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. )
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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-12
CMS Energy Corporation
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(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:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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[ ] 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:
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[CMS ENERGY LOGO]
CMS ENERGY CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 24, 2002
To Fellow Shareholders of CMS Energy Corporation:
The annual meeting of shareholders of CMS Energy Corporation will be held on
Friday, the 24th day of May 2002, at 10:30 A.M., Eastern Daylight Saving Time,
at the Dearborn Inn, 20301 Oakwood Boulevard, Dearborn, Michigan 48124. The
purposes of the meeting are:
(1) Electing a Board of Directors of 11 members;
(2) Ratifying the appointment of independent auditors to audit the financial
statements of CMS Energy Corporation for the year ending December 31,
2002; and
(3) Transacting such other business as may properly come before the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2. The proxy holders
will use their discretion on other matters that may arise at the annual meeting.
Our annual report to the shareholders for the year 2001, including the Form 10-K
with our financial statements, has been furnished to you.
All shareholders are invited to attend the annual meeting. If you were a
shareholder of record at the close of business on April 1, 2002, you are
entitled to vote. Every vote is important. Please vote using a touch-tone
telephone, the Internet, or by signing and returning the enclosed proxy card.
You can help minimize costs by promptly voting via telephone or the Internet.
Rodger A. Kershner
Senior Vice President, General Counsel,
and Secretary
CMS Energy Corporation
Fairlane Plaza South
Suite 1100
330 Town Center Drive
Dearborn, Michigan 48126
April 22, 2002
PROXY STATEMENT
------------------------
INTRODUCTION
The Board of Directors solicits your proxy for the 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 voted
at the annual meeting.
As of December 31, 2001, CMS Energy Corporation's ("CMS") outstanding Common
Stock ($.01 par value) consisted of a total of 132,988,989 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 Securities and Exchange
Commission (SEC) by J. P. Morgan Chase & Co., 270 Park Avenue, New York, New
York, 10017. This schedule indicates that holdings of 7,937,483 shares,
representing 6% of the outstanding shares of CMS Common Stock, were acquired in
a fiduciary capacity in the ordinary course of business for investment purposes.
CMS has also received a copy of Schedule 13G filed with the SEC by Wellington
Management Company, LLP, 75 State Street, Boston, Massachusetts, 02109. This
schedule indicates that holdings of 7,720,400 shares, representing 5.8% of the
outstanding shares of CMS Common Stock, were acquired in a fiduciary capacity in
the ordinary course of business for investment purposes. Finally, CMS has
received a copy of Schedule 13G filed with the SEC by College Retirement
Equities Fund, 730 Third Avenue, New York, New York 10017. This schedule
indicates that holdings of 6,692,941 shares, representing 5% of the outstanding
shares of CMS Common Stock, 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.
ELECTION 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
WILLIAM T. MCCORMICK, JR., 57, has served as Chairman of the Board and Chief
Executive Officer of CMS since it was incorporated in 1987 and as Chairman of
the Board of Consumers since 1985. 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, 63, has served since 1992 as Institute Professor of
Massachusetts Institute of Technology (MIT), Cambridge, Massachusetts. On leave
from MIT, he served as Director of Central Intelligence 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, 59, has been President Emeritus and University Professor of
Science and Engineering at the 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 Department of Energy. He has been a Director of CMS
and of Consumers since 1993.
KATHLEEN R. FLAHERTY, 50, served from 1999 to 2001 as President and Chief
Operating Officer of WinStar International. Previously, she served from 1998 to
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.
EARL D. HOLTON, 68, has served since 1999 as Vice 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 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.
DAVID W. JOOS, 49, has served since October 1, 2001 as President and Chief
Operating Officer of CMS and Consumers. Previously, he served from 2000 to
October 1, 2001 as Executive Vice President and Chief Operating
Officer -- Electric of CMS, from 1997 to 2000 as President and Chief Executive
Officer -- Electric of Consumers, and from 1994 to 1997 as Executive Vice
President and Chief Operating Officer -- Electric of Consumers. He is a director
of Steelcase, Inc., Nuclear Management Company, the Michigan Colleges
Foundation, Michigan Economic Development Corporation, Michigan Virtual
University, and is a director and Vice Chairman of the Michigan Manufacturers
Association. He has been a director of CMS and of Consumers since October 1,
2001.
WILLIAM U. PARFET, 55, has served since 1999 as Chairman and Chief Executive
Officer of MPI Research, Inc., Mattawan, Michigan, a research laboratory
conducting risk assessment toxicology studies. Previously, he served from 1995
to 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 Corporation, Stryker Corporation, Apogent Technologies, Inc., Reptron
Electronics, Inc., PAREXEL International Corporation, and Monsanto Company. He
is also a Commissioner of the Michigan Department of Natural Resources. He has
been a director of CMS and of Consumers since 1991.
2
PERCY A. PIERRE, 63, has served since 1990 as Professor of 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 Fifth Third Bank (Western Michigan) and
the Whitman Education Group. He also serves as a member of the Boards of
Trustees for the University of Notre Dame and Hampshire College. He has been a
director of CMS and of Consumers since 1990.
KENNETH L. WAY, 62, has served since 1988 as Chairman of the Board of Lear
Corporation, a Southfield, Michigan based supplier of automotive interior
systems. In addition, he served from 1988 to 2000 as Chief Executive Officer of
Lear Corporation. 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 l998.
KENNETH WHIPPLE, 67, served from 1988 until his retirement 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
AB Volvo and a trustee of 13 J.P. Morgan Chase mutual funds. He has been a
director of CMS and of Consumers since 1993.
JOHN B. YASINSKY, 62, served from 1999 until his retirement in 2000 as Chairman
of the Board and Chief Executive Officer and continued as Chairman until
February 2001 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 1999 as Chairman, Chief
Executive Officer and President of GenCorp. He is a director of A. Schulman,
Inc. He has been a director of CMS and of Consumers since 1994.
YOUR BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE.
3
MANAGEMENT SECURITY OWNERSHIP
The following chart shows the ownership of CMS Common Stock by the directors
and executive officers:
Shares
Name Beneficially Owned*
---- -------------------
William T. McCormick, Jr. .............. 243,429
John M. Deutch.......................... 10,500
James J. Duderstadt..................... 5,693
Kathleen R. Flaherty.................... 6,380
Earl D. Holton.......................... 18,481
David W. Joos........................... 68,439
William U. Parfet....................... 14,100
Percy A. Pierre......................... 6,515
Kenneth L. Way.......................... 16,399
Kenneth Whipple......................... 6,804
John B. Yasinsky........................ 11,915
William J. Haener....................... 62,541
Alan M. Wright.......................... 28,422
Tamela W. Pallas........................ 26,541
Bradley W. Fischer...................... 13,257
Christopher A. Helms.................... 12,170
All Directors and Executive Officers.... 902,505
* All shares shown above are as of December 31, 2001. In addition to the shares
shown above, Mr. McCormick, Mr. Joos, Mr. Haener, Mr. Wright, Ms. Pallas, Mr.
Fischer, Mr. Helms, and all other executive officers own options to acquire
709,000; 273,000; 192,000; 161,000; 101,000; 87,000; 60,000 and 889,495 shares,
respectively. All options identified in this footnote are as of February 28,
2002.
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. The outside directors
each own 10 shares of Preferred Stock of Consumers. 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 than 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, 2001, CMS'
officers and directors made all required Section 16(a) filings on a timely basis
with three exceptions. Kenneth L. Way, a director, purchased CMS Common Stock in
September 2001. CMS received timely notice of Mr. Way's purchase, but
inadvertently failed to report the purchase until a Form 5 was filed with the
SEC in February 2002. Rodney E. Boulanger, President and CEO of CMS Generation
until his retirement at year-end 2001, sold CMS Common Stock in December 2001.
Mr. Boulanger's sale was reported on a Form 5 filed with the SEC in February
2002. Frank Johnson, President and CEO of CMS Electric and Gas, completed a
401(k) intra-plan transfer out of the CMS Common Stock fund in September 2001.
Mr. Johnson's transaction was reported on a Form 5 filed with the SEC in
February 2002.
4
BOARD AND COMMITTEE INFORMATION
The Board of Directors of CMS met 10 times and Consumers' Board of Directors met
8 times during 2001. All incumbent directors attended more than 75% of the board
and assigned committee meetings during 2001.
AUDIT COMMITTEES
Members: William U. Parfet (Chair), John M. Deutch, James J. Duderstadt,
Percy A. Pierre, and John B. Yasinsky.
Meetings during 2001: CMS 4 - Consumers 4
The primary functions of these committees are to:
- Meet with representatives of the independent auditors 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 this audit, internal
controls and other appropriate matters;
- Review the activities of the Internal Audit Department;
- Review the relationship of CMS' and Consumers' independent auditors with
CMS and Consumers insofar as they perform nonaudit services;
- Review and recommend to the Boards of Directors the appointment of
independent auditors;
- Report and make recommendations to the Boards of Directors; and
- Perform its duties in a manner consistent with the Audit Committee Charter
adopted by the Board of Directors.
NOMINATING COMMITTEES
Members: John M. Deutch (Chair), James J. Duderstadt, Kathleen R. Flaherty,
Percy A. Pierre, Kenneth L. Way, and Kenneth Whipple.
Meetings during 2001: CMS 2 - Consumers 2
The primary functions of these committees are to:
- 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, prior to the solicitation of proxies, a state 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;
- Periodically review the director tenure policy and recommend modifications
to the Boards of Directors.
- Determine from time to time criteria for selection and retention of Board
members; and
- Consider and evaluate shareholders' recommendations of nominees for
election to the Boards of Directors.
5
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 2001: CMS 7 - Consumers 6
The primary functions of these committees are to:
- Review from time to time the executive organization of CMS and of
Consumers;
- 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 under the Executive Incentive Compensation Plan;
- Review and approve the incentive compensation payment schedule;
- Administer CMS' Performance Incentive Stock Plan; and
- Report and make recommendations to the Board of Directors.
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 2001: CMS 2 - Consumers 2
The primary functions of these committees are to:
- 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 opportunity;
- Review CMS' and Consumers' policies to comply with federal and state laws
and regulations affecting personnel matters;
- Review CMS' and Consumers' policies related to contributions and support
of charitable, educational and community organizations; and
- Report and make recommendations to the Board of Directors.
6
EXECUTIVE COMMITTEES
Members: William T. McCormick, Jr. (Chair), John M. Deutch, Earl D. Holton,
William U. Parfet, Percy A. Pierre and Kenneth Whipple.
Meetings during 2001: CMS 0 - Consumers 1
The primary functions of these committees are to:
- 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, Earl D. Holton,
William U. Parfet, and Kenneth L. Way.
Meetings during 2001: CMS 2 - Consumers 2
The primary functions of these committees are to:
- 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;
- Recommend to the Boards of Directors financial policies for CMS and
Consumers;
- Review the investment policies for all employee benefit funds with respect
to assets being managed, including adequacy of funding;
- Review quarterly the investment performance of each of the investment
managers for all employee benefit funds of Consumers;
- Report to the Board of Directors on findings regarding selection and
retention of investment managers; and
- Review the administration of the employee benefit plans.
7
COMPENSATION OF DIRECTORS
Directors who are not officers of CMS or Consumers received in 2001 an annual
retainer fee of $30,000, and $1,500 for attendance at each Board meeting and
$750 for attendance at each committee meeting. Committee chairs received $1,000
for attendance at each committee meeting. The Board of Directors in February
2002 set the same amounts for retainer and attendance fees to be paid in 2002.
In 2001, all directors who were not officers of CMS or Consumers were granted
900 restricted shares of CMS Common Stock with a fair market value at time of
grant of $26,316. In 2002, the number of restricted shares to be granted to each
outside director will be reduced to 850, which reduction reflects CMS' and
Consumers' disappointing 2001 financial performance. 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 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 2001 was:
Messrs. Deutch, $756; Duderstadt, $690; Holton, $1,953; Parfet, $504; Pierre,
$756; Whipple, $1,746; Yasinsky, $759; and Ms. Flaherty, $120.
8
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
and Chief Executive Officer, the next four most highly compensated executive
officers in 2001, the Chief Operating Officer - Gas, and the Chief Financial
Officer/Chief Administrative 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
--------------------------- ---- ------ ----- ---------- ---------- ------------
WILLIAM T. MCCORMICK, JR. 2001 $1,110,000 $ 0 100,000 $112,271 $ 33,300(3)
Chairman and CEO, CMS 2000 1,060,000 700,000 100,000 319,869 31,800(3)
and Chairman, Consumers 1999 1,000,000 0 100,000 796,497 30,000(3)
DAVID W. JOOS 2001 637,500 0 100,000 35,907 19,125(3)
President and COO, CMS 2000 508,333 326,510 32,000 98,233 15,250(3)
and Consumers 1999 465,000 319,366 32,000 227,915 13,950(3)
WILLIAM J. HAENER 2001 509,167 0 40,000 26,930 15,275(3)
Executive Vice President 2000 406,667 322,459 22,000 83,977 12,200(3)
and COO - Natural Gas, CMS 1999 380,000 0 22,000 213,642 11,400(3)
ALAN M. WRIGHT 2001 500,000 0 45,000 35,907 15,000(3)
Executive Vice President, 2000 417,500 249,374 28,000 98,233 12,525(3)
CFO and Chief Administrative 1999 360,000 0 28,000 244,140 10,800(3)
Officer, CMS and Consumers
TAMELA W. PALLAS 2001 363,000 726,000 16,000 0 10,890(3)
President and CEO, 2000 345,000 230,000 15,000 0 125,350(4)
CMS Marketing, Services 1999 57,500 0 50,000 0 225,862(5)
and Trading Company
BRADLEY W. FISCHER 2001 383,333 257,400 41,000 0 11,500(3)
President and CEO, 2000 310,000 179,115 16,000 0 9,300(3)
CMS Oil and Gas Company 1999 273,667 180,012 16,000 0 8,210(3)
CHRISTOPHER A. HELMS 2001 386,042 134,300 16,000 0 0
President and CEO, 2000 297,708 202,747 16,000 0 0
CMS Panhandle Companies 1999 198,615 155,749 16,000 0 0
(1) Aggregate non-performance based restricted stock granted prior to 2001 held
as of December 31, 2001 by named officers was: Mr. Joos, 3,750 shares, with
year-end market value of $90,112; Mr. Haener, 954 shares with year-end
market value of $22,925; and Ms. Pallas, 7,500 shares with year-end market
value of $180,225. Regular dividends were paid on such restricted stock.
(2) Market value of CMS Common Stock paid under CMS' Performance Incentive Stock
Plan for three-year performance periods.
(3) Employer matching contribution to defined contribution plans.
(4) Employer matching contribution of $10,350 to defined contribution plans and
award of CMS Common Stock with a value at time of grant of $115,000.
(5) Employer matching contribution of $862 to defined contribution plans and
signing bonus of $225,000.
9
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,
in the absence of 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 2001
Number of Securities Percentage of Total Exercise Grant Date
Underlying Options Options Granted to Price Per Expiration Present
Name Granted Employees in 2001 Share Date Value(1)
---- -------------------- ------------------- --------- ---------- ----------
William T. McCormick, Jr. ... 100,000 9.7 $31.04 3/21/11 $643,000
David W. Joos................ 50,000 4.8 31.04 3/21/11 321,500
David W. Joos................ 50,000 4.8 20.00 10/27/11 156,000
William J. Haener............ 40,000 3.9 31.04 3/21/11 257,200
Alan M. Wright............... 45,000 4.3 31.04 3/21/11 289,350
Tamela W. Pallas............. 16,000 1.5 31.04 3/21/11 102,880
Bradley W. Fischer........... 16,000 1.5 31.04 3/21/11 102,880
Bradley W. Fischer........... 25,000 2.4 29.57 6/23/11 160,750
Christopher A. Helms......... 16,000 1.5 31.04 3/21/11 102,880
(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 CMS Common Stock's volatility of 30.59% using weekly closing
prices for a four and one half year period prior to grant date, the dividend
rate of $0.365 per quarter, the term of the option, and the level of
interest rates at 4.77%, equivalent to the yield of four-year Treasury
Notes. However, the Model does not take into account a significant feature
of options granted to employees under CMS' Plan, the non-transferability of
options awarded.
AGGREGATED OPTION EXERCISES IN 2001 AND YEAR-END OPTIONS VALUES
Number of Securities Value of Unexercised
Shares Acquired Value Underlying Unexercised In-the-Money Options
Name On Exercise Realized Options at Year End at Year End(1)(2)
---- --------------- -------- ---------------------- --------------------
William T. McCormick, Jr. ...... 30,000 $141,393 619,000 $997,040
David W. Joos................... 0 0 208,000 426,460
William J. Haener............... 0 0 152,000 174,960
Alan M. Wright.................. 19,000 228,000 116,000 63,270
Tamela W. Pallas................ 0 0 81,000 105,450
Bradley W. Fischer.............. 0 0 67,000 0
Christopher A. Helms............ 0 0 42,000 0
(1) All options listed in this table are exercisable. The named officers have no
unexercisable options.
(2) Based on the December 31, 2001 closing price of CMS Common Stock as shown in
the report of the NYSE Composite Transactions ($24.03).
10
LONG-TERM INCENTIVE PLANS -- AWARDS IN 2001
Estimated Future Payouts
Under Non-Stock Price-Based
Plans (Shares)(1)
Number of Period Until ------------------------------------
Name Shares Payout Threshold Target Maximum
---- --------- ------------ --------- ------ -------
William T. McCormick, Jr. ................. 25,000 2-5 Years 6,250 25,000 37,500
David W. Joos.............................. 14,000 2-5 Years 3,500 14,000 21,000
William J. Haener.......................... 11,000 2-5 Years 2,750 11,000 16,500
Alan M. Wright............................. 11,000 2-5 Years 2,750 11,000 16,500
Tamela W. Pallas........................... 4,500 2-5 Years 1,125 4,500 6,750
Bradley W. Fischer......................... 4,000 2-5 Years 1,000 4,000 6,000
Christopher A. Helms....................... 4,000 2-5 Years 1,000 4,000 6,000
(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 12% 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
"Compensation" in this table is the average of Salary plus Bonus, as shown in
the Summary Compensation Table, for the five years of highest earnings. The
estimated years of service for each named executive is: Mr. McCormick, 26.20
years; Mr. Joos, 30.33 years; Mr. Wright, 20.76 years; Mr. Haener, 16.00 years;
Ms. Pallas, 4.35 years; Mr. Fischer, 8.98 years; and Mr. Helms, 15.26 years.
11
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
compensation 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 (i)
base salary, which is intended to be at the competitive median of the amounts
paid to executives with equivalent positions at other energy companies of
comparable size, and (ii) 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.
Annual Compensation
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 2001, CMS' performance did not achieve the minimum
threshold of 90% of the earnings per share goal. Therefore, no payments were
made under the Plan for any CMS corporate officers; however, there were several
officers of subsidiary companies that received bonuses based on the performance
of their business units.
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 CMS Common Stock
ownership by executives, thus linking their interests directly to that of other
shareholders. Therefore, in 2001, the Committee decided to grant stock options
with an exercise price equal to the CMS Common Stock 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.
12
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 12% 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 greater than the
target, then the award will be larger.
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 bonus awards under the Executive Incentive
Compensation Plan and awards of stock options and vesting of performance-based
restricted stock under the Performance Incentive Stock Plan are considered
deductible compensation under the regulations under Section 162(m), because they
are based on pre-established performance goals and the plans have been approved
by shareholders.
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.
AUDIT COMMITTEE REPORT
CMS' and Consumers' audit activities are directed by committees composed
entirely of independent outside directors. The Committees are responsible for
overseeing the preparation of external financial reports, the adequacy of
internal audit controls, the audit process, the independence and performance of
the independent auditors, and compliance with legal and regulatory requirements.
We have reviewed and discussed with management CMS' and Consumers' audited
financial statements as of and for the year ended December 31, 2001.
We have discussed with the independent auditors of the 2001 financial
statements, Arthur Andersen LLP, the matters required to be discussed by
Statement on Auditing Standards No. 61, Communication with Audit Committees, as
amended, by the Auditing Standards Board of the American Institute of Certified
Public Accountants.
We have received and reviewed the written disclosures and the letter from those
independent auditors required by Independence Standard No. 1, Independence
Discussions with Audit Committees, as amended, by the Independence Standards
Board, and have discussed with Arthur Andersen the auditors' independence.
We have considered the provision of all of Arthur Andersen's services to CMS and
Consumers in 2001 and the fees paid for all such services, and have concluded
that all current arrangements are compatible with maintaining the independence
of Arthur Andersen LLP.
13
Based on the reviews and discussions referred to above, we recommended to the
Board of Directors that the financial statements referred to above be included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2001.
Submitted as of February 22, 2002 by the Audit Committee: William U. Parfet
(Chair), John M. Deutch, James J. Duderstadt, Percy A. Pierre, and John B.
Yasinsky.
INDEPENDENT AUDITOR COMPENSATION
Audit Fees
The aggregate fees billed by Arthur Andersen for professional services rendered
for the audit of the CMS annual financial statements for the year 2001 and for
the reviews of the 2001 quarterly financial statements were $1,630,000. The
Consumers portion of this total was $450,000.
Financial Information Systems Design and Implementation Fees
No fees were billed to CMS or Consumers by Arthur Andersen for 2001 professional
services related to financial information systems design and implementation.
All Other Fees
The aggregate fees billed to CMS by Arthur Andersen for services in the year
2001 other than the audit services discussed above was $3,926,779. The Consumers
portion of this total was $409,093. While these charges were not audit fees per
se, a portion of "All Other Fees" was related to audit services. $1,080,780 of
the "All Other Fees" total, or about 28%, were for audit-related services. The
Consumers portion of these audit-related fees was $278,550, or 68% of Consumers
total "All Other Fees." These audit-related fees are charges for services
traditionally performed by the independent auditor or that can only be performed
by the independent auditor. Examples of audit-related services include
accounting assistance on proposed financing transactions, review of documents
filed with the SEC, and audits of benefit plans.
14
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee recently concluded that the ability of Arthur Andersen, LLP
to serve as CMS' independent auditors for the year ending December 31, 2002 is
adversely affected by well publicized, recent developments and recommended to
the Board of Directors the replacement of Arthur Andersen as CMS' independent
auditors. On the recommendation of the Audit Committee, the Board of Directors
has decided to select replacement independent auditors from among nationally
recognized auditing firms. The Audit Committee has initiated a search for a new
independent auditor from among such firms and anticipates that a replacement
will be appointed by the Board and announced by the time of the annual meeting
of shareholders. Shareholders are advised that holders of the proxies will vote
in their discretion to ratify any decision of the Board prior to the annual
meeting to retain such replacement independent auditors. In the event
replacement independent auditors are not selected by the time of the annual
meeting, the Board will make a selection as soon as possible thereafter.
Arthur Andersen served as CMS' independent auditors for the year 2001.
Representatives of Arthur Andersen will be invited to attend the annual meeting
of shareholders and will have an opportunity to make a statement, if they desire
to do so, and to respond to appropriate questions. The new independent auditors
will also be invited to attend, to make a statement, if they desire to do so,
and to answer questions.
The Board of Directors and the Audit Committee have the responsibility to
evaluate and, if necessary, the Board has the authority to replace CMS'
independent auditors even after, or absent, shareholder ratification. This
statement of the Board's and the Audit Committee's authority is set forth in the
CMS Audit Committee Charter: "The independent accountants are ultimately
accountable to the Board and the [Audit] Committee; therefore, the [Audit]
Committee and the Board shall have the authority and responsibility to select,
evaluate and, when appropriate, replace the independent accountants." The Audit
Committee Charter, which was included as an appendix to the 2001 CMS Proxy
Statement, together with language substantially the same as that quoted above,
are required for companies like CMS that are listed on the New York Stock
Exchange.
Approval of this proposal requires the affirmative vote of a majority of the
shares of CMS Common Stock voting on the proposal.
YOUR BOARD RECOMMENDS A VOTE FOR THE RATIFICATION OF THE
APPOINTMENT OF INDEPENDENT AUDITORS
15
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG CMS ENERGY CORPORATION, S&P 500 INDEX & DOW JONES UTILITY INDEX
[PERFORMANCE GRAPH]
INDEXED RETURN
---------------------------------------
COMPANY/INDEX 1996 1997 1998 1999 2000 2001
------------- ---- ---- ---- ---- ---- ----
CMS ENERGY 100 135 153 102 111 89
S & P 500 100 133 171 208 189 166
DOW JONES UTILITY 100 123 146 138 208 154
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, 1996.
16
2003 PROXY STATEMENT INFORMATION
A shareholder who wishes to submit a proposal for consideration at the 2003
annual meeting pursuant to the applicable rules of the SEC must send the
proposal to reach CMS' Corporate Secretary on or before December 21, 2002. In
any event if CMS has not received written notice of any matter to be proposed at
that meeting by March 6, 2003, the holders of the proxies may use their
discretionary voting authority on any such matter. The proposals should be
addressed to: Mr. Rodger A. Kershner, Senior Vice President, General Counsel,
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 CMS Common Stock held of record by such brokers, dealers,
banks, voting trustees or other record holders.
Shareholders can submit recommendations of nominees for election to the Boards
of Directors. Shareholders' recommendations will be provided to the Nominating
Committees for consideration. 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. Rodger A. Kershner,
Senior Vice President, General Counsel, and Secretary, at the address noted
above.
In some instances, only one annual report or proxy statement is being delivered
to multiple security holders sharing an address unless the company has received
contrary instructions from one or more of the shareholders. A shareholder
wishing to receive a separate annual report or proxy statement can so notify the
company at the address or telephone number below. Similarly, shareholders
currently receiving multiple copies of these documents can request the
elimination of duplicate documents by contacting the company at Investor
Services, 212 W. Michigan Ave., Jackson, MI 49201, telephone 517.788.1868.
17
[CMS ENERGY LOGO]
COMMON STOCK PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned appoints WILLIAM T. MC CORMICK, JR. and RODGER A. KERSHNER, 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 24, 2002 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 AND
THE RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS.
PLEASE VOTE, SIGN AND DATE THIS PROXY ON
THE REVERSE SIDE.
THANK YOU FOR YOUR PROMPT RESPONSE.
PLEASE VOTE, SIGN AND DATE BELOW
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[ ] 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.)
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
(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) Earl D. Holton, (06) David W. Joos, (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.)
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FOR AGAINST ABSTAIN PLEASE SIGN, DATE AND RETURN THIS PROXY.
(2) Ratification of appointment of independent
auditors (subject to the Board's authority [ ] [ ] [ ]
to replace the auditors either prior to or
after the vote of the shareholders).
Signed_______________________________
Dated__________________________, 2002
PLEASE VOTE, SIGN AND DATE BELOW