8-KOther Events

CMS ENERGY CORP 8-K Report (Dec 5, 2003)

Filed December 5, 2003For Securities:CMSCMS-PCCMSACMSCCMSD

Summary

CMS Energy Corporation (CMS) filed an 8-K on December 5, 2003, reporting on two significant events. Firstly, the company announced the issuance of $250 million in 4.50% cumulative convertible preferred stock. The net proceeds of approximately $242.5 million are intended to reduce the company's outstanding debt. This preferred stock is convertible into CMS Energy common stock at an initial conversion price of $9.893 per share under certain conditions. Secondly, CMS Energy disclosed that it was served with a derivative complaint filed by a shareholder in the Circuit Court of Jackson County, Michigan. This lawsuit arises from a shareholder demand made in May 2002, alleging breaches of fiduciary duties by officers and directors related to "round trip trading" and insider trades. A special litigation committee was formed in January 2003 to review the shareholder's demands, and the company intends to seek an extension to respond to the complaint while the committee completes its review.

Key Highlights

  • 1CMS Energy issued $250 million of 4.50% cumulative convertible preferred stock on December 5, 2003.
  • 2Net proceeds of approximately $242.5 million from the preferred stock issuance will be used to reduce debt.
  • 3The preferred stock is convertible into CMS Energy common stock at an initial conversion price of $9.893 per share.
  • 4CMS Energy may have the right to cause automatic conversion of preferred stock after December 5, 2008.
  • 5The company was served with a derivative shareholder lawsuit alleging breaches of fiduciary duties and improper trading practices.
  • 6A special litigation committee has been formed to review the shareholder demands related to the lawsuit.
  • 7CMS Energy intends to seek an extension to respond to the derivative complaint while the committee conducts its review.

Frequently Asked Questions

The primary purpose of the $250 million issuance of 4.50% cumulative convertible preferred stock is to raise capital to reduce CMS Energy's outstanding debt. Approximately $242.5 million in net proceeds will be used for this debt reduction.

Holders of the preferred stock can convert their shares into CMS Energy common stock under certain circumstances. The initial conversion rate is 5.0541 shares of common stock per share of preferred stock, implying an initial conversion price of $9.893 per share. CMS Energy also has a potential right to force conversion after December 5, 2008.

The lawsuit stems from a shareholder demand alleging that CMS Energy officers and directors breached their fiduciary duties. These alleged breaches are related to 'round trip trading' activities at a subsidiary and alleged insider trading by certain current and former officers and directors.

CMS Energy has formed a special litigation committee, comprised of newly appointed directors, to review the shareholder's demands and determine if pursuing the legal action is in the best interest of the company. The company also plans to seek an extension to formally respond to the complaint while this review is ongoing.