes by the registered owners thereof together with proof from the Insurer of the payment of principal thereof. SECTION 6.07. Insurer's Rights Concerning the Trustee. (a) The Insurer shall receive prompt written notice of any Trustee or Paying Agent resignation. (b) Notwithstanding any other provision of the Indenture, in determining whether the rights of the Holders of Senior Secured Insured Quarterly Notes will be adversely affected in any material respect by any action taken pursuant to the terms and provisions of the Indenture, the Trustee or Paying Agent shall consider the effect on the Holders of Senior Secured Insured Quarterly Notes as if there were no Policy. SECTION 6.08. Insurer's Right to Accelerate, etc. Anything in the Indenture to the contrary notwithstanding, upon the occurrence and continuance of an Event of Default, so long as the Policy shall be in full force and effect and the Insurer is not in default under the terms of the Policy, the Insurer shall be entitled to control and direct the enforcement of all rights and remedies granted to the Holders of Senior Insured Quarterly Notes. 9 10 ARTICLE VII SUPPLEMENTAL INDENTURES SECTION 7.01. Effect On Original Indenture This Third Supplemental Indenture is a supplement to the Original Indenture. As supplemented by this Third Supplemental Indenture, the Original Indenture is in all respects ratified, approved and confirmed, and the Original Indenture and this Third Supplemental Indenture shall together constitute one and the same instrument. ARTICLE VIII MISCELLANEOUS SECTION 8.01. Counterparts. This Third Supplemental Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 8.02. Recitals. The recitals contained herein shall be taken as the statements of the Company and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Third Supplemental Indenture. SECTION 8.03. Governing Law. This Third Supplemental Indenture shall be governed by and construed in accordance with the laws of the jurisdiction which govern the Original Indenture and its construction. 10 11 IN WITNESS WHEREOF, the parties hereto have caused this Third Supplemental Indenture to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first written above. CONSUMERS ENERGY COMPANY By: -------------------------------- Name: Alan M. Wright Title: Senior Vice President and Chief Financial Officer Attest: (Corporate Seal) THE CHASE MANHATTAN BANK, AS TRUSTEE By: -------------------------------- Name: Title: Attest: (Corporate Seal) 11 12 EXHIBIT A THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. =============================================================================== NO._________ $____________ CONSUMERS ENERGY COMPANY __________% SENIOR SECURED INSURED QUARTERLY NOTES DUE _____ 2028 CUSIP:___________ CONSUMERS ENERGY COMPANY, a Michigan corporation (herein called the "Company," which term includes any successor corporation under the Indenture referred to herein), for value received, hereby promises to pay to: or registered assigns, the principal sum of *ONE HUNDRED AND FIFTY MILLION DOLLARS* on ____________, _______ and to pay interest on such principal sum at the rate of ____ percent (____%) per annum. The Company will pay interest quarterly in arrears January 1 (beginning January 1, 1999), April 1, July 1 and October 1 (each such date an "Interest Payment Date"), until the principal hereof is otherwise paid or duly provided for. The interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture (as defined below), be paid to the holder (the "Holder") of this Note (or one or more predecessor Notes) of record at the close of business on the regular record date (the "Regular Record Date") for such Interest Payment Date, which, except in the case of interest payable at the Stated Maturity (as 12 13 defined in the Indenture), shall be the fifteenth calendar day of the month preceding the month in which the respective Interest Payment Date occurs (whether or not a Business Day), and, in the case of interest payable at the Stated Maturity, shall be the date such that interest payable at the Stated Maturity is payable to the same Person to whom principal on this Note is payable. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Any such interest not so punctually paid or duly provided for shall forthwith cease to be payable to the Holder on such Regular Record Date by virtue of his having been such Holder, and may be paid to the Holder of this Note (or one or more predecessor Notes) of record at the close of business on a special record date (the "Special Record Date") fixed by the Company for the payment of such defaulted interest, notice whereof shall be given to Holders not less than 10 days prior to such Special Record Date, all as more fully provided in the Indenture. Payment of the principal of this Note and the interest thereon will be made at the office or agency of the Company in the Borough of Manhattan, City and State of New York in such currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. Financial Guaranty Insurance Policy No. _______________ (the "Policy") with respect to payments due for principal of and interest on this Note has been issued by Ambac Assurance Corporation (the "Insurer"). The Policy has been delivered to___________________, as the Insurance Trustee under said Policy and will be held by such Insurance Trustee or any successor insurance trustee. The Policy is on file and available for inspection at the principal office of the Insurance Trustee and a copy thereof may be secured from the Insurer or the Insurance Trustee. All payments required to be made under the Policy shall be made in accordance with the provisions thereof. The owner of this Note acknowledges and consents to the subrogation rights of the Insurer as more fully set forth in the Policy. 13 14 CONSUMERS ENERGY COMPANY ______% Senior Secured Insured Quarterly Notes due October 1, 2028 This Note is one of a duly authorized issue of debt securities of the Company (herein called the "Securities"), issuable in one or more series, issued and to be issued under and pursuant to an Indenture dated as of February 1, 1998, as previously supplemented and as further supplemented by that certain Third Supplemental Indenture, dated as of October ____ , 1998 (such Indenture, as so supplemented, the "Indenture"), duly executed and delivered by the Company to The Chase Manhattan Bank, as trustee (the "Trustee," which term includes any successor trustee under the Indenture), and is one of a series limited in aggregate principal amount to One Hundred and Fifty Million Dollars ($150,000,000) and designated as ____ % Senior Secured Insured Quarterly Notes due October 1, 2028 (the "Notes"). Reference is hereby made to the Indenture for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the Holders of Securities (including Holders of the Notes). The Notes are subject to defeasance at the option of the Company as provided in the Indenture. As long as this Note is represented in global form (the "Global Security") registered in the name of the Depositary or its nominee, except as provided in the Indenture and subject to certain limitations therein set forth, no Global Security shall be exchangeable or transferrable. If an Event of Default (as defined in the Indenture) with respect to the Notes shall occur and be continuing, the principal plus any accrued interest may be declared due and payable in the manner and with the effect and subject to the conditions provided in the Indenture. Prior to the Release Date (as hereinafter defined), the Notes will be secured by first mortgage bonds (the "Senior Note Mortgage Bonds") delivered by the Company to the Trustee for the benefit of the Holders of the Notes, issued under the Indenture, dated as of September 1, 1945, from the Company to The Chase Manhattan Bank, as trustee (the "Mortgage Trustee"), as amended and supplemented by various supplemental indentures and as supplemented by a Supplemental 14 15 Indenture dated October __, 1998 providing for a series of Senior Note Mortgage Bonds relating to the Notes (collectively, the "Mortgage"). Reference is made to the Mortgage and the Indenture for a description of the rights of the Trustee as holder of the Senior Note Mortgage Bonds, the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of first mortgage bonds under the Mortgage and the rights of the Company and of the Mortgage Trustee in respect thereof, the duties and immunities of the Mortgage Trustee and the terms and conditions upon which the Senior Note Mortgage Bonds are secured and the circumstances under which additional first mortgage bonds may be issued. From and after such time as all first mortgage bonds (other than Senior Note Mortgage Bonds) issued under the Mortgage have been retired through payment, redemption or otherwise at, before or after the maturity thereof (the "Release Date"), the Senior Note Mortgage Bonds shall cease to secure the Notes in any manner. In certain circumstances prior to the Release Date as provided in the Indenture, the Company is permitted to reduce the aggregate principal amount of a series of Senior Note Mortgage Bonds held by the Trustee, but in no event prior to the Release Date to amount less than the aggregate outstanding principal amount of the series of Notes initially issued contemporaneously with such Senior Note Mortgage Bonds. The Indenture permits the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities then Outstanding (as defined in the Indenture) of all series which are affected by such amendment or modification, except that certain amendments which do not adversely affect the rights of any Holder of the Securities may be made without the approval of Holders of the Securities. No amendment or modification may, among other things, change the Stated Maturity of any Security, reduce the principal amount thereof, reduce the rate or change the time of payment of any interest thereon, or reduce the aforesaid majority in aggregate principal amount of Securities of any series, the consent of the Holders of which is required for any such amendment or modification, without the consent of each Securityholder affected. Any provision of the Indenture expressly recognizing or granting rights in or to the Insurer may not be amended in any manner which affects the rights of the Insurer hereunder without the prior written consent of the Insurer. 15 16 Notwithstanding any provision in the Indenture or any provision of this Note, the Holder of this Note shall have the right, which is absolute and unconditional, to receive payment of the principal of (and premium, if any) and interest on this Note at the times, place and rate, and in the currency herein prescribed. The Company shall have the right, subject to the terms and conditions of the Indenture, to redeem this Note, in whole or in part, without premium or penalty, at any time or from time to time on or after October 1, 2003, at a Redemption Price equal to 100% of the principal amount to be redeemed plus accrued but unpaid interest to the Redemption Date. If any Note called for redemption shall not be paid upon surrender thereof for redemption, the principal shall, until paid, bear interest from the Redemption Date at __%. In addition, at the option of any deceased Beneficial Owner's Representative (as such terms are defined in the Indenture), interests in Notes are redeemable at 100% of their principal amount, plus accrued interest, subject to certain limitations provided in the Indenture. In the event of redemption of this Note in part only, a new Note or Notes of this series for the unredeemed portion hereof will be issued in the name of the Holder hereof upon surrender of the Note or the Note will be reduced in accordance with the provisions of the Indenture. The Notes will not have a sinking fund. THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS. All terms used in this Note which are defined in the Indenture have the meanings assigned to them in the Indenture. 16 17 Unless the certificate of authentication hereon has been executed by or on behalf of the Trustee by manual signature, this Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this Note to be duly executed. CONSUMERS ENERGY COMPANY By: ------------------------------------ Name: Title: Attested: ------------------------------ Name: Title: TRUSTEE'S CERTIFICATE OF AUTHENTICATION - --------------------------------------- Dated: ------------------------- This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. THE CHASE MANHATTAN BANK as Trustee By: ------------------------------------ Authorized Signatory 17 18 SCHEDULE OF EXCHANGES OF INTERESTS IN THE NOTE The following exchanges of interests in this Note have been made:
Principal Amount of this Signature of Amount of Amount of Note following authorized decrease in increase in such decrease signatory of Date of Exchange this Note this Note (or increase) Trustee - ---------------------- ------------------ ---------------- -------------- --------------------
18 19 ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note to ---------------------------- ---------------------------- Insert assignee's social security or tax I.D. no. - -------------------------------------------------------------------------------- (Print or type assignee's name, address and zip code) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- and all rights thereunder and irrevocably appoint ------------------------------ - -------------------------------------------------------------------------------- agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. - -------------------------------------------------------------------------------- Dated: ----------------------- ---------------------------------------- ---------------------------------------- THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS IT APPEARS ON THE FIRST PAGE OF THE WITHIN NOTE. THE SIGNATURE MUST BE GUARANTEED BY AN "ELIGIBLE GUARANTOR INSTITUTION" THAT IS A MEMBER OR PARTICIPANT IN A "SIGNATURE GUARANTEE PROGRAM" (E.G., THE SECURITIES TRANSFER AGENTS MEDALLION PROGRAM, THE STOCK EXCHANGE MEDALLION PROGRAM OR THE NEW YORK STOCK EXCHANGE, INC. MEDALLION PROGRAM). 19 20 EXHIBIT B CERTIFICATE OF AUTHENTICATION This is one of the Senior Secured Insured Quarterly Notes referred to in the within-mentioned Indenture. THE CHASE MANHATTAN BANK, as Trustee By: Authorized Signatory Dated: 20 21 EXHIBIT C FORM OF REQUEST FOR REDEMPTION CONSUMERS ENERGY COMPANY ____% Senior Secured Insured Quarterly Notes due October, 2028 CUSIP No. The undersigned Participant does hereby certify, pursuant to Section 5.01 of the _____ Supplemental Indenture dated as of __________, 1998 to the Indenture dated as of _______________ between CONSUMERS ENERGY COMPANY (the "Company") and THE CHASE MANHATTAN BANK, as trustee (the "Trustee"), to the Company and the Trustee that: 1. [Name of deceased Beneficial Owner] is deceased. 2. [Name of deceased Beneficial Owner] had a $_________________ interest in the Company's ____% Senior Secured Insured Quarterly Notes due October 1, 2028 (the "Notes"). 3. [Name of Representative] is [Beneficial Owner's personal representative/other person authorized to represent the estate of the Beneficial Owner/surviving joint tenant/surviving tenant by the entirety] of [Name of deceased Beneficial Owner] and has delivered to the undersigned a request for redemption in form satisfactory to the undersigned, requesting that $__________ [$ 1,000 or an integral multiple thereof] be redeemed pursuant to said Section 108. Such request and the documents accompanying such request, all of which are satisfactory to the undersigned, are delivered herewith. 4. [Name of Participant] holds the interest in the Notes with respect to which this Request for Redemption is being made on behalf of [Name of deceased Beneficial Owner]. 21 22 IN WITNESS WHEREOF, the undersigned has executed this Request for Redemption as of ___________, ______. [Name of Participant] By:_____________________________ Name:___________________________ Title:__________________________ 22 EX-4.E 4 FORM OF 74TH 1 EXHIBIT 4(e) SEVENTY-FOURTH SUPPLEMENTAL INDENTURE Providing among other things for FIRST MORTGAGE BONDS, ____% Senior Secured Insured Quarterly Notes due October 1, 2028 -------------- Dated as of October ___, 1998 -------------- CONSUMERS ENERGY COMPANY TO THE CHASE MANHATTAN BANK, TRUSTEE 2 SEVENTY-FOURTH SUPPLEMENTAL INDENTURE, dated as of October ___, 1998 (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 THE CHASE MANHATTAN 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 as Trustee under the Indenture; 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 3 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 an Indenture dated as of February 1, 1998, as amended and supplemented, ("Senior Note Indenture") with The Chase Manhattan Bank, as trustee ("Senior Note Trustee") providing for the issuance of notes thereunder, and pursuant to such Senior Note Indenture the Company has agreed to issue to the Senior Note Trustee, as security for the notes ("Senior Notes") to be issued thereunder, a new series of bonds under the Indenture at the time of authentication of each series of Senior Notes issued under such Senior Note Indenture; and WHEREAS, for such purposes the Company desires to issue a new series of bonds, to be designated First Mortgage Bonds, ___% Senior Secured Insured Quarterly Notes due October 1, 2028 each of which bonds shall also bear the descriptive title "First Mortgage Bond" (hereinafter provided for and hereinafter sometimes referred to as the "Senior IQ Note 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 October 1, 2028; and WHEREAS, the Senior IQ Note Bonds shall be issued to the Senior Note Trustee in connection with the issuance by the Company of its ___% Senior Secured Insured Quarterly Notes due October 1, 2028, (the "Notes"); and WHEREAS each of the registered bonds without coupons of the Senior IQ Note Bonds and the Trustee's Authentication Certificate thereon are to be substantially in the following forms, to wit: 2 4 [FORM OF REGISTERED BOND OF THE SENIOR IQ NOTE BONDS] [FACE] NOTWITHSTANDING ANY PROVISIONS HEREOF OR IN THE INDENTURE, THIS BOND IS NOT ASSIGNABLE OR TRANSFERABLE EXCEPT AS PERMITTED OR REQUIRED BY SECTION 4.04 OF THE INDENTURE, DATED AS OF FEBRUARY 1, 1998 BETWEEN CONSUMERS ENERGY COMPANY AND THE CHASE MANHATTAN BANK, AS TRUSTEE. CONSUMERS ENERGY COMPANY FIRST MORTGAGE BOND, ____% SENIOR SECURED INSURED QUARTERLY NOTES DUE OCTOBER 1, 2028 No. $ CONSUMERS ENERGY COMPANY, a Michigan corporation (hereinafter called the "Company"), for value received, hereby promises to pay to The Chase Manhattan Bank, as trustee under the Senior Note Indenture hereinafter referred to, or registered assigns, the principal sum of One Hundred Fifty Million Dollars on October 1, 2028, and to pay to the registered holder hereof interest on said sum from the latest quarterly 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 January 1, 1999, in which case from October ___, 1998, (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 quarterly interest payment date to which interest has been paid on the bonds of this series, or if such interest payment date is January 1, 1999, from October ___, 1998), at the rate per annum of ___% until the principal hereof shall have become due and payable, payable on each January 1, April 1, July 1 and October 1 in each year, commencing January 1, 1999. Under an Indenture dated as of February 1, 1998 (hereinafter sometimes referred to as the "Senior Note Indenture"), between Consumers Energy Company and The Chase Manhattan Bank, as trustee (hereinafter sometimes called the "Senior Note Trustee"), the Company will issue, concurrently with the issuance of this bond, an issue of notes under the Senior Note Indenture entitled ___% Senior Secured Insured Quarterly Notes due October 1, 2028 (the "Notes"). Pursuant to Article IV of the Senior Note Indenture, this bond is issued to the Senior Note Trustee to secure any and all obligations of the Company under the Notes and any other series of senior notes from time to time outstanding under the Senior Note Indenture. Payment of principal of, or premium, if any, or interest on, the Notes shall constitute payments on this bond as further provided herein and in the supplemental indenture pursuant to which this bond has been issued (the "Supplemental Indenture"). 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 signature or a 3 5 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 signature or a facsimile thereof. CONSUMERS ENERGY COMPANY, Dated: By ------------------------------- Its ------------------------------- Attest: -------------------- Secretary [FORM OF TRUSTEE'S AUTHENTICATION CERTIFICATE] TRUSTEE'S AUTHENTICATION CERTIFICATE This is one of the bonds, of the series designated therein, described in the within-mentioned Indenture. THE CHASE MANHATTAN BANK, Trustee By ------------------------------------- Authorized Officer [REVERSE] CONSUMERS ENERGY COMPANY FIRST MORTGAGE BOND, ____% SENIOR SECURED INSURED QUARTERLY NOTES DUE OCTOBER 1, 2028 The interest payable on any January 1, April 1, July 1 and October 1 (each "Interest Payment Date") 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 on the fifteenth calendar day of the month preceding the month in which the respective Interest Payment Date occurs ("Record Date"), or, if such Record Date shall be a legal holiday or a day on which banking institutions in the City of New York, New York or the City of Detroit, Michigan are authorized by law to close, the next succeeding 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 the interest on this bond shall be payable at the office or agency of the Company in the City of Jackson, Michigan 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. 4 6 Upon any payment of the principal of, premium, if any, and interest on, all or any portion of the Notes, whether at maturity or prior to maturity by redemption or otherwise or upon provision for the payment thereof having been made in accordance with Section 5.01(a) of the Senior Note Indenture, Senior IQ Note Bonds in a principal amount equal to the principal amount of such Notes and having both a corresponding maturity date and interest rate shall, to the extent of such payment of principal, premium, if any, and interest, be deemed paid and the obligation of the Company thereunder to make such payment shall be discharged to such extent and, in the case of the payment of principal (and premium, if any) such bonds of said series shall be surrendered to the Company for cancellation as provided in Section 4.08 of the Senior Note Indenture. The Trustee may at anytime and all times conclusively assume that the obligation of the Company to make payments with respect to the principal of and premium, if any, and interest on the Senior IQ Note Bonds, so far as such payments at the time have become due, has been fully satisfied and discharged pursuant to the foregoing sentence unless and until the Trustee shall have received a written notice from the Senior Note Trustee signed by one of its officers stating (i) that timely payment of, or premium or interest on, the Notes has not been made, (ii) that the Company is in arrears as to the payments required to be made by it to the Senior Note Trustee pursuant to the Senior Note Indenture, and (iii) the amount of the arrearage. For purposes of Section 4.09 of the Senior Note Indenture, this bond shall be deemed to be the "related series of Senior Note First Mortgage Bonds" in respect of the Notes. This bond is one of the bonds issued and to be issued from time to time under and in accordance with and all 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 (The Chase Manhattan Bank, successor) (hereinafter sometimes referred to as the "Trustee"), and 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 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. The Company reserves the right, without any consent, vote or other action by holders of bonds of this series 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 5 7 (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. This bond is not redeemable except on the respective dates, in the respective principal amounts and for the respective redemption prices which correspond to the redemption dates for, the principal amounts to be redeemed of, and the redemption prices for, the Notes, and except upon written demand of the Senior Note Trustee following the occurrence of an Event of Default under the Senior Note Indenture and the acceleration of the senior notes, as provided in Section 8.01 of the Senior Note Indenture. 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. This bond shall not be assignable or transferable except as permitted or required by Section 4.04 of the Senior Note Indenture. Any such transfer shall be effected at the Investor Services Department of the Company, as transfer agent (hereinafter referred to as "corporate trust office"). 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 said corporate trust office of the 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. As provided in Section 4.11 of the Senior Note Indenture, from and after the Release Date (as defined in the Senior Note Indenture), the obligations of the Company with respect to this bond shall be deemed to be satisfied and discharged, this bond shall cease to secure in any manner any senior notes outstanding under the Senior Note Indenture, and, pursuant to Section 4.08 of the Senior Note Indenture, the Senior Note Trustee shall forthwith deliver this bond to the Company for cancellation. 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. 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. -------------------- AND WHEREAS all acts and things necessary to make the bonds of the Senior IQ Note 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; 6 8 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 Senior IQ Note 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 The Chase Manhattan 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. 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 7 9 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 "Senior IQ Note 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. Senior IQ Note Bonds shall be issued in the aggregate principal amount of $150,000,000, shall mature on October 1, 2028 and shall be issued only as registered bonds without coupons in denominations of $1,000 and any multiple thereof. The serial numbers of bonds of the Senior IQ Note 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. Senior IQ Note Bonds shall bear interest at a rate of ____% per annum until the principal thereof shall have become due and payable, payable quarterly on January 1, April 1, July 1 and October 1 in each year commencing January 1, 1999. 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 Jackson, Michigan designated for that purpose. Upon any payment of the principal of, premium, if any, and interest on, all or any portion of the Notes whether at maturity or prior to maturity by redemption or otherwise or upon provision for the payment thereof having been made in accordance with Section 5.01(a) of the Senior Note Indenture, Senior IQ Note Bonds in a principal amount equal to the principal amount of such Notes and having both a corresponding maturity date and interest rate shall, to the extent of such payment of principal, premium, if any, and interest, be deemed paid and the obligation of the Company thereunder to make such payment shall be discharged to such extent and, in the case of the payment of principal (and premium, if any) such bonds of said series shall be surrendered to the Company for cancellation as provided in Section 4.08 of the Senior Note Indenture. The Trustee may at anytime and all times conclusively assume that the obligation of the Company to make payments with respect to the principal of and premium, if any, and interest on the Senior IQ Note Bonds, so far as such payments at the time have become due, has been fully satisfied and discharged pursuant to the foregoing sentence unless and until the Trustee shall have received a written notice from the Senior Note Trustee signed by one of its officers stating (i) that timely payment of, or premium or interest on, the Notes has not been so made, (ii) that the Company is in arrears as to the payments required to be made by it to the Senior Note Trustee pursuant to the Senior Note Indenture, and (iii) the amount of the arrearage. Each Senior IQ Note Bond is to be issued to and registered in the name of The Chase Manhattan Bank, as trustee, or a successor trustee (said trustee or any successor trustee being hereinafter referred to as the "Senior Note Trustee") under the Indenture, dated as of February 1, 1998 (hereinafter sometimes referred to as the "Senior Note Indenture") between Consumers Energy Company and the Senior Note Trustee, to secure any and all obligations of the Company under the Notes and any other series of senior notes from time to time outstanding under the Senior Note Indenture. The Senior IQ Note Bonds shall not be assignable or transferable except as permitted or required by Section 4.04 of the Senior Note Indenture. Any such transfer shall be effected at the Investor Services Department of the Company, as transfer agent (hereinafter referred to as "corporate trust office"). The Senior IQ Note 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 said corporate trust office of the transfer agent. However, notwithstanding the provisions of Section 2.05 of the Indenture, no 8 10 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. Senior IQ Note Bonds shall not be redeemable except on the respective dates, in the respective principal amounts and for the respective redemption prices which correspond to the redemption dates for, the principal amounts to be redeemed of, and the redemption prices for, the Notes, and except as set forth in Section 3 hereof. In the event the Company redeems any Notes prior to maturity in accordance with the provisions of the Senior Note Indenture or in accordance with the provisions of the Third Supplemental Indenture to the Senior Note Indenture dated as of October ___, 1998 (the "Third Supplemental Indenture to the Senior Note Indenture"), the Senior Note Trustee shall on the same date deliver to the Company the Senior IQ Note Bonds in principal amounts corresponding to the Notes so redeemed, as provided in Section 4.08 of the Senior Note Indenture. The Company agrees to give the Senior Note Trustee notice of any such redemption of the Notes on or before the date fixed for any such redemption. In the event a Beneficial Owner (as such term is defined in the Third Supplemental Indenture to the Senior Note Trust Indenture) redeems any Notes prior to maturity in accordance with the provisions of the Third Supplemental Indenture to the Senior Note Indenture, the Senior Note Trustee shall on the same date deliver to the Company the Senior IQ Note Bonds in principal amounts corresponding to the Notes so redeemed, as provided in Section 4.08 of the Senior Note Indenture. The Company agrees to give the Senior Note Trustee notice of any such redemption of the Notes on or before the date fixed for any such redemption. Senior IQ Note Bonds are not redeemable by the operation of the improvement fund or 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 Senior Note Indenture and the acceleration of the Notes, the Senior IQ Note Bonds shall be redeemable in whole upon receipt by the Trustee of a written demand (hereinafter called a "Redemption Demand") from the Senior Note Trustee stating that there has occurred under the Senior Note Indenture both an Event of Default and a declaration of acceleration of payment of principal, accrued interest and premium, if any, on the Notes, specifying the last date to which interest on such notes has been paid (such date being hereinafter referred to as the "Initial Interest Accrual Date") and demanding redemption of Senior IQ Note Bonds. The Company waives any right it may have to prior notice of such redemption under the Indenture. Upon surrender of the Senior IQ Note Bonds by the Senior Note Trustee to the Trustee, the Senior IQ Note Bonds shall be redeemed at a redemption price equal to the principal amount thereof plus accrued interest thereon from the Initial Interest Accrual Date to the date of the Redemption Demand; provided, however, that in the event of a recision of acceleration of senior notes pursuant to the last paragraph of Section 8.01(a) of the Senior Note Indenture, then any Redemption Demand shall thereby be deemed to be rescinded by the Senior Note Trustee; but no such recision or annulment shall extend to or affect any subsequent default or impair any right consequent thereon. SECTION 4. For purposes of Section 4.09 of the Senior Note Indenture, this bond shall be deemed to be the "related series of Senior Note First Mortgage Bonds" in respect of the Notes. SECTION 5. As provided in Section 4.11 of the Senior Note Indenture, from and after the Release Date (as defined in the Senior Note Indenture), the obligations of the Company with respect to the Senior IQ Note Bonds (the "Bonds") shall be deemed to be satisfied and discharged, the Bonds shall cease to secure in any manner any senior notes outstanding under the Senior Note Indenture, and, pursuant to Section 4.08 of the Senior Note Indenture, the Senior Note Trustee shall forthwith deliver the Bonds to the Company for cancellation. 9 11 SECTION 6. The Company reserves the right, without any consent, vote or other action by the holder of the Senior IQ Note Bonds or the holders of any Notes, 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 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. 10 12 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 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 7. 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 8. 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 Senior Note Trustee, for the benefit of the holder or holders of the Notes, any right or interest to avail himself of any benefit under any provision of the Indenture, as so supplemented and amended. 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 and seventh 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. 11 13 SECTION 11. In the event the date of any notice required or permitted hereunder or the date of maturity of interest on or principal of the Senior IQ Note Bonds or the date fixed for redemption or repayment of the Senior IQ Note Bonds shall not be a Business Day, then (notwithstanding any other provision of the Indenture or of any supplemental indenture thereto) such notice or such payment of such interest or principal 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 or as if made on the date of maturity or the date fixed for redemption or repayment, and no interest shall accrue for the period from and after such date. "Business Day" means, with respect to this Section 11, a day of the year on which banks are not required or authorized to close in New York City or Detroit, Michigan. SECTION 12. This Supplemental Indenture and the Senior IQ Note 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 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. 12 14 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. 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 13 15 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 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. 14 16 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 line 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 line of the Indenture.) [Insert legal descriptions for land in each county.] SECTION 9. The Company is a transmitting utility under Section 9401(5) of the Michigan Uniform Commercial Code (M.C.L. 440.9401(5)) as defined in M.C.L. 440.9105(n). 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 The Chase Manhattan 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 15 17 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. 16 18 CONSUMERS ENERGY COMPANY (SEAL) By ----------------------------------- Attest: - ---------------------------- Signed, sealed and delivered by CONSUMERS ENERGY COMPANY in the presence of - ---------------------------- - ---------------------------- STATE OF MICHIGAN ) ss. COUNTY OF JACKSON ) The foregoing instrument was acknowledged before me this ______ day of ______________, 1998, by _______________________________, _________________________________________________ of CONSUMERS ENERGY COMPANY, a Michigan corporation, on behalf of the corporation. ---------------------------------------- , Notary Public [Seal] Jackson County, Michigan My Commission Expires: S-1 19 THE CHASE MANHATTAN BANK, AS TRUSTEE (SEAL) By ------------------------------------ Attest: Vice President - ---------------------------- Trust Officer Signed, sealed and delivered by THE CHASE MANHATTAN BANK in the presence of - ---------------------------- - ---------------------------- STATE OF NEW YORK ) ss. COUNTY OF NEW YORK ) The foregoing instrument was acknowledged before me this ______ day of ________________, 1998, by _____________________________________, a Vice President of THE CHASE MANHATTAN BANK, a New York corporation, on behalf of the corporation. -------------------------------------- Notary Public New York County, New York My Commission Expires: Prepared by: When recorded, return to: Kimberly A. Connelly Consumers Energy Company 212 West Michigan Avenue General Services Real Estate Department Jackson, MI 49201 Attn: Nancy P. Fisher, P-21-410B 1945 W. Parnall Road Jackson, MI 49201 S-2 EX-4.F 5 FORM OF FINANCIAL GUARANTY 1 [SPECIMEN] EXHIBIT 4(f) [AMBAC FINANCIAL GUARANTY INSURANCE POLICY LETTERHEAD] Obligor: Policy Number: Obligations: Premium: AMBAC ASSURANCE CORPORATION (AMBAC) A Wisconsin Stock Insurance Company in consideration of the payment of the premium and subject to the terms of this Policy, hereby agrees to pay to United States Trust Company of New York, as trustee, or its successor (the "Insurance Trustee"), for the benefit of the Obligees, that portion of the principal of and interest on the above-described obligations (the "Obligations") which shall become Due for Payment but shall be unpaid by reason of Nonpayment by the Obligor. Ambac will make such payments to the Insurance Trustee within one (1) business day following notification to Ambac of Nonpayment. Upon an Obligee's presentation and surrender to the Insurance Trustee of such unpaid Obligations or appurtenant coupons, uncanceled and in bearer form and free of any adverse claim, the Insurance Trustee will disburse to the Obligee the face amount of principal and interest which is then Due for Payment but is unpaid. Upon such disbursement, Ambac shall become the owner of the surrendered Obligations and coupons and shall be fully subrogated to all of the Obligee's rights to payment. In cases where the Obligations are issuable only in a form whereby principal is payable to registered Obligees or their assigns, the Insurance Trustee shall disburse principal to an Obligee as aforesaid only upon presentation and surrender to the Insurance Trustee of the unpaid Obligation, uncanceled and free of any adverse claim, together with an instrument of assignment, in form satisfactory to the Insurance Trustee duly executed by the Obligee or such Obligee's duly authorized representative, so as to permit ownership of such Obligation to be registered in the name of Ambac or its nominee. In cases where the Obligations are issuable only in a form whereby interest is payable to registered Obligees or their assigns the Insurance Trustee shall disburse interest to an Obligee as aforesaid only upon presentation to the Insurance Trustee of proof that the claimant is the person entitled to the payment of interest on the Obligation and delivery to the Insurance Trustee of an instrument of assignment, in form satisfactory to the Insurance Trustee, duly executed by the claimant Obligee or such Obligee's duly authorized representative, transferring to Ambac all rights under such Obligation to receive the interest in respect of which the insurance disbursement was made. Ambac shall be subrogated to all of the Obligees' rights to payment on registered Obligations to the extent of the insurance disbursements so made. In the event that a trustee or paying agent for the Obligations has notice that any payment of principal of or interest on an Obligation which has become Due for Payment and which is made to an Obligee by or on behalf of the Obligor has been deemed a preferential transfer and theretofore recovered from the Obligee pursuant to the United States Bankruptcy Code in accordance with a final, nonappealable order of a court of competent jurisdiction, such Obligee will be entitled to payment from Ambac to the extent of such recovery if sufficient funds are not otherwise available. As used herein, the term "Obligee" means any person other than the Obligor who, at the time of Nonpayment, is the owner of an Obligation or of a coupon appertaining to an Obligation. As used herein, "Due for Payment", when referring to the principal of Obligations, is when the stated maturity date or mandatory redemption date for the application of a required sinking fund installment has been reached and does not refer to any earlier date on which payment is due by reason of call for redemption (other than by application of required sinking fund installments), acceleration or other advancement of maturity; and, when referring to interest on the Obligations, is when the stated date for payment of interest has been reached. As used herein, "Nonpayment" means the failure of the Obligor to have provided sufficient funds to the paying agent for payment in full of all principal of and interest on the Obligations which are Due for Payment. This Policy is noncancelable. The premium on this Policy is not refundable for any reason, including payment of the Obligations prior to maturity. This Policy does not insure against loss of any prepayment or other acceleration payment which at any time may become due in respect of any Obligation, other than at the sole option of Ambac, nor against any risk other than Nonpayment. In witness whereof, Ambac has caused this Policy to be affixed with a facsimile of its corporate seal and to be signed by its duly authorized officers in facsimile to become effective as its original seal and signatures and binding upon Ambac by virtue of the countersignature of its duly authorized representative. P. Lassiter [SEAL] Stephen D. Cooke President Secretary Effective Date: Authorized Representative UNITED STATES TRUST COMPANY OF NEW YORK acknowledges H. William Weber that it has agreed to perform the duties of Insurance Authorized Officer Trustee under this Policy. Form No.: 2B-0012 (7/97) -----END PRIVACY-ENHANCED MESSAGE-----