1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CMS Energy Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
2
[CMS ENERGY LOGO]
CMS ENERGY CORPORATION
CALL AND NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 26, 2000
To the Shareholders of CMS Energy Corporation:
The annual meeting of shareholders of CMS Energy Corporation will be held on
Friday, the 26th day of May 2000, at 10:30 A.M., Eastern Daylight Saving Time,
at the Dearborn Inn, 20301 Oakwood Boulevard, Dearborn, Michigan 48124 for the
following purposes:
(1) Electing a Board of Directors of 11 members;
(2) Ratifying the appointment of Arthur Andersen LLP, independent public
accountants, to audit the financial statements of CMS Energy Corporation for the
year ending December 31, 2000;
(3) Considering a proposal to permit awards under CMS Energy Corporation's
Executive Incentive Compensation Plan to be income tax deductible by the
Company; and
(4) Transacting such other business as may properly come before the meeting.
The annual report to the shareholders for the year 1999, including financial
statements, has been furnished to you.
The Board of Directors has fixed April 11, 2000 as the record date for the
determination of shareholders entitled to notice of and to vote at the meeting.
All shareholders are cordially invited to attend the annual meeting and will be
entitled to vote on all matters that come before the meeting. The Board of
Directors requests that you vote by means of touch tone telephone, the Internet,
or by signing and returning the enclosed proxy. The enclosed envelope requires
no postage if mailed in the United States.
Thomas A. McNish, Secretary
CMS Energy Corporation
Fairlane Plaza South
Suite 1100
330 Town Center Drive
Dearborn, Michigan 48126
April 24, 2000
3
PROXY STATEMENT
------------------------
INTRODUCTION
The Board of Directors solicits your proxy for use at this year's annual
meeting. The shares represented by your proxy will be voted as you direct if the
proxy is returned prior to the meeting. You may revoke your proxy at any time
before it is exercised.
As of December 31, 1999, CMS Energy Corporation's ("CMS") outstanding Common
Stock ($.01 par value) consisted of a total of 116,037,958 shares. Each
outstanding share is entitled to one vote on all matters which may come before
the annual meeting. All shares represented by valid proxies will be voted at the
annual meeting.
CMS has received a copy of Schedule 13G filed with the SEC by Massachusetts
Financial Services Co, 500 Boylston Street, 15th Floor, Boston, Massachusetts,
02116. This schedule indicates that holdings of 7,195,273 shares, representing
6.2% of the outstanding common stock of CMS, were acquired in a fiduciary
capacity in the ordinary course of business for investment purposes. To the
knowledge of management, no other person or entity currently owns beneficially
more than 5% of any class of CMS' outstanding voting securities.
The determination of approval of corporate action by the shareholders is
based on votes "for" and "against". Abstentions and broker non-votes are not
counted as "against" votes but are counted in the determination of a quorum.
NOMINEES FOR ELECTION AS MEMBERS OF
THE BOARD OF DIRECTORS
The nominees for directors of CMS and Consumers Energy Company ("Consumers")
will hold office until the next annual meeting or until their successors are
elected and qualified. Unless a shareholder withholds authority to vote for the
election of directors as provided in the proxy, the returned proxy will be voted
for the listed nominees. The Board of Directors has no reason to believe that
the persons named will not be available but in the event any nominee is unable
to serve, the proxy will be voted for a substitute nominee designated by the
Board of Directors. All of the nominees are presently serving as directors.
1
4
WILLIAM T. MCCORMICK, JR., 55, has served as Chairman of the
WILLIAM T. MCCORMICK, JR. Board and Chief Executive Officer of CMS since it was
[PHOTO] incorporated in February 1987 and as Chairman of the Board
of Consumers since November 1985. Until January 1992 he was
also CEO of Consumers, and until December 1987, he was also
President of CMS and of Consumers. He is a director of Bank
One Corporation, Rockwell International Corporation, and
Schlumberger Ltd. He has been a director of CMS since 1987
and of Consumers since 1985.
JOHN M. DEUTCH, 61, has served since 1992 as Institute
JOHN M. DEUTCH [PHOTO] Professor of Massachusetts Institute of Technology (MIT),
Cambridge, Massachusetts. On leave from MIT, he served as
director of the Central Intelligence Agency from 1995
through 1996, as U.S. Deputy Secretary of Defense from 1994
to 1995, and as Undersecretary of the U.S. Department of
Defense from 1993 to 1994. He is a director of ARIAD
Pharmaceuticals, Inc., Citigroup, Inc., Cummins Engine
Company, Inc., Raytheon Company, and Schlumberger Ltd. He
has been a director of CMS and of Consumers since 1997. He
had previously served as a director of CMS and of Consumers
from 1986 to 1993, when he resigned following his
confirmation as Undersecretary of Defense.
JAMES J. DUDERSTADT, 57, has been President Emeritus and
JAMES J. DUDERSTADT University Professor of Science and Engineering at the
[PHOTO] University of Michigan, Ann Arbor, Michigan, since 1996. He
served as the President of the University of Michigan from
1988 to 1996. He is a director of Unisys Corporation, serves
on the Executive Council of the National Academy of
Engineering, and chairs the Nuclear Energy Research Advisory
Committee of the U.S. Department of Energy. He has been a
director of CMS and of Consumers since 1993.
KATHLEEN R. FLAHERTY, 48, has served since April 1, 1999 as
KATHLEEN R. FLAHERTY President and Chief Operating Officer of WinStar
[PHOTO] International, a provider of global telecommunications
services. Previously, she served from 1998 to April 1, 1999
as President and Chief Operating Officer of WinStar
Communications, Europe, from 1997 to 1998 as Senior Vice
President, Product Architecture for MCI Communications
Corporation, and from 1995 to 1997 as National Business
Marketing Director for British Telecom. She has been a
director of CMS and of Consumers since 1995.
2
5
VICTOR J. FRYLING, 52, has served as Chief Operating Officer
VICTOR J. FRYLING [PHOTO] of CMS since 1996 and as President of CMS since 1992. In
addition, he was elected Vice Chairman of Consumers in 1992.
He is a charter member of the U.S. - Argentina Business
Development Council and a member of the Board of Directors
of the Institute of the Americas. He has been a director of
CMS and of Consumers since 1990.
EARL D. HOLTON, 66, has served since January 1999 as Vice
EARL D. HOLTON [PHOTO] Chairman of Meijer, Inc., a Grand Rapids, Michigan based
operator of food and general merchandise centers. He is also
Chairman of the Board of Steelcase, Inc. Previously, he
served from 1980 to January 1999 as President of Meijer,
Inc. He is a director of Meijer, Inc. and Steelcase, Inc. He
has been a director of CMS and of Consumers since 1989.
WILLIAM U. PARFET, 53, has served since May of 1999 as
WILLIAM U. PARFET [PHOTO] Chairman and Chief Executive Officer of MPI Research,
Mattawan, Michigan, a research laboratory conducting risk
assessment toxicology studies. Previously, he served from
1995 to May of 1999 as Co-Chairman of MPI Research, and from
1993 to 1996 as President and Chief Executive Officer of
Richard-Allan Medical Industries. He is a director of
Pharmacia & Upjohn, Inc., Stryker Corporation, and Sybron
International Corporation. He is also a Commissioner of the
Michigan Department of Natural Resources. He has been a
director of CMS and of Consumers since 1991.
PERCY A. PIERRE, 61, has served since 1990 as Professor of
PERCY A. PIERRE [PHOTO] Electrical Engineering, Michigan State University, East
Lansing, Michigan. He also served as Vice President for
Research and Graduate Studies at Michigan State University
from 1990 to 1995. Dr. Pierre is a former Assistant
Secretary of the Army for Research, Development and
Acquisition. He is also a former President of Prairie View
A&M University. He is a director of Old Kent Financial
Corporation and the Whitman Education Group. He also serves
as a member of the Board of Trustees for the University of
Notre Dame and Hampshire College. He has been a director of
CMS and of Consumers since 1990.
3
6
KENNETH L. WAY, 60, has served since 1988 as Chairman of the
KENNETH L. WAY [PHOTO] Board and Chief Executive Officer of Lear Corporation, a
Southfield, Michigan based supplier of automotive interior
systems to the automotive industry. He is a director of
Comerica, Inc. and WESCO International, Inc. He also serves
as a member of the Boards of Trustees for Kettering
University and the Henry Ford Health Systems. He has been a
director of CMS and of Consumers since 1998.
KENNETH WHIPPLE, 65, served from 1988 until his retirement
KENNETH WHIPPLE [PHOTO] in 1999 as Executive Vice President of Ford Motor Company,
Dearborn, Michigan, a world-wide automotive manufacturer,
and President of the Ford Financial Services Group. In
addition, he served from 1997 to 1998 as Chairman and Chief
Executive Officer of Ford Motor Credit Company. He had
previously served as Chairman and Chief Executive Officer of
Ford of Europe, Inc. from 1986 to 1988. He is a director of
Associates First Capital Corporation and Galileo
International, Inc. He has been a director of CMS and of
Consumers since 1993.
JOHN B. YASINSKY, 60, has served since October 1, 1999 as
JOHN B. YASINSKY [PHOTO] Chairman and Chief Executive Officer of OMNOVA Solutions
Inc., Fairlawn, Ohio, a developer, manufacturer, and
marketer of emulsion polymers, specialty chemicals, and
building products. Previously, he served from 1995 to
October 1, 1999 as Chairman, Chief Executive Officer and
President of GenCorp. He is a director of OMNOVA Solutions
Inc. He has been a director of CMS and of Consumers since
1994.
4
7
MANAGEMENT SECURITY OWNERSHIP
The following chart sets forth the ownership of CMS' Common Stock by the
directors and executive officers:
Shares
Name Beneficially Owned*
---- -------------------
William T. McCormick, Jr................ 255,198
John M. Deutch.......................... 6,600
James J. Duderstadt..................... 3,361
Kathleen R. Flaherty.................... 3,956
Victor J. Fryling....................... 134,079
Earl D. Holton.......................... 13,247
William U. Parfet....................... 12,200
Percy A. Pierre......................... 4,615
Kenneth L. Way.......................... 8,133
Kenneth Whipple......................... 4,904
John B. Yasinsky........................ 7,355
David W. Joos........................... 57,688
Alan M. Wright.......................... 41,554
Rodney E. Boulanger..................... 38,973
David A. Mikelonis...................... 28,838
All Directors and Executive Officers.... 962,113
* In addition to the shares shown above, Messrs. McCormick, Fryling, Joos,
Wright, Boulanger, Mikelonis, and other executive officers own options to
acquire 479,000; 275,000; 76,000; 62,000; 65,000, 22,000; and 646,355 shares,
respectively.
Shares shown as beneficially owned include (1) shares to which a person has
or shares voting power and/or investment power, and (2) the number of shares and
share equivalents represented by interests in the Employees' Savings and
Incentive Plan, the Deferred Salary Savings Plan, the Performance Incentive
Stock Plan, and the Directors' Deferred Compensation Plan as of December 31,
1999. The directors each own 10 shares of Preferred Stock of Consumers. No other
executive officer owns shares of Consumers Preferred Stock. The directors and
executive officers together own less than 1% of the outstanding shares of CMS.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Federal securities laws require CMS' directors and executive officers, and
persons who own more that 10% of CMS' Common Stock, to file with the SEC reports
of ownership and changes in ownership of any securities or derivative securities
of CMS. To CMS' knowledge, during the year ended December 31,1999, CMS' officers
and directors made all required filings timely except Alan M. Wright, Senior
Vice President and Chief Financial Officer of CMS, who reported a sale of CMS
Common Stock made in October of 1999 on November 16, 1999.
5
8
BOARDS OF DIRECTORS AND COMMITTEES OF CMS AND CONSUMERS
The Board of Directors of CMS met 9 times and Consumers' Board of Directors
met 7 times during 1999. All incumbent directors attended more than 75% of the
board and assigned committee meetings during 1999.
AUDIT COMMITTEES
Members: William U. Parfet (Chair), John M. Deutch, James J. Duderstadt,
Percy A. Pierre, and John B. Yasinsky.
Meetings during 1999: CMS 3 - Consumers 3
These committees meet with representatives of the independent public
accountants from time to time during the year and after the completion of the
annual audit of CMS' and Consumers' financial statements to review and discuss
such audit, internal controls and other appropriate matters; review the
activities of the Internal Audit Department; review the relationship of CMS' and
Consumers' independent public accountants with CMS and Consumers insofar as they
perform nonaudit services; and review and recommend to the Boards of Directors
the appointment of independent public accountants.
NOMINATING COMMITTEES
Members: John M. Deutch (Chair), James J. Duderstadt, Kathleen R. Flaherty,
Percy A. Pierre, Kenneth L. Way, and Kenneth Whipple.
Meetings during 1999: CMS 1 - Consumers 1
These committees conduct a continuing study of the size, structure,
composition and compensation of the Boards; seek out possible candidates to fill
Board positions; aid in attracting qualified candidates to the Boards; recommend
annually, prior to the solicitation of proxies, a slate of qualified candidates
for election to the Boards at the annual meeting and, in case of any vacancies
on the Boards, candidates to fill those vacancies; review periodically and
recommend to the Boards of Directors modifications, as appropriate, to the
director tenure policy; and determine from time to time criteria for selection
and retention of Board members. The committees consider shareholders'
recommendations of nominees for election to the Boards of Directors. The
recommendations must be accompanied by the consent of each of the recommended
nominees to act as a director. Shareholders should send their written
recommendations of nominees to: Mr. Thomas A. McNish, Vice President and
Secretary, CMS Energy Corporation, Fairlane Plaza South, Suite 1100, 330 Town
Center Drive, Dearborn, Michigan 48126.
ORGANIZATION AND COMPENSATION COMMITTEES
Members: Earl D. Holton (Chair), John M. Deutch, William U. Parfet, Kenneth
L. Way, Kenneth Whipple, and John B. Yasinsky.
Meetings during 1999: CMS 4 - Consumers 4
These committees review the executive organization of CMS and of Consumers
from time to time; review from time to time the salaries and other compensation
of all the officers of CMS and of Consumers; monitor the development of
personnel for availability to fill key management positions as vacancies occur;
establish goals annually for the Executive Incentive Compensation Plan; review
and approve the incentive compensation payment
6
9
schedule; administer CMS' Performance Incentive Stock Plan; and report to the
Boards of Directors with respect to the committees' recommendations.
ENVIRONMENTAL AND CORPORATE RESPONSIBILITY COMMITTEES
Members: Percy A. Pierre (Chair), James J. Duderstadt, Kathleen R. Flaherty,
Earl D. Holton, and John B. Yasinsky.
Meetings during 1999: CMS 2 - Consumers 2
These committees make recommendations to the Boards of Directors regarding
significant environmental matters affecting CMS' and Consumers' operations;
advise the Boards on the adoption and evaluation of policies designed to
maintain CMS' and Consumers' position of corporate responsibility; review and
monitor CMS' and Consumers' policies and objectives related to equal employment
opportunities, review CMS' and Consumers' policies to comply with federal and
state laws and regulations affecting personnel matters; and review CMS' and
Consumers' policies related to contributions and support of charitable,
educational and community organizations.
EXECUTIVE COMMITTEES
Members: William T. McCormick, Jr. (Chair), John M. Deutch, Victor J.
Fryling, Earl D. Holton, William U. Parfet, Percy A. Pierre and
Kenneth Whipple.
Meetings during 1999: CMS 0 - Consumers 0
These committees exercise the power and authority of the Boards of Directors
as may be necessary during the intervals between meetings of the Boards of
Directors, subject to such limitations as are provided by law or by resolution
of the Boards.
FINANCE AND PENSION COMMITTEES
Members: Kenneth Whipple (Chair), Kathleen R. Flaherty, Victor J. Fryling,
Earl D. Holton, William U. Parfet, and Kenneth L. Way.
Meetings during 1999: CMS 1 - Consumers 2
These committees give advice and counsel to the officers of CMS and
Consumers with respect to the means for providing the funds required to carry
out CMS' and Consumers' programs; review the financial policies including
capitalization objectives, use of short-term financing and issuance of long-term
securities; and recommend to the Boards of Directors financial policies for CMS
and Consumers. In addition, the committee of Consumers reviews the investment
policies for all employee benefit funds with respect to assets being managed,
including adequacy of funding; reviews quarterly the investment performance of
each of the investment managers for all employee benefit funds of Consumers;
reports to the Board of Directors on findings regarding selection and retention
of managers; and reviews the administration of the employee benefit plans.
7
10
COMPENSATION OF DIRECTORS
Directors who are not officers of CMS or Consumers received in 1999 an
annual retainer fee of $30,000, and $1,250 for attendance at each Board meeting
and $750 for attendance at each committee meeting. Committee chairs receive
$1,000 for attendance at each committee meeting. Retainer and attendance fees
are set by the Boards of Directors. In 1999, all Directors who are not officers
of CMS or Consumers were granted 600 restricted shares of Common Stock of CMS
with a fair market value at time of grant of $27,900. Directors are reimbursed
for expenses incurred in attending Board or committee meetings. Directors who
are officers of CMS or Consumers do not receive retainers or meeting fees for
service on the Board or as a member of any Board committee. Pursuant to the
Directors' Deferred Compensation Plan, a Director of CMS or Consumers who is not
an officer may, at any time prior to a calendar year in which a retainer and
fees are to be earned, or at any time during the year prior to the month in
which a retainer and fees are earned, irrevocably elect to defer payment for
that year, or a portion thereof, through written notice to CMS or Consumers, of
all or half of any of the retainer and fees which would otherwise be paid to the
Director, to a time following the Director's retirement from the Board of
Directors. Any amount deferred will either (a) accrue interest at either the
prime rate or the rate for 10-year Treasury Notes (whichever is greater), (b) be
treated as if it were invested as an optional cash payment in CMS' Stock
Purchase Plan, or (c) be treated as if it were invested in a Standard & Poor's
500 stock index fund. Accrued amounts will be distributed in a lump sum or in
five or ten annual installments in cash. Outside Directors who retire with five
years of service on the Board will receive monthly retirement payments equal to
the retainer. These payments will continue for a period of time equal to their
years of service on the Board. All benefits will cease at the death of the
retired Director. Outside Directors are offered optional life insurance
coverage, business-related travel accident insurance, and optional health care
insurance, and CMS and Consumers pay the premiums associated with participation
by Directors. The imputed income for the life insurance coverage in 1999 was:
Messrs. Deutch, $1,074.00; Duderstadt, $822.00; Holton, $1,689.00; Parfet,
$687.00; Pierre, $1,074.00; Whipple, $1,536.00; and Yasinsky, $993.00.
8
11
EXECUTIVE COMPENSATION
The following charts contain information concerning annual and long-term
compensation and awards of stock options and restricted stock under CMS'
Performance Incentive Stock Plan. The charts include the Chairman of the Board,
the next four most highly compensated executive officers in 1999, and the Chief
Financial Officer.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation(1)
------------------------
Awards Payouts
Annual ---------- ----------
Compensation Securities Long-Term
---------------------- Underlying Incentive All Other
Name and Principal Position Year Salary Bonus Options Payouts(2) Compensation(3)
- --------------------------- ---- ------ ----- ---------- ---------- ---------------
William T. McCormick, Jr. 1999 $1,000,000 $ 0 100,000 $ 796,497 $30,000
Chairman and CEO, 1998 900,000 665,000 62,000 1,093,554 27,000
CMS and Chairman, 1997 840,000 725,000 67,000 776,358 25,200
Consumers
Victor J. Fryling 1999 690,000 0 60,000 481,182 20,700
President and COO, 1998 625,000 382,440 36,000 663,158 18,750
CMS and Vice 1997 595,000 438,250 40,000 450,297 17,850
Chairman, Consumers
David W. Joos 1999 465,000 319,366 32,000 227,915 13,950
President and
CEO - Electric, 1998 430,000 269,520 18,000 301,802 12,900
Consumers 1997 343,750 252,260 20,000 175,914 10,312
Alan M. Wright 1999 360,000 0 28,000 244,140 10,800
Senior Vice President 1998 335,000 189,220 16,000 332,770 10,050
and CFO, CMS 1997 318,000 216,210 18,000 228,275 9,540
and Consumers
Rodney E. Boulanger 1999 312,000 211,913 20,000 128,778 9,360
President and CEO, 1998 300,000 221,800 11,000 158,827 9,000
CMS Generation Co. 1997 289,000 185,910 12,000 54,914 8,670
David A. Mikelonis 1999 315,000 161,084 14,000 158,613 9,450
Senior Vice President 1998 295,000 162,720 8,000 222,020 8,850
and General Counsel, 1997 277,000 148,450 8,000 184,287 8,310
Consumers
(1) Aggregate non-performance based restricted stock granted prior to 1999 held
as of December 31, 1999 by named officers was: Victor J. Fryling, 5,000
shares, with value based on market price on December 31, 1999 of $155,938;
and David W. Joos, 11,250 shares, with value based on market price on
December 31, 1999 of $350,859. Regular dividends were paid on such
restricted stock.
(2) Market value of Common Stock paid under CMS' Performance Incentive Stock
Plan for three-year performance periods.
(3) Employer matching contribution to defined contribution plans.
9
12
EMPLOYMENT ARRANGEMENTS
Agreements with the executive officers named above provide for payments
equal to three times annual cash compensation if there is a change of control
and adverse change of responsibilities, as well as payments equal to annual cash
compensation if employment is terminated by the company, other than for cause,
prior to a change of control. CMS and Consumers also provide long-term
disability insurance policies for all executive officers which would provide
payment of up to 60% of compensation in the event of disability.
OPTION GRANTS IN 1999
Number of
Securities
Underlying Percentage of Total Exercise Grant Date
Options Options Granted to Price Per Expiration Present
Name Granted Employees in 1999 Share Date Value(1)
---- ---------- ------------------- --------- ---------- ----------
William T. McCormick, Jr. .......... 100,000 8.9 $39.0625 08/21/09 $593,000
Victor J. Fryling................... 60,000 5.4 39.0625 08/21/09 355,800
David W. Joos....................... 32,000 2.9 39.0625 08/21/09 189,760
Alan M. Wright...................... 28,000 2.5 39.0625 08/21/09 166,040
Rodney E. Boulanger................. 20,000 1.8 39.0625 08/21/09 118,600
David A. Mikelonis.................. 14,000 1.2 39.0625 08/21/09 83,020
(1) The present value is based on the Black-Scholes Model, a mathematical
formula used to value options traded on securities exchanges. The model
utilizes a number of assumptions, including the exercise price, the
underlying stock's volatility of 16.81% using weekly closing prices for a
four and one half year period prior to grant date, the dividend rate of
$0.365 per quarter with 5% annual dividend growth, the term of the option,
and the level of interest rates at 5.65%, equivalent to the rate of
four-year Treasury Notes. However, the Model does not take into account a
significant feature of options granted to employees under CMS' Plan, i.e.,
the non-transferability of options awarded.
AGGREGATED OPTIONS EXERCISES IN 1999 AND YEAR-END OPTIONS VALUES
Value of
Number of Unexercised
Securities Underlying In-the-Money
Shares Acquired Value Unexercised Options Options at
Name On Exercise Realized at Year End Year End(1)(2)
---- --------------- -------- --------------------- --------------
William T. McCormick, Jr. ............. 50,000 $225,931 479,000 $1,526,250
Victor J. Fryling...................... 22,500 105,812 275,000 838,125
David W. Joos.......................... 0 0 76,000 3,375
Alan M. Wright......................... 0 0 62,000 0
Rodney E. Boulanger.................... 10,000 166,750 65,000 77,000
David A. Mikelonis..................... 0 0 22,000 0
(1) All options listed in this table are exercisable. The named officers have no
unexercisable options.
(2) Based on the December 31, 1999 closing price of CMS' Common Stock as shown
in the report of the NYSE Composite Transactions ($31.1875).
10
13
LONG-TERM INCENTIVE PLANS -- AWARDS IN 1999
Estimated Future Payouts
Under Non-Stock Price-Based
Plans (Shares)(1)
Number Period ----------------------------------
Name of Shares Until Payout Threshold Target Maximum
---- --------- ------------ --------- ------ -------
William T. McCormick, Jr.................... 25,000 2-5 Years 6,250 25,000 37,500
Victor J. Fryling........................... 15,000 2-5 Years 3,750 15,000 22,500
David W. Joos............................... 8,000 2-5 Years 2,000 8,000 12,000
Alan M. Wright.............................. 7,000 2-5 Years 1,750 7,000 10,500
Rodney E. Boulanger......................... 5,000 2-5 Years 1,250 5,000 7,500
David A. Mikelonis.......................... 3,500 2-5 Years 875 3,500 5,250
(1) Under CMS' Performance Incentive Stock Plan, awards of restricted stock for
the above officers vest at the rate of 25% per year after two years and are
subject to achievement of specified levels of total shareholder return over
a three-year period. The target number of shares as shown above will be
earned if 100% of the targeted average 15% annual total shareholder return
is achieved. The threshold number of shares will be earned on achievement of
40% of the target, and the maximum number of shares will be earned on
achieving 140% of the target.
PENSION PLAN TABLE
The following table shows the aggregate annual pension benefits at normal
retirement date presented on a straight life annuity basis under CMS' qualified
Pension Plan and non-qualified Supplemental Executive Retirement Plan (offset by
a portion of Social Security benefits).
Years of Service
--------------------------------------------------------
Compensation 15 20 25 30 35
- ------------ -------- -------- -------- ---------- ----------
$ 500,000 $157,500 $210,000 $247,500 $ 285,000 $ 322,500
800,000 252,000 336,000 396,000 456,000 516,000
1,100,000 346,500 462,000 544,500 627,000 709,500
1,400,000 441,000 588,000 693,000 798,000 903,000
1,700,000 535,500 714,000 891,500 969,000 1,096,500
2,000,000 630,000 840,000 990,000 1,140,000 1,290,000
Regular, straight-time salary, as shown in the Summary Compensation Table
during the five years of highest earnings, is used in computing benefits under
the Pension Plan. In addition, awards under the Executive Incentive Compensation
Plan, as shown in the Summary Compensation Table during the five years of
highest earnings, are used in computing benefits under the Supplemental
Executive Retirement Plan. The estimated years of service for each named
executive is: William T. McCormick, Jr., 24.22 years; Victor J. Fryling, 24.00
years; David W. Joos, 28.15 years; Alan M. Wright, 17.34 years; Rodney E.
Boulanger, 9.41 years; and David A. Mikelonis, 35.00 years.
11
14
ORGANIZATION AND COMPENSATION COMMITTEE REPORT
Compensation Philosophy
CMS' executive compensation program is directed by a committee composed
entirely of independent outside directors. The Committee is responsible for
determining and administering executive compensation policies and plans as well
as reviewing and recommending officer appointments to the Board of Directors.
The Committee also has the responsibility for approving both annual compensation
and awards under long-term stock ownership programs. Such programs seek to
enhance the profitability of CMS and, hence, shareholder value by aligning the
financial interests of CMS' officers with those of its shareholders. In doing
so, the Committee relies to a large degree on incentive compensation including
stock-related awards to attract and retain outstanding officers.
Compensation for Mr. McCormick and the other executive officers consists of
a base salary, which is intended to be at the competitive median of the amounts
paid to senior executives with equivalent positions at other energy companies of
comparable size, and substantial annual and long-term incentive compensation
closely tied to CMS' success in achieving earnings, stock appreciation and other
performance goals. The incentive program is also designed to be competitive with
plans of other comparable energy companies and variable "at risk" compensation
is intended to be above median in years when CMS meets or exceeds its
performance goals, which in recent years have exceeded industry norms in terms
of earnings and dividend growth.
Annual Compensation
Just prior to the beginning of each fiscal year, the Committee reviews the
base salary of Mr. McCormick and the other officers and approves annual salaries
for them based on industry, peer group, and national surveys and judgment as to
the past and expected future contributions of each individual. In the case of
Mr. McCormick, such judgment also involves the Committee's assessment of his
past performance and its expectation as to his future contribution in leading
CMS.
The annual incentive compensation (bonus) payment, if any, is based on CMS'
success in meeting challenging earnings per share goals set by the Committee at
the beginning of each year. In addition, individual performance goals are
established for each executive officer for specific financial, operating and
management achievements. Following the end of each year, the results on a
corporate and individual basis are reviewed by the Committee to determine the
appropriate awards. The Executive Incentive Compensation Plan has a threshold
payout at 90% of the earnings per share goal and a maximum payout at 120% of
goal. Under the Plan for 1999, because CMS did not achieve its earnings per
share goal, the Committee did not grant annual incentive bonuses to the top CMS
officers including Mr. McCormick. For Messrs. Joos and Mikelonis, who are CEO
and General Counsel, respectively, of Consumers Energy's Electric Business Unit,
and Mr. Boulanger who is CEO of the independent power production business, the
Committee decided to grant bonuses as shown in the Summary Compensation Table
because both units exceeded their earnings target.
Long-Term Compensation
The last element of executive compensation considered by the Committee
during each year is long-term incentive awards in the form of stock options and
restricted stock awards under CMS' Performance Incentive Stock Plan. The
Committee believes such awards are desirable in encouraging Common Stock
ownership by executives, thus linking their interests directly to that of other
shareholders. Therefore, in 1999, the Committee decided to grant
12
15
stock options with an exercise price equal to the market price on the date of
the grant to the officers, including those shown in the above charts. Options
have been granted annually, usually for approximately the same number of shares.
The Committee believes grants should be made annually on a generally consistent
basis. In determining grants, the Committee weighed a number of factors
including prior grants and corporate performance. The Committee also awarded
performance-based restricted stock which will vest at the rate of 25% per year
after two years, with 100% vested after five years. However, the nominal
restricted stock award will be paid only if the average annual shareholder
return target of 15% is achieved for each three-year performance period. If the
average annual shareholder return is less than the target, then the award will
be smaller, and if the return is more than the target, then the award will be
greater.
Compensation Deductibility
The Committee has reviewed CMS' compensation plans and the applicability of
Section 162(m) of the Internal Revenue Code and regulations thereunder dealing
with federal income tax deductibility for compensation in excess of $1 million.
The Committee believes that if the compensation proposal is approved by
shareholders, bonus awards under the Executive Incentive Compensation Plan are
not considered non-deductible compensation under the regulations under Section
162(m), because they are based on pre-established performance goals.
Compensation Consultant
In connection with its ongoing independent review of executive compensation,
the Committee has retained Hewitt Associates, a recognized compensation and
benefit consultant, to assist the Committee in evaluating the appropriateness
and competitiveness of its compensation policies and programs.
Submitted by the Organization and Compensation Committee: Earl D. Holton
(Chair), John M. Deutch, William U. Parfet, Kenneth L. Way, Kenneth Whipple, and
John B. Yasinsky.
13
16
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG CMS ENERGY CORPORATION, S&P 500 INDEX & DOW JONES UTILITY INDEX
[COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN GRAPH]
CMS ENERGY S&P 500 DOW JONES UTILITY
---------- ------- -----------------
1994 100 100 100
1995 135 138 132
1996 157 169 144
1997 213 225 178
1998 241 290 211
1999 161 351 199
Total return assumes reinvestment of dividends.
Fiscal years ending December 31.
Assumes the value of the investment in CMS' Common Stock and each index was $100
on December 31, 1994.
14
17
RATIFICATION OF THE APPOINTMENT OF AUDITORS
Subject to the approval of the shareholders, the Board of Directors has
appointed Arthur Andersen LLP, independent public accountants, to audit the
financial statements of CMS for the year 2000. Arthur Andersen LLP also served
as CMS' auditors for the year 1999. A representative of Arthur Andersen LLP will
be present at the annual meeting of shareholders and will have an opportunity to
make a statement and respond to appropriate questions.
Approval of the proposal to ratify the appointment of auditors requires the
affirmative vote of a majority of the shares of Common Stock voting on the
proposal.
THE BOARD OF DIRECTORS RECOMMENDS RATIFICATION OF THE APPOINTMENT OF AUDITORS
PROPOSAL TO PERMIT AWARDS UNDER CMS ENERGY CORPORATION'S
EXECUTIVE INCENTIVE COMPENSATION PLAN TO BE INCOME TAX DEDUCTIBLE
BY THE COMPANY
DESCRIPTION OF THE INCENTIVE PLAN
The following is a description of CMS' Executive Incentive Compensation Plan
(the "Incentive Plan").
The Incentive Plan is administered by the Organization and Compensation
Committee of the Board of Directors (the "Committee"), which is composed
entirely of independent nonemployee members of the Board of Directors. As of
December 31, 1999, approximately 575 officers and key employees were eligible to
participate in the Incentive Plan. Payments under the Incentive Plan for
officers of CMS are based on achieving a corporate earnings goal established by
the Committee by March 30 of each year, and for officers and key employees of
subsidiaries, the performance goal includes both earnings of CMS and pre-tax
operating income of their business unit. The maximum award is 135% if 120% of
the performance earnings goal is achieved. In the event that less than 80% of
the earnings goal is achieved, there will be no payouts under the Incentive
Plan. The standard award for officers is based on percentage of salary ranging
from 40% to 75% depending on salary grade, and for other executives from 15% to
35% of salary grade midpoint. The award can be adjusted by the Committee in the
range of 70% to 130% to reflect individual performance. The Board of Directors
has recently amended the Plan to have payments to covered employees be
deductible expenses for CMS under IRC Section 162(m). For purposes of the
Incentive Plan, the salary of any employee covered by Section 162(m) is the
amount in effect on January 1 of the performance year and the maximum amount of
an award shall not exceed $2.5 million in any one year.
The Board of Directors may amend, suspend or terminate the Incentive Plan,
subject to any requirement of shareholder approval required by applicable law or
regulation.
Awards under the Incentive Plan are considered as ordinary income to the
employee, and the payment is deductible by CMS as a compensation expense, as
"qualified performance based compensation" under Section 162(m).
Awards under this Incentive Plan for the 1999 performance year are shown as
Annual Compensation-Bonus in the Summary Compensation Table on Page 8 for
Messrs. McCormick, Fryling, Joos, Wright, Boulanger, and Mikelonis. The
executive officers as a group received awards totaling $1,281,242.
15
18
PROPOSAL
The Board of Directors recommends that the CMS Energy Executive Incentive
Compensation Plan as applied to covered employees be approved so that bonuses
paid under the Plan will be considered "qualified performance-based
compensation" under IRC Section 162(m) and regulations thereunder, and thus
eligible for income tax deductibility by CMS.
If the proposal is not approved by the shareholders, the Plan will remain in
effect.
Approval of this proposal requires the affirmative vote of the holders of a
majority of shares of common stock voting on the proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSAL
2001 PROXY STATEMENT INFORMATION
A shareholder who intends to submit a proposal for consideration at the 2001
annual meeting pursuant to the applicable rules of the Securities and Exchange
Commission must send the proposal to reach CMS' Corporate Secretary on or before
December 16, 2000; and in any event if CMS has not received written notice of
any matter to be proposed at that meeting by March 1, 2001, the holders of the
proxies may use their discretionary voting authority on any such matter. The
proposals should be addressed to: Mr. Thomas A. McNish, Vice President and
Secretary, Fairlane Plaza South, Suite 1100, 330 Town Center Drive, Dearborn,
Michigan 48126.
OTHER MATTERS
The Board of Directors does not know of any other matters that might be
presented to the meeting except matters incident to the conduct of the meeting.
However, if any other matters (including matters incident to the conduct of the
meeting) do come before the meeting, it is intended that the holders of the
proxies will vote thereon in their discretion.
The cost of solicitation of proxies will be borne by CMS. Proxies may be
solicited by officers and other employees of CMS or its subsidiaries or
affiliates, personally or by telephone, facsimile, Internet, or mail. CMS has
arranged for Morrow & Co., Inc. 445 Park Avenue, New York, New York 10022, to
solicit proxies in such manner, and it is anticipated that the cost of such
solicitations will not exceed $20,000, plus incidental expenses. CMS may also
reimburse brokers, dealers, banks, voting trustees or other record holders for
postage and other reasonable expenses of forwarding the proxy material to the
beneficial owners of shares of stock held of record by such brokers, dealers,
banks, voting trustees or other record holders.
16
19
COMMON STOCK PROXY
[CMS ENERGY LOGO] SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned appoints W. T. MC CORMICK, JR. and T. A. MC NISH, and each of
them, proxies with full power of substitution, to vote on behalf of the
undersigned at the annual meeting of shareholders of CMS Energy Corporation to
be held at the Dearborn Inn, 20301 Oakwood Boulevard, Dearborn, Michigan, at
10:30 AM on May 26, 2000 and at any adjournment or adjournments thereof. Said
proxies, and each of them present and acting at the meeting, may vote upon the
matters set forth on the reverse side hereof and with discretionary authority on
all other matters that come before the meeting; all as more fully set forth in
the Proxy Statement received by the undersigned. The shares represented hereby
will be voted on the proposals as specified. IF THIS PROXY IS RETURNED SIGNED
BUT NOT COMPLETED, IT WILL BE VOTED IN FAVOR OF THE ELECTION OF DIRECTORS, THE
RATIFICATION OF APPOINTMENT OF AUDITORS, AND THE PROPOSAL TO PERMIT AWARDS UNDER
THE EXECUTIVE INCENTIVE COMPENSATION PLAN TO BE INCOME TAX DEDUCTIBLE BY THE
COMPANY.
PLEASE VOTE, SIGN AND DATE THIS PROXY ON
THE REVERSE SIDE.
Thank you for your prompt response.
20
PLEASE VOTE, SIGN AND DATE BELOW
- -------------------------------------------------------------------------------
//TO VOTE AS RECOMMENDED by the Board of Directors on all items, PLEASE MARK THIS
BOX, SIGN, DATE AND RETURN THIS PROXY. (No additional boxes need be marked. If
additional boxes are marked, this box will take precedence.)
- -------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, and 3.
(1)ELECTION OF [ ] FOR all nominees listed below (except as indicated below)
DIRECTORS [ ] WITHHOLD AUTHORITY to vote for all nominees listed below
(01) William T. McCormick, Jr., (02) John M. Deutch, (03) James J. Duderstadt,
(04) Kathleen R. Flaherty, (05) Victor J. Fryling, (06) Earl D. Holton, (07) William U. Parfet, (08) Percy A. Pierre,
(09) Kenneth L. Way, (10) Kenneth Whipple, and (11) John B. Yasinsky.
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's name on the space provided below.)
FOR AGAINST ABSTAIN
(2) Ratification of appointment of auditors [ ] [ ] [ ] PLEASE SIGN, DATE AND RETURN THIS
PROXY.
(3) Proposal to permit awards under the CMS Energy
Executive Incentive Compensation Plan to be Income [ ] [ ] [ ] Signed
-----------------------------
Tax Deductible
Dated , 2000
----------------------