UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
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SEC 1913 (02-02)
[CMS ENERGY LOGO]
CMS ENERGY CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 28, 2004
To Fellow Shareholders of CMS Energy Corporation:
Our annual meeting of shareholders of CMS Energy Corporation (the "Corporation")
will be held on Friday, the 28th day of May 2004, at 10:30 A.M., Eastern
Daylight Saving Time, at the Potter Center, 2111 Emmons Road, Jackson, Michigan
49201. The purposes of the meeting are to:
(1) Elect eleven members to the Corporation's Board of Directors;
(2) Ratify the appointment of independent auditors to audit the
Corporation's financial statements for the year ending December 31,
2004;
(3) Consider a proposal to approve an amendment to the Corporation's
Performance Incentive Stock Plan;
(4) Consider a proposal to permit awards under the Corporation's incentive
compensation plans and related contractual arrangements to be income tax
deductible by the Corporation;
(5) Consider a proposal to amend the Corporation's Restated Articles of
Incorporation; and
(6) Transact such other business as may properly come before the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 1 THROUGH 5. 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 2003, including the Form 10-K
with our financial statements, previously has been furnished to you.
All shareholders are invited to attend our annual meeting. If you were a
shareholder of record at the close of business on April 2, 2004, 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 our costs by promptly voting via telephone or the
Internet.
By Order of the Board of Directors
Michael D. VanHemert
Corporate Secretary
CMS Energy Corporation
One Energy Plaza
Jackson, Michigan 49201
April [23], 2004
PROXY STATEMENT
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TABLE OF CONTENTS
INTRODUCTION
General................................................... Page 1
Proposals Subject To Shareholder Votes.................... Page 1
Ways To Vote Your Proxy................................... Page 2
CORPORATE GOVERNANCE
Background................................................ Page 2
Director Communication Process............................ Page 3
Shareholder Recommendation Process........................ Page 3
Director Independence..................................... Page 4
Code of Ethics............................................ Page 4
Board and Committee Information........................... Page 4
MANAGEMENT SECURITY OWNERSHIP............................... Page 12
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE..... Page 13
BUSINESS RELATIONSHIPS...................................... Page 13
COMPENSATION OF DIRECTORS................................... Page 14
ORGANIZATION AND COMPENSATION COMMITTEE REPORT.............. Page 15
EXECUTIVE COMPENSATION...................................... Page 18
AUDIT COMMITTEE REPORT...................................... Page 22
INDEPENDENT AUDITOR......................................... Page 23
AUDITOR COMPENSATION........................................ Page 23
DESCRIPTION OF PROPOSALS SUBJECT TO SHAREHOLDER VOTE
(1) Elect Eleven Members to the Board of Directors........ Page 25
(2) Ratify the appointment of independent auditors........ Page 27
(3) Consider approval of an amendment to the Performance
Incentive Stock Plan.................................... Page 27
(4) Consider approval of deductibility of incentive
compensation awards..................................... Page 30
(5) Consider adoption of an amendment to amend Restated
Articles of Incorporation............................... Page 31
FIVE-YEAR CUMULATIVE TOTAL RETURN........................... Page 33
2005 PROXY STATEMENT INFORMATION............................ Page 33
OTHER MATTERS............................................... Page 34
Appendix A: Performance Incentive Stock Plan, as amended.... Page A-1
PROXY STATEMENT
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INTRODUCTION
GENERAL
The Board of Directors of CMS Energy Corporation ("CMS" or the "Corporation")
solicits your proxy for our annual meeting of shareholders. Your shares will be
voted as you request if your proxy voting instructions are received prior to the
annual meeting. You may revoke your proxy at any time before it is voted at the
annual meeting.
As of December 31, 2003, the Corporation's only outstanding voting securities
consisted of a total of 161,130,163 shares of Common Stock ($.01 par value).
Each outstanding share is entitled to one vote on all matters that come before
the annual meeting. All shares represented by valid proxies will be voted at the
annual meeting. The terms "we" and "our" as used in this proxy statement refer
to CMS Energy Corporation.
We have received a copy of a Schedule 13G filed with the Securities and Exchange
Commission ("SEC") by Lord, Abbett & Co., 90 Hudson Street, Jersey City, New
Jersey 07302. This Schedule 13G indicates that holdings of 14,812,267 shares,
representing 9.2% 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 our management, no other person or entity
currently owns beneficially more than 5% of any class of our outstanding voting
securities.
The presence of the holders of a majority of the shares of our Common Stock in
person or by proxy at the annual meeting will constitute a quorum. The
determination of approval of corporate action by the shareholders is based on
votes "for" and "against". In general, abstentions and "broker non-votes" (as
described below) are not counted as "against" votes but are counted in the
determination of a quorum. However, under the rules of the New York Stock
Exchange, Inc. ("NYSE") with respect to Proposal 5 below, abstentions and broker
non-votes will have the same effect as negative votes (even though it may not
have been the intent of the person voting or giving the proxy to vote against
such proposal).
With respect to Proposal 1 below, the election of each director requires
approval from a plurality of the shares voted. On Proposals 2, 3 and 4,
approvals require votes "for" by a majority of the shares voted. Approval of
Proposal 5 requires votes "for" by a majority of issued and outstanding shares
of our Common Stock.
With respect to Proposal 3 below, if you hold shares in a brokerage or bank
account, your failure to give voting instructions to your broker or bank will
result in a so-called "broker non-vote" under the NYSE rules (since your broker
is not entitled to vote your shares on this particular proposal unless it
receives instructions from you). Broker non-votes and abstentions are not
considered votes cast and, therefore, will be counted neither "for" nor
"against" this proposal.
PROPOSALS SUBJECT TO SHAREHOLDER VOTE
1) Elect eleven members to the Corporation's Board of Directors;
2) Ratify the appointment of independent auditors to audit the Corporation's
financial statements for the year ending December 31, 2004;
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3) Consider a proposal to approve an amendment to the Corporation's Performance
Incentive Stock Plan;
4) Consider a proposal to permit awards under the Corporation's incentive
compensation plans and related contractual arrangements to be income tax
deductible by the Corporation;
5) Consider a proposal to amend the Corporation's Restated Articles of
Incorporation.
Detailed descriptions of each of these proposals can be found later in this
proxy statement under the heading "DESCRIPTION OF PROPOSALS SUBJECT TO
SHAREHOLDER VOTE."
WAYS TO VOTE YOUR PROXY
PLEASE VOTE USING A TOUCH-TONE TELEPHONE, THE INTERNET, OR BY SIGNING AND
RETURNING THE ENCLOSED PROXY CARD. YOU CAN HELP MINIMIZE OUR COSTS BY PROMPTLY
VOTING VIA TELEPHONE OR THE INTERNET.
CORPORATE GOVERNANCE
BACKGROUND
In March of 2003, the CMS and Consumers Boards of Directors adopted Corporate
Governance Principles (the "Principles") that generally formalized long-standing
corporate and Board practices, although with various updated aspects reflecting
developing best practices and SEC and NYSE standards. The Principles detail the
role of the Board, the selection and role of the Chief Executive Officer, the
composition and meeting procedures of the Board and its Committees, as well as
Board and Committee compensation and self-evaluation guidelines. At the same
time, the Boards adopted, upon the recommendations of their Governance and
Nominating Committees as well as applicable other Committees, Charters for each
of their standing Committees that detailed their purposes and duties,
composition, meetings, performance evaluations, resources and authority as well
as other aspects of Committee activities. These Principles and the Charters have
been available through our website at www.cmsenergy.com.
In February of 2004, the Governance and Nominating Committee reported to the
Board the results of the Board and Committees' self-evaluations questionnaires,
as well as their recommendations for possible responses to the self-evaluations
and informal discussions between individual Board members and the Committee
Chair. In addition, the Board and the Committee reviewed the various recent
corporate governance initiatives as well as the Corporation's evolving business
model, and their impact on the Principles, Charters and Board composition. As a
result of these reports, recommendations and reviews, the Board refined the
Principles as well as the Director Communication and Shareholder Recommendation
Processes described below.
Also in February of 2004, James J. Duderstadt, President Emeritus of the
University of Michigan, and Kathleen R. Flaherty, former President and Chief
Executive Officer of WinStar International, confirmed to the Governance and
Nominating Committee that they had decided not to seek re-election as directors.
The Board and the management acknowledge CMS and Consumers' gratitude for Dr.
Duderstadt's ten years and Ms. Flaherty's nine years of dedicated service on the
Boards.
In March of 2004, the Governance and Nominating Committee recommended to the
Boards the nomination of Merribel S. Ayres to serve as a director of CMS and
Consumers, effective with her proposed election by shareholders
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at the May 28, 2004 annual meeting. Ms. Ayres candidacy to join the Board was
initially recommended to the Committee by its prior Chair, a former non-employee
director. The Board also approved an amendment and restatement of the Principles
pursuant to the Committee's recommendations.
The Board and the Governance and Nominating Committee continue to evaluate and
consider various additional changes to the Principles and the Board and
Committee structure and Charters, and all such revisions will be reflected in
the versions of such documents available through our website.
DIRECTOR COMMUNICATION PROCESS
CMS and Consumers shareholders, employees or third parties can communicate on
any topic with the Board of Directors, a Committee of the Board or an individual
director, including Earl D. Holton, our presiding director at executive sessions
of the Board, by sending written communications c/o Corporate Secretary, CMS
Energy Corporation, One Energy Plaza, Jackson, MI 49201. The Corporate Secretary
will review and forward such communications to the Board or the appropriate
Committee or director. Further details regarding shareholder, employee or other
third-party communications with the Board of Directors or its Committees or
individual members can be accessed at the Corporation's website.
Any shareholder, employee or third party who wishes to submit a compliance
concern to the Board or an applicable Committee, including complaints regarding
accounting, internal accounting controls or auditing matters to the Audit
Committee, may do so by any of the following means:
- send correspondence or materials addressed to the appropriate party c/o the
Chief Compliance Officer, CMS Energy Corporation, One Energy Plaza, Jackson,
MI 49201;
- send an email or other electronic communication via our external Website
www.ethicspoint.com, again addressed to the appropriate party; or
- call the CMS Compliance Hotlines at either 1-800-CMS-5212 (an internally
monitored line) or 1-866-ETHICSP (monitored by an external vendor).
All such communications initially will be reviewed by the CMS Chief Compliance
Officer (who reports directly to the Board) prior to being forwarded to the
Board or applicable Committee or director.
SHAREHOLDER RECOMMENDATION PROCESS
Shareholders can submit recommendations of nominees for election to the Boards
of Directors. Shareholders' recommendations will be provided to the Governance
and Nominating Committee for consideration. The recommendations should include
(a) the qualifications of the proposed nominee to serve on the Board, (b) the
principal occupation and employment of the proposed nominee for the past five
years, (c) each directorship, trustee position or similar position currently
held by the proposed nominee, and (d) a statement from the proposed nominee that
he or she has consented to the submission of the recommendation. Shareholders
should send their written recommendations of nominees c/o the Corporate
Secretary, CMS Energy Corporation, One Energy Plaza, Jackson, MI 49201.
Late in 2003 the Corporate Secretary received a self-nomination recommendation
from an individual shareholder. Although this self-nomination did not meet all
of the foregoing requirements, the Governance and Nominating Committee
considered his recommendation at each of its February and March meetings. The
Committee determined that this individual did not meet its criteria for nominees
as detailed later in this proxy statement, and has not nominated him. This same
individual has submitted shareholder proposals for inclusion in each of the 2003
and this
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2004 proxy statements, and in both instances the SEC staff has concurred in the
Corporation's position that these proposals were not appropriate for inclusion
in its proxy material.
DIRECTOR INDEPENDENCE
The Board affirms the "independent" status of all of its non-employee directors
(in accordance with the listing standards of NYSE) based upon the following:
- No independent director has a material relationship with CMS (either directly
or as a partner, shareholder or officer of an organization that has a
relationship with CMS)
- During the last three years, no independent director, or his or her family
member:
- received more than $100,000 in direct compensation from CMS (in excess of
payments for Board and Committee service);
- was affiliated with or employed by the present or former auditors of CMS;
- was employed as an executive officer by another company that has an
interlocking compensation committee with CMS;
- was an officer or employee of a company to which CMS made or received
payments of $1 million, or 2% of the other company's consolidated gross
revenues; and
- has been an employee of CMS.
In addition to meeting the independent director standards of NYSE as detailed
above, each of Messrs. Monahan and Paquette has been designated by the Board of
Directors as an "independent director" in accordance with the explicit
requirements of the Michigan Business Corporation Act. These statutory
requirements are even more stringent than the NYSE standards, and include the
limitation that such status is only available to directors who have served for
three or fewer years as such at the company. Independent directors under the
Michigan Act are presumed by law to have a disinterested status that allows the
full Board of Directors to rely upon their disinterested determinations.
CODE OF ETHICS
CMS has adopted a code of ethics that applies to its Chief Executive Officer,
Chief Financial Officer and Chief Accounting Officer, as well as all other
employees of the Corporation and its affiliates, including Consumers Energy
Company ("Consumers"). The code of ethics is included in our Code of Conduct and
Statement of Ethics Handbook which can be found on our website at
www.cmsenergy.com. Our Code of Conduct and Statement of Ethics, including the
code of ethics, is administered by the Corporation's Chief Compliance Officer,
who reports directly to the Board of Directors.
BOARD AND COMMITTEE INFORMATION
The CMS Board of Directors met 16 times and Consumers' Board of Directors met 12
times during 2003. All incumbent directors attended more than 75% of the Board
and assigned committee meetings during 2003. Our Principles state the Board's
expectation that all Board members attend all scheduled Board and Committee
4
meetings, as well as the annual meeting of shareholders. All Board members
attended the 2003 annual meeting of shareholders.
The various standing committees of the Board of Directors are listed below. Each
committee is composed entirely of "independent" directors, as that term is
defined by the NYSE listing standards described above, other than the Executive
Committee of which Kenneth Whipple serves as Chair. Inside directors served on
no other committees during 2003.
On a regularly scheduled basis, the independent directors meet with no inside
director present and may invite such members of management to attend as they
determine appropriate.
AUDIT COMMITTEES
Members: William U. Parfet (Chair), Michael T. Monahan, Joseph F. Paquette, Jr.,
Kenneth L. Way, and John B. Yasinsky.
Meetings during 2003: CMS 16; Consumers 16
Each of the members of the Audit Committee is an independent director, and each
qualifies as an audit committee financial expert based upon the following
qualifications:
- Educational background;
- Prior service as chief financial officer and/or chief executive officer
actively supervising accounting activities;
- Understanding of generally accepted accounting principles and financial
statements; and
- Membership on various audit committees.
In addition to serving as the Chair of our Audit Committee, Mr. Parfet presently
serves on audit committees of three other public companies. Our Board has
determined that such simultaneous service will not impair Mr. Parfet's ability
to effectively serve on our Audit Committee.
The primary functions of these committees are to:
- Assure the integrity of CMS' and Consumers' financial statements and financial
information, the financial reporting process and the system of internal
accounting and financial controls;
- Assure CMS' and Consumers' compliance with applicable legal requirements,
regulatory requirements, and NYSE rules;
- Appoint, compensate and terminate CMS' and Consumers' independent auditors;
- Pre-approve all audit and non-audit services provided by the independent
auditors;
- Assure the independent auditors' qualifications and independence;
- Review the performance of the internal audit function and independent
auditors;
- Perform their duties in a manner consistent with the Audit Committee Charter
adopted by the Board of Directors* and;
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- Prepare the Audit Committee report for inclusion in the annual proxy
statement.
* The Charter was restated in April 2004. The restatement was responsive to the
requirements of the Sarbanes-Oxley Act of 2002, 2003 revisions to the listing
standards of the NYSE, and applicable rules and regulations of the SEC.
ENVIRONMENTAL AND CORPORATE RESPONSIBILITY COMMITTEES
Members: Percy A. Pierre (Chair), James J. Duderstadt, Kathleen R. Flaherty,
Earl D. Holton, Michael T. Monahan, and John B. Yasinsky.
Meetings during 2003: CMS 2 -- Consumers 2
The primary functions of these committees are to:
- Assure compliance with the Corporation's Code of Conduct Handbook and
Statement of Ethics including approval of any waiver of the provisions
applicable to directors and executive officers and receipt of periodic reports
from the Chief Compliance Officer concerning compliance activities relating to
the Handbook and Statement;
- 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 related to the
foregoing.
GOVERNANCE AND NOMINATING COMMITTEES
Members: Earl D. Holton (Chair), James J. Duderstadt, Kathleen R. Flaherty,
Joseph F. Paquette, Jr., and Percy A. Pierre.
Meetings during 2003: CMS 4; Consumers 4
The primary functions of these committees are to:
Governance:
- Develop and recommend to the Boards of Directors such corporate and Board
governance principles as may be deemed necessary by the Committees to ensure
that the Corporation effectively protects and enhances shareholder value;
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- Monitor the practices of the Boards of Directors to ensure compliance with the
Corporation's corporate governance principles;
- Evaluate and review the performance of the Boards of Directors as a whole in
order to increase the overall effectiveness of the Boards of Directors, and
report the results of their evaluation to the Boards of Directors annually;
and
- Recommend ways in which the Boards of Directors could improve their
performance.
Nominating:
- Conduct continuing study of the size, structure, composition and compensation
of the Boards and any committees thereof;
- Seek possible candidates to fill Board positions, and aid in attracting
qualified candidates to the Boards;
- Assess, on a regular basis, the skills and characteristics needed by the
Boards in the context of the current composition of the Board:
Personal characteristics to be considered are:
- Integrity;
- Strategic -- visionary;
- Global -- international experience;
- Availability -- time (number of other boards served on);
- Overall commitment (energy -- enthusiasm);
- Independence (regulatory concept as well as independence of thought);
- Informed judgment;
- High performance standards;
- Crisis response;
- Length of available service;
- Stock ownership (willing to align with shareholder interest); and
- Diversity.
Business experience of candidates to be considered includes:
- Strong accounting background/knowledge;
- Current CEO of public company;
- Former CEO of public company;
- Current COO or CFO of public company;
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- Utility/energy/nuclear power experience;
- Financial acumen and experience;
- Unique skills not possessed by other board members;
- Regulatory experience;
- Legal experience; and
- Investor/government relations experience.
- Recommend, prior to the solicitation of proxies, a slate of qualified
candidates for election to the Boards at any meeting of shareholders at which
Directors are to be elected and, in case of a vacancy on a Board, a candidate
to fill that vacancy. Such recommendations should consider the
above-referenced characteristics and experience as well as:
- The interplay of the candidate's experience with the experience of other
Board members;
- Attendance at meetings of Directors;
- A balanced range of business experiences; and
- Other matters relevant to the appropriate representation of the interests of
the shareholders in carrying out the Corporation's responsibilities to the
public;
- Consider the nomination by any shareholder of a candidate for election as a
director of the Corporation, provided that the shareholder has submitted a
written request and related information to the Secretary of the Corporation at
the required time prior to any meeting of shareholders at which Directors are
to be elected, together with the written consent of such person to serve as a
director;
- Review periodically and recommend to the Board modifications, as appropriate,
to the tenure policy; and
- Determine from time to time other criteria for selection and retention of
Board members.
ORGANIZATION AND COMPENSATION COMMITTEES
Members: John B. Yasinsky (Chair), Earl D. Holton, Joseph F. Paquette, Jr.,
William U. Parfet, and Kenneth L. Way.
Meetings during 2003: CMS 7; Consumers 7
The primary functions of these committees are to:
- Annually review the Corporation's executive compensation structure and
policies, including the establishment and adjustment of executive officers'
base salaries, annual and long-term incentive targets and incentive payments
consistent with the achievement of such targets as well as produce an annual
report on such compensation to shareholders in accordance with the rules and
regulations of the SEC and other appropriate regulatory agencies;
- Review and approve corporate goals and objectives relevant to the Chief
Executive Officer's compensation, evaluate the Chief Executive Officer's
performance in view of those goals and objectives, and set the Chief Executive
Officer's compensation level based on this evaluation;
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- Annually determine corporate financial and business goals and target awards
pursuant to the Corporation's incentive plans, and approve the payment of cash
performance bonuses to employees in the aggregate, consistent with achievement
of such goals;
- Approve the grant of stock, stock options and other stock-based awards
pursuant to the Corporation's incentive plans, and the terms thereof,
including the vesting schedule, performance goals, exercisability and term, to
the Corporation's employees, including officers;
- Review and recommend to the Board of Directors incentive compensation plans,
equity-based plans, and tax qualified retirement and investment plans and
amendments thereto, with the exception of certain amendments which are
delegated to specified officers of the Corporation or administrators under the
terms of the plans, including supplemental retirement plans, change-in-control
severance agreements, deferred compensation programs, stock award programs,
employment, separation and management agreements;
- Review and approve management proposals regarding other compensation and
benefit programs, plans and guidelines;
- Annually review and advise the Board of Directors concerning the Corporation's
management succession plan, including long-range plans for development and
selection of key managers and plans for emergency succession in case of
unexpected disability or departure of a senior executive officer;
- Review organizational and leadership development plans and programs, and
programs designed to identify, attract and retain high potential employees;
- Perform such other functions as may be allocated to the Committee under the
terms of the Corporation's employee benefit and executive compensation plans;
and
- Carry out additional functions and adopt additional policies and procedures as
may be appropriate in light of changing business, legislative, regulatory,
legal or other conditions.
FINANCE AND PENSION COMMITTEES
Members: Kenneth L. Way (Chair), James J. Duderstadt, Kathleen R. Flaherty,
Michael T. Monahan, William U. Parfet, and Percy A. Pierre.
Meetings during 2003: CMS 4; Consumers 4
The Finance Committee reviews and makes recommendations to the Board concerning
the financing and investment plans and policies of the Corporation.
The Committee has the authority, acting for and on behalf of the Board and
consistent with the protection of the interests of investors, to consider and
recommend to the Board as appropriate:
- Financing plans formulated by management, including those in strategic and
operating plans;
- Financing terms of acquisitions, divestitures, joint ventures, partnerships,
or combinations of business interests;
- Short- and long-term financing plans, including the sales or repurchases of
common and preferred equity and long-term debt;
9
- Financial policies including cash flow, capital structure, and dividend;
- Risk management policies including foreign exchange management, hedging, and
insurance; and
- Investment performance, funding, and asset allocation policies for employee
benefit plans and nuclear decommissioning trusts.
EXECUTIVE COMMITTEES
Members: Kenneth Whipple (Chair), Earl D. Holton, William U. Parfet, Percy A.
Pierre, Kenneth L. Way, and John B. Yasinsky.
Meetings during 2003: CMS 2; Consumers 2
The primary function of these committees is 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.
SPECIAL COMMITTEES
The standing committees listed above have continuing duties. In addition, the
Board of Directors has from time to time established special committees to
address specific major issues facing CMS. Special committees do not have
continuing duties; they exist only until they complete their specified duties.
The most significant current special committee is the Board's Special Litigation
Committee, as discussed below.
Special Litigation Committee
The Board established this special committee in December 2002 and confirmed its
duties in January 2003. The purpose of the Special Litigation Committee is to
investigate and evaluate the allegations and issues raised by a shareholder,
requesting that we institute a derivative proceeding against certain of our
directors and officers, and to prepare such reports and to take such other
actions in connection with its reasonable investigation as it shall deem
appropriate to make a good faith determination whether the maintenance of the
derivative proceedings is in our best interests, in accordance with Michigan
law.
The Special Litigation Committee was granted the full power and authority of the
Board of Directors with respect to investigating, evaluating and taking action
regarding the shareholder demand and the allegations and issues raised therein,
including without limitation the power and authority to assert claims and to
initiate and pursue litigation on our behalf relating to such matters, to settle
or compromise any such claim or lawsuit, and to seek dismissal of any related
derivative proceeding pursuant to Michigan law. The Special Litigation Committee
may make such reports of its determinations and actions to our Board of
Directors or shareholders as it shall deem appropriate from time to time, but
making such reports to the Board shall be at the option of the Special
Litigation Committee, and all determinations made by the Special Litigation
Committee pursuant to its authority shall be final, shall not be subject to
review or approval by the Board of Directors and shall in all respects be
binding. The Board determined Michael T. Monahan and Joseph F. Paquette, Jr. to
be "disinterested directors" under Michigan law and appointed
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Messrs. Monahan and Paquette to serve as members of the Special Litigation
Committee. The Board also designated Messrs. Monahan and Paquette as
"independent directors" in accordance with Michigan law. The Special Litigation
Committee was authorized to engage such experts and advisors, including its own
independent legal counsel, as it deemed necessary or desirable in order to
assist it in the discharge of its responsibilities. The Special Litigation
Committee selected the law firm of Jenner & Block to help with its investigation
and evaluation. The Special Litigation Committee has not completed its
investigation and evaluation as of the date of this proxy statement.
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MANAGEMENT SECURITY OWNERSHIP
The following chart shows the beneficial ownership of our Common Stock by the
directors and executive officers of both CMS and Consumers:
Shares
Name Beneficially Owned*
---- -------------------
James J. Duderstadt...................... 7,792
Kathleen R. Flaherty..................... 8,504
Earl D. Holton........................... 27,374
David W. Joos............................ 294,592
Michael T. Monahan....................... 3,943
Joseph F. Paquette, Jr. ................. 23,210
William U. Parfet........................ 15,800
Percy A. Pierre.......................... 8,215
S. Kinnie Smith, Jr. .................... 221,122
Kenneth L. Way........................... 59,613
Kenneth Whipple.......................... 572,954
John B. Yasinsky......................... 16,485
Thomas J. Webb........................... 152,477
Thomas W. Elward......................... 74,932
David A. Mikelonis....................... 42,045
William J. Haener........................ 47,307
All directors and executive officers**... 1,915,000
* All shares shown above are as of March 24, 2004. In addition to the shares
shown above, Messrs. Joos, Smith, Webb, Elward, Mikelonis, Haener and all
other executive officers of CMS and Consumers own options to acquire
473,000; 165,000; 150,000; 146,000; 137,000; 224,500; and 1,023,520 shares,
respectively. Mr. Whipple has not been granted any options to acquire our
Common Stock. All options identified in this footnote are as of March 24,
2004.
** All directors and executive officers includes executive officers of both
CMS and Consumers; the directors of CMS and Consumers are the same
individuals, as disclosed earlier in this proxy statement.
12
Shares shown as beneficially owned include:
- Shares to which a person has or shares voting power and/or investment power.
- The number of shares and share equivalents represented by interests in or
pursuant to the:
- Employee Savings Plan (our 401(k) plan);
- Deferred Salary Savings Plan;
- Performance Incentive Stock Plan;
- Directors' Deferred Compensation Plan;
- Salaried Employees' Merit Plan; and
- Mr. Whipple's employment agreements.
Dr. Duderstadt, Ms. Flaherty, Messrs. Holton, Parfet, Pierre, Smith, Way,
Whipple, and Yasinsky each own 10 shares of Preferred Stock of Consumers. As of
March 24, 2004, the directors and executive officers of CMS and Consumers
together own approximately 1.2% of the outstanding shares of our Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Federal securities laws requires our directors and
executive officers, and persons who own more than 10% of CMS or Consumers equity
securities to file with the SEC reports of beneficial ownership and changes in
such ownership of any of those equity securities or related derivative
securities. To our knowledge, during the year ended December 31, 2003, our
executive officers and directors made all required Section 16(a) filings on a
timely basis.
BUSINESS RELATIONSHIPS
On May 1, 2002, Consumers sold its electric transmission system to Michigan
Transmission Holdings, LLP, a non-affiliated limited partnership whose general
partner is a subsidiary of Trans-Elect, Inc. A Trans-Elect, Inc. subsidiary
provides interstate electric transmission service to Consumers pursuant to
agreements entered into at the time of the sale. The Federal Energy Regulatory
Commission approved the rates and other terms of the service prior to the sale
and they remain subject to the Commission's jurisdiction. From May 15, 2002
until June 30, 2002, S. Kinnie Smith, Jr. served as Vice Chairman of
Trans-Elect, Inc. Mr. Smith served as a director of Trans-Elect, Inc. since its
organization in 1998. Mr. Smith resigned as Vice Chairman and director of
Trans-Elect, Inc. upon becoming Vice Chairman, and a director of CMS and
Consumers, as well as General Counsel of CMS. Mr. Smith owns 20,000 shares of
Convertible Preferred A Stock of Trans-Elect, Inc., or approximately 10% of the
outstanding voting securities of Trans-Elect, Inc. Mr. Smith also has an option
to acquire an additional 250 shares of this security.
Trans-Elect, Inc.'s subsidiary purchased the Consumers electric transmission
system in a competitive bidding process for approximately $290 million in cash.
Consumers provided no financial or credit support for the sale to Trans-Elect,
Inc. As a result of the sale, Consumers experienced an after-tax earnings
increase of approximately $17 million in 2002 due to the recognition of a $26
million gain on the sale. During the calendar year 2003, Consumers paid a total
of $74 million to Trans-Elect, Inc.'s subsidiary for electric transmission
services.
13
COMPENSATION OF DIRECTORS
In 2003, directors who were not CMS or Consumers employees received an annual
retainer fee of $30,000, $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. These figures had remained unchanged for
five years, and are relatively low by industry standards according to reports
issued by our independent compensation consultants. In 2004, the annual retainer
and fees for Board meetings will remain the same; however, effective January 1,
2004, due to the increasing demands on the Chair and the members of the Audit
Committee as a result of new rules and regulations of the SEC pursuant to the
Sarbanes-Oxley Act of 2002 and revised NYSE listing standards, the Chair of the
Audit Committee will receive an annual retainer fee of $7,500 and $1,250 for
attendance at each Audit Committee meeting, and each other Audit Committee
member will receive an annual retainer fee of $2,000 and $1,250 for attendance
at each Audit Committee meeting. Also effective January 1, 2004, non-employee
directors' attendance at special telephonic meetings of the Board will be
compensated at the rate of $750 per meeting, or one-half the regular Board
meeting rate.
In 2003, all directors who were not CMS or Consumers employees were granted 850
restricted shares of our Common Stock with a fair market value at time of grant
of $6,468, except for Messrs. Monahan and Paquette, the Board's newest members,
who received 3,943 restricted shares with a fair market value at the time of
grant of approximately $30,000 pursuant to our commitment at the time they were
recruited to join the Board. These restricted shares must be held for at least
three years from the date of grant. In 2004, all of the non-employee directors,
including the two directors who are not standing for re-election, will be
granted a number of shares of restricted stock with a fair market value at the
time of grant of approximately $30,000. These restricted shares must be held for
at least three years from the date of grant. Directors are reimbursed for
expenses incurred in attending Board or committee meetings. Directors who are
CMS or Consumers employees 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 CMS or Consumers
director who is not an employee 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 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 our 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.
Effective with the annual meeting in May of 2004, the Board's current retirement
payments policy will be discontinued. Although current and previously retired
directors' accrued benefits under the policy will be preserved, no further years
of service will be accrued nor will future increases in the cash retainer impact
the grandfathered payouts under this policy. Prior to its discontinuance, the
directors' retirement payments policy provided those directors who retire with
five years of service on the Board with annual retirement payments equal to the
retainer. These payments continue for a period of time equal to the director's
years of service on the Board. All payments will cease at the death of the
retired director.
All non-employee directors have historically been offered optional life
insurance coverage, business-related travel accident insurance, and optional
health care insurance, and CMS and Consumers paid the premiums associated with
14
participation by directors. These insurance coverages will not be provided by
the Corporation to new directors, effective with the annual meeting in May of
2004. The imputed income for the life insurance coverage in 2003 was: Messrs.
Duderstadt, $753; Holton, $2,715; Monahan, $726; Paquette, $2,553; Parfet, $663;
Pierre, $726; Whipple, $2,553; Yasinsky, $744; and Ms. Flaherty, $399. The
imputed income for health insurance coverage in 2003 was: Ms. Flaherty, $9,289.
ORGANIZATION AND COMPENSATION COMMITTEE REPORT
COMPENSATION PHILOSOPHY
CMS' and Consumers' executive compensation program is directed by our
Organization and Compensation Committee (the "Committee"), which is composed
entirely of independent directors. The Committee is responsible for determining
and administering executive compensation policies and plans as well as reviewing
and recommending to the Board of Directors officer appointments. The Committee
also has the responsibility for approving both annual compensation and
compensation awards under long-term incentive stock programs. In doing so, the
Committee relies to a large degree on incentive compensation including
stock-related awards to attract and retain outstanding officers. In the past, it
has been our philosophy to target salary and long-term incentives at the 50th
percentile of the market, as then defined by the Committee, and to target annual
incentives at the 75th percentile of that same market. It is now the Committee's
intent to modify this philosophy and target salary, annual incentives and
long-term incentives at the 50th percentile of the market (as defined by a
seventeen company peer group of energy companies of comparable business focus
and size to CMS). It is further the Committee's intent to recommend that stock
ownership guidelines be established for officers of CMS and its subsidiaries
ranging from an amount of stock equivalent to base salary for more junior
officers to several multiples of base salary for more senior officers. All of
these programs seek to enhance the Corporation's profitability and, hence, its
shareholder value by aligning the financial interests of CMS' officers with
those of its shareholders.
Direct compensation for Mr. Whipple and the other executive officers consists of
(i) base salary, which is intended to be at the 50th percentile of the amounts
paid to executives with equivalent positions at other energy companies of
comparable size (the aforementioned seventeen company peer group), and (ii)
substantial annual and long-term incentive compensation also at the 50th
percentile of the seventeen company peer group that closely ties to our success
in achieving earnings, cash flow, stock appreciation and other performance
goals. The incentive programs are considered variable "at risk" compensation and
are intended to result in above-median compensation only in years when we exceed
our performance goals.
ANNUAL COMPENSATION
The Committee reviews the base salary of Mr. Whipple and the other officers and
approves annual salaries for them based on industry, peer group, and national
surveys, as well as the Committee's collective judgment as to the past and
expected future contributions of each individual.
The annual incentive compensation (bonus) payment, if any, is based on our
success in meeting challenging ongoing earnings per share and free cash flow
goals set by the Committee before March 31 of each year. Following the end of
each year, the Committee reviews the results on a corporate basis to determine
the appropriate awards. The maximum payout of the Officer Incentive Compensation
Plan is 200%. Under the Officer Incentive Compensation Plan for 2003, CMS'
performance exceeded 100% of both of the earnings per share goal and the free
cash flow goal,
15
resulting in bonus payments to all eligible employees at a level of 162% of
their individual target awards. (See the "Bonus" column in the Summary
Compensation Table and its footnote 5 related to the deferral of certain
officers' bonus compensation in the following section entitled "EXECUTIVE
COMPENSATION" for more details.)
LONG-TERM COMPENSATION
The last direct pay element of executive compensation the Committee considers
during each year is long-term incentive awards in the form of stock options and
restricted stock awards under our Performance Incentive Stock Plan, which
previously has been approved by shareholders and is proposed to be materially
amended in the separate shareholder proposal number 3 detailed later in this
proxy statement. 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 2003, the Committee decided to grant
stock options with an exercise price equal to the Common Stock market price on
the date of the grant to the officers, including those shown in the following
compensation tables. Options have been granted annually, usually for
approximately the same number of shares for each officer absent a significant
change in responsibilities. The Committee believes long-term incentive awards
should be made annually on a generally consistent basis. In determining awards,
the Committee weighed a number of factors including prior awards and corporate
performance. The Performance Incentive Stock Plan has no provision for the
re-pricing of options, and we are, in the shareholder proposal amending the
plan, explicitly prohibiting such a provision. The Committee also awarded
restricted stock that will vest at the rate of 25% per year after two years,
with 100% vested after five years. It is the Committee's intent to reduce the
number of shares granted that are subject to options in future years and to use
restricted stock instead as it believes restricted stock awards will be more
effective in successful implementation of our back-to-basics, utility-plus
strategy.
OTHER EXECUTIVE BENEFITS
Executive perquisites such as long-term disability insurance coverage and
financial planning advice are provided to officers. Watson Wyatt Worldwide, LLC
has determined that our executive benefits are limited but appropriate in terms
of scope and compared to industry practice.
CHIEF EXECUTIVE OFFICER COMPENSATION
Effective with the execution of Mr. Whipple's September 1, 2003 amended and
restated employment agreement, he will receive an annual salary of $400,000 in
cash and $850,000 in phantom stock units. Mr. Whipple will also be eligible for
a targeted $1 million annual bonus paid in phantom stock units, provided we meet
the cash flow and earnings targets of the bonus plan discussed above. In
addition, Mr. Whipple's amended and restated employment agreement also provided
a long-term compensation award of 125,000 restricted phantom stock units in
2003. The Board of Directors may make similar awards in the future at its
discretion. No additional stock options, restricted stock or other similar
benefits are contemplated in Mr. Whipple's amended and restated employment
agreement. Based on a review by the Committee's current compensation consultant,
Mr. Whipple is below the median of the peer group market total direct
compensation (total direct compensation consists of salary, target annual
incentive and long-term incentives adjusted to 2004). The comparison assumes
that the stock price of each phantom stock unit grant remains unchanged. Thus,
Mr. Whipple's actual compensation could be less or greater than the amounts
reflected in the peer group comparison, as well as the Summary Compensation
Table that follows this report.
16
COMPENSATION DEDUCTIBILITY
Section 162(m) of the Internal Revenue Code limits the tax deductibility of
compensation in excess of $1 million paid to the Corporation's chief executive
officer and to the other four highest-paid executive officers unless such
compensation qualifies as "performance-based" and is approved by shareholders.
Approval of the Performance Incentive Stock Plan and the Executive Incentive
Compensation Plan (since renamed the Officer Incentive Compensation Plan) by CMS
shareholders in prior years permitted compensation paid under these plans to be
deductible by the Corporation. Incentive awards under the terms of the Officer
Incentive Compensation Plan and awards of stock options under the Performance
Incentive Stock Plan qualify as performance-based compensation. Awards of
restricted stock may qualify as performance-based, if the grant includes
performance-based vesting criteria. As detailed above, Mr. Whipple's amended and
restated employment agreement includes provisions for annual and long-term
incentive compensation awards and grants with performance-based criteria and
other terms substantially similar to, and specifically in lieu of, awards and
grants under the Corporation's incentive compensation plans. Shareholder
approval of the performance criteria and other terms of both incentive plans and
Mr. Whipple's contractual arrangements is being requested this year in order to
maintain the tax deductibility of the performance-based compensation paid under
such plans and arrangements.
Generally, the Committee attempts to ensure the deductibility of all
compensation paid; however, the Committee may pay nondeductible compensation if
necessary or desirable to achieve the goals of our compensation philosophy.
COMPENSATION CONSULTANT
In connection with its ongoing independent review of executive compensation, the
Committee has over the past year retained each of Watson Wyatt Worldwide, LLC
and Hewitt Associates, both recognized compensation and benefit consultants, to
assist the Committee in evaluating the appropriateness and competitiveness of
its compensation policies and programs.
Submitted by the Organization and Compensation Committee: John B. Yasinsky
(Chair), Earl D. Holton, Joseph F. Paquette, Jr., William U. Parfet, and Kenneth
L. Way.
17
EXECUTIVE COMPENSATION
The following charts and descriptions contain information concerning annual and
long-term compensation, including the 2004 confirmation of a bonus relating to
the Corporation's 2003 performance under our Officer Incentive Compensation Plan
as well as awards of stock options and restricted stock under our Performance
Incentive Stock Plan. Also disclosed in the Summary Compensation Table and
applicable footnotes, as well as in the following subsection entitled Employment
Agreements, are the substantially similar and related contractual arrangements
under Mr. Whipple's amended and restated employment agreement. The charts
include Mr. Whipple as the Chief Executive Officer and the next three most
highly compensated executive officers in 2003 who are dual officers of CMS and
Consumers, as well as a fifth most highly compensated executive officer for each
of CMS and Consumers and, finally, a former CMS executive officer who retired
during 2003.
SUMMARY COMPENSATION TABLE
Long-Term Compensation(1)
-------------------------------------
Awards Payouts
------------------------ ----------
Annual Compensation Restricted Securities Long-Term
------------------------- Stock Underlying Incentive All Other
Name and Principal Position Year Salary(2) Bonus Awards(3) Options Payouts(4) Compensation
--------------------------- ---- --------- ----- ---------- ---------- ---------- ------------
Current Officers
KENNETH WHIPPLE(5)................ 2003 $1,156,431(a) $1,620,000(b) $1,015,000(c) 0 $ 0 $ 0
Chairman and CEO, CMS 2002 639,060(d) 0 0 0 0 0
and Consumers 2001 0 0 0 0 0 0
DAVID W. JOOS..................... 2003 795,000 734,103(6) 635,000(7) 100,000 0 0
President and COO, 2002 750,000 0 406,000(7) 165,000 0 15,000(8)
CMS and Consumers 2001 637,500 0 0 100,000 35,907 19,125(8)
S. KINNIE SMITH, JR. ............. 2003 630,000 581,742(6) 381,000(7) 100,000 0 0
Vice Chairman of CMS and 2002 300,000 0 263,900(7) 65,000 0 3,000(8)
Consumers; General Counsel of CMS 2001 0 0 0 0 0 0
THOMAS J. WEBB.................... 2003 535,000 459,351(6) 381,000(7) 100,000 0 0
Chief Financial Officer, CMS 2002 208,333 0 203,000(7) 50,000 0 0
and Consumers 2001 0 0 0 0 0 0
DAVID A. MIKELONIS................ 2003 365,000 266,085(6) 76,200(7) 59,000 0 0
Senior Vice President and 2002 355,000 0 56,840(7) 28,000 0 7,100(8)
General Counsel, Consumers 2001 355,000 0 0 14,000 17,978 10,650(8)
THOMAS W. ELWARD.................. 2003 336,000 266,749(6) 127,000(7) 76,000 0 0
President and COO, 2002 320,040 0 81,200(7) 36,000 0 6,401(8)
CMS Enterprises 2001 270,000 0 0 14,000 13,453 8,100(8)
Former Officer
WILLIAM J. HAENER................. 2003 530,000 455,058(6) 0 0 0 0
Executive Vice President 2002 530,000 0 178,640(7) 82,500 0 10,600(8)
and COO -- Natural Gas, CMS 2001 509,167 0 0 40,000 26,930 15,275(8)
(1) Aggregate non-performance-based restricted Common Stock held as of December
31, 2003 by the named officers was: Mr. Whipple, 900 shares, with a year-end
market value of $7,668; Mr. Joos, 150,000 shares with a
18
year-end market value of $1,278,000; Mr. Smith, 92,500 shares with a
year-end market value of $788,100; Mr. Webb, 85,000 shares with a year-end
market value of $724,200; Mr. Elward, 30,000 shares with a year-end market
value of $255,600; Mr. Mikelonis, 19,000 shares with a year-end market value
of $161,880; and Mr. Haener, 22,318 shares with year-end market value of
$190,149. No dividends were paid on such restricted stock during 2003.
(2) A portion of the 2003 salary amounts shown include the 2003 merit increases;
the cash for those portions was deferred and will be paid out in cash or
Common Stock in the first quarter of 2005 pursuant to the Corporation's
Salaried Employees' Merit Plan.
(3) These 2003 restricted Common Stock awards were granted as of August 22,
2003. These shares vest at a rate of 25% per year beginning August 22, 2005.
The 2003 dollar values shown above are based on the August 22, 2003 grant
date closing price of $6.35 per share.
(4) These amounts reflect the 2001 market value of our Common Stock vesting
under the Corporation's Performance Incentive Stock Plan for three-year
performance periods then ended. The 2002 and 2003 tranches of similar
performance-based Common Stock awards were forfeited at the end of the
tranches' subsequent three-year performance periods.
(5) All of Mr. Whipple's compensation is paid pursuant to the terms of his
employment agreement, although each of his annual and long-term incentive
amounts is administered in conjunction with the applicable provisions of the
Corporation's Officer Incentive Compensation Plan and Performance Incentive
Compensation Plan, respectively.
(a) Mr. Whipple's 2003 salary consisted of $134,933 in cash compensation and
$1,021,498 in deferred compensation in the form of phantom stock units
payable in cash. The payout value of the deferred salary will be based
on the future price of our Common Stock.
(b) Mr. Whipple's bonus consisted of an amount earned with respect to 2003
but for which payment is deferred into future years in the form of
phantom stock units payable in cash. The payout value of the deferred
bonus will be based on the future price of our Common Stock when 50% of
the phantom stock units are cashed out on each of the first and second
anniversaries of the bonus award.
(c) Mr. Whipple's 2003 restricted stock award consisted of 125,000
restricted phantom stock units awarded on October 31, 2003 and payable
in cash upon vesting at a rate of 25% per year beginning September 1,
2005. The dollar value of this award upon vesting will be based upon the
future price of our Common Stock. The 2003 dollar value shown is based
on the grant date closing price of our Common Stock of $8.12 per share.
These phantom stock units were awarded pursuant to the terms of Mr.
Whipple's employment agreement in lieu of the restricted stock and
options awarded to other officers under our Performance Incentive Stock
Plan in 2003. At December 31, 2003, these 125,000 phantom stock units
had a market value of $1,065,000 at $8.52 per share.
(d) Mr. Whipple's 2002 salary consisted of $2,125 in cash compensation and
$636,935 in deferred compensation in the form of phantom stock units
payable in cash. The payout value of the deferred salary will be based
on the future price of our Common Stock.
(6) Bonuses for 2003 for Messrs. Joos, Smith, Webb and Elward were deferred and
will be paid out in the first quarter of 2005 consistent with the payouts
from the Corporation's Salaried Employees' Merit Plan. The 2003 bonuses for
Messrs. Mikelonis and Haener were paid out in the first quarter of 2004.
19
(7) Messrs. Joos, Smith, Webb, Elward, Mikelonis and Haener were awarded 50,000,
32,500, 25,000, 10,000, 7,000 and 22,000 restricted Common Shares,
respectively, in 2002 and 100,000, 60,000, 60,000, 20,000, 12,000 and zero
restricted Common Shares, respectively in 2003.
(8) The 2001 and 2002 amounts represent employer matching contribution to the
Corporation's defined contribution plans. No employer matching contributions
were made in 2003.
EMPLOYMENT ARRANGEMENTS
Mr. Whipple entered into an employment agreement with CMS promptly following his
election as Chairman and Chief Executive Officer at the time of the 2002 annual
meeting of shareholders. His compensation under this original contract was
predominantly in the form of phantom stock units, as detailed in footnote 5(d)
to the Summary Compensation Table above. Effective with the execution of Mr.
Whipple's September 1, 2003 amended and restated employment agreement, his
annual compensation was adjusted, and annual and long-term incentive
compensation contractual arrangements were added, all as detailed in the
Organization and Compensation Committee Report and the Summary Compensation
Table.
Agreements with the executive officers named above, other than Mr. Whipple,
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 two times 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. We do not have a "poison pill" plan and are not considering the
adoption of such a plan.
OPTION GRANTS IN 2003
Number of Securities Percentage of Total Exercise Grant Date
Underlying Options Granted to Price Per Expiration Present
Name Options Granted Employees in 2003 Share Date Value(1)
---- -------------------- ------------------- --------- ---------- ----------
Kenneth Whipple............... 0 0 $ 0 $ 0
David W. Joos................. 100,000 6.3 6.35 9-21-13 296,000
S. Kinnie Smith, Jr. ......... 100,000 6.3 6.35 9-21-13 296,000
Thomas J. Webb................ 100,000 6.3 6.35 9-21-13 296,000
Thomas W. Elward.............. 76,000 4.8 6.35 9-21-13 224,960
David A. Mikelonis............ 59,000 3.7 6.35 9-21-13 174,640
William J. Haener............. 0 0 0 0 0
(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 Common Stock's volatility using weekly closing prices for a four
and one half year period prior to grant date, the dividend rate, the term of
the option, and the level of interest rates 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 our Performance
Incentive Stock Plan, the non-transferability of options awarded. For all
the options listed above, which were granted on August 22, 2003, the
volatility was 55.46%, the dividend rate was $0.00 per quarter, and the
interest rate at the time was 3.02%.
20
AGGREGATED OPTION EXERCISES IN 2003 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)
---- --------------- -------- ---------------------- --------------------
Kenneth Whipple.................. 0 $0 0 $ 0
David W. Joos.................... 0 0 473,000 257,000
S. Kinnie Smith, Jr. ............ 0 0 165,000 243,000
Thomas J. Webb................... 0 0 150,000 237,000
Thomas W. Elward................. 0 0 146,000 172,920
David A. Mikelonis............... 0 0 137,000 133,630
William J. Haener................ 0 0 224,500 17,000
(1) All options listed in this table are exercisable. The named officers have no
unexercisable options.
(2) Based on the December 31, 2003 closing price of our Common Stock as shown in
the report of the New York Stock Exchange Composite Transactions ($8.52).
PENSION PLAN TABLE
The following table shows the aggregate annual pension benefits at normal
retirement date presented on a straight life annuity basis under our qualified
Pension Plan and non-qualified Supplemental Executive Retirement Plan (offset by
a portion of Social Security benefits).
Years of Service
--------------------------------------------------------
Remuneration 15 20 25 30 35
------------ -- -- -- -- --
5$00,000.... $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
"Remuneration" 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. Whipple, 3.56 years;
Mr. Joos, 32.33 years; Mr. Smith, 20.82 years; Mr. Webb, 2.99 years; Mr. Elward
35.00 years; Mr. Mikelonis, 35.00 years; and Mr. Haener, 20.00 years. Under the
Supplemental Executive Retirement Plan, an officer's years of service for
purposes of calculating benefits thereunder are earned at double the period of
actual service during the first ten years of service.
21
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Number of Securities
Remaining Available for
Number of Securities Future Issuance Under
to be Issued Weighted-Average Equity Compensation
upon Exercise of Exercise Price of Plans (Excluding
Outstanding Options, Outstanding Options, Securities Reflected
Plan Category Warrants and Rights Warrants and Rights in Column (a))
------------- -------------------- -------------------- -----------------------
(a) (b) (c)
--- --- ---
Equity compensation
plans approved by
security holders.... 5,785,576 $21.30 2,256,247
Equity compensation
plans not approved
by security
holders............. 0 0 0
--------- ------ ---------
Total............... 5,785,576 $21.30 2,256,247
========= ====== =========
The Performance Incentive Stock Plan, prior to the amendment proposed for
shareholder approval as described later in this proxy statement, reserves for
award not more than five percent of Common Stock outstanding on January 1 of
each year, less the number of shares of (i) restricted Common Stock awarded and
(ii) Common Stock subject to options granted under the plan during the
immediately preceding four calendar years. The number of shares of restricted
Common Stock awarded under this plan cannot exceed twenty percent of the
aggregate number of shares reserved for award. Any forfeitures of shares
previously awarded will increase the number of shares available to be awarded
under the plan. At March 24, 2004, awards of up to 2,256,247 shares of our
Common Stock may be issued.
AUDIT COMMITTEE REPORT
CMS' and Consumers' audit activities are directed by our Audit Committees, which
are composed entirely of independent directors. The Audit Committees are
responsible for overseeing the preparation of external financial reports, the
adequacy of internal audit controls, the internal and external audit process,
the independence and performance of the independent auditors, and compliance
with applicable 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, 2003.
We have discussed with the independent auditors of the 2003 financial
statements, Ernst and Young, 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 the
independent auditors required by Independence Standard No. 1, Independence
Discussions with Audit Committees, as amended, by the Independence Standards
Board, and have discussed with Ernst and Young, LLP the auditors' independence.
22
We have considered the provision of all of Ernst and Young, LLP's services to
CMS and Consumers in 2003 and the fees paid for all such services, and have
concluded that all current arrangements are compatible with maintaining the
independence of Ernst and Young, LLP.
Based on the reviews and discussions referred to above, we recommended to the
Boards of Directors that the financial statements referred to above be included
in CMS and Consumers Annual Reports on Form 10-K for the year ended December 31,
2003.
Submitted as of April 2, 2004 by the Audit Committees: William U. Parfet
(Chair), Michael T. Monahan, Joseph F. Paquette, Jr., Kenneth L. Way, and John
B. Yasinsky.
INDEPENDENT AUDITOR
Prior to 2002, Arthur Andersen, LLP had served as the independent auditor for
CMS and Consumers for many years. In early 2002, however, the Audit Committees
concluded that the ability of Arthur Andersen to continue as the Company's
independent auditor had been adversely affected by well-publicized developments
involving Arthur Andersen and recommended to the Boards of Directors the
replacement of Arthur Andersen as CMS' and Consumers' independent auditor. On
the recommendation of the Audit Committees, and after a thorough search, the
Board of Directors on May 24, 2002 appointed Ernst and Young, LLP to replace
Arthur Andersen as the independent auditor for CMS and Consumers for 2002. There
were no disagreements between Arthur Andersen and CMS or Consumers related to
accounting principles or practices, financial statement disclosures, or auditing
scope or procedure, and Arthur Andersen's reports on the financial statements of
CMS and Consumers had contained no adverse opinions, disclaimers of opinion,
modifications, or qualifications. The decision to replace Arthur Andersen was
made strictly as a result of the significant difficulties that Arthur Andersen
was encountering in matters totally unrelated to CMS or Consumers.
INDEPENDENT AUDITOR COMPENSATION
Audit Fees
Fees, including expenses, for professional services provided by our independent
auditors in each of the last two fiscal years, in each of the following
categories are:
Ernst & Young Arthur Andersen
------------------------- ---------------
2003 2002 2002
---- ---- ----
Audit Fees..................................... $7,052,000 $13,689,000 $ 394,000
Audit-Related Fees............................. 1,430,000 130,000 1,727,000
Tax Fees....................................... 216,000 -- --
All Other Fees................................. -- -- --
Amounts reported above include fees paid by Consumers.
Fees for audit services include fees associated with the annual audit, the
reviews of our quarterly reports on Form 10-Q, comfort letters, required
statutory audits, and fees related to the restatement of our consolidated
financial statements related to prior years.
23
Audit-related fees include fees associated with the work responsive to the
implementation of the Sarbanes-Oxley Act of 2002 and the various rules and
pronouncements flowing from that Act, as well as audits of employee benefit
plans. Tax fees include fees for tax compliance, tax advice, and tax planning.
The Audit Committees have adopted a policy that requires advance approval for
all audit, audit-related, tax services, and other services performed by the
independent auditor. The policy provides for pre-approval by the Audit
Committees of specifically defined audit and non-audit services. Unless the
specific service has been previously pre-approved with respect to that year, the
Audit Committees must approve the permitted service before the independent
auditor is engaged to perform. The Audit Committees have delegated to the Chair
of the Audit Committees authority to approve permitted services, provided that
the Chair reports any decisions to the Committees at their next scheduled
meeting.
24
DESCRIPTION OF PROPOSALS SUBJECT TO SHAREHOLDER VOTE
PROPOSAL 1: ELECT ELEVEN MEMBERS TO THE CORPORATION'S BOARD OF DIRECTORS
As previously detailed, the nominees for directors are proposed to serve on the
parallel Boards of Directors of each of CMS and Consumers, to hold office until
the next annual meeting or until their successors are elected and qualified.
Unless a shareholder votes to "withhold authority" for the election of directors
as provided in the enclosed proxy card, the returned proxy will be voted for the
listed nominees. The Boards believe that the nominees will be available to
serve, but in the event any nominee is unable to do so, the CMS proxy will be
voted for a substitute nominee designated by the Board, or the number of
directors constituting the full Board will be reduced accordingly.
All of the nominees are presently serving as directors and were previously
elected by shareholders, except for Merribel S. Ayres who is proposed to be
newly elected to the Boards at the annual meeting of shareholders. Two current
members of the Boards, James J. Duderstadt and Kathleen R. Flaherty, previously
had decided not to seek re-election as directors. Thus, effective with the
annual meeting of shareholders on May 28, 2004, the size of the Boards will be
reduced by one to eleven members, absent the unlikely circumstances described at
the end of the preceding paragraph.
MERRIBEL S. AYRES, 52, has served since 1996 as President of Lighthouse Energy
Group, LLC, a firm she founded. Lighthouse provides governmental affairs and
communications expertise, as well as management consulting and business
development services, to a broad spectrum of international clients focused on
energy and environmental matters. Ms. Ayres served from 1988 to 1996 as Chief
Executive Officer of the National Independent Energy Producers, a Washington,
D.C., trade association representing the independent power supply industry. She
is a member of the Aspen Institute Energy Policy Forum, the National Advisory
Council of the National Renewable Energy Laboratory, and the Dean's Alumni
Leadership Council of Harvard University's Kennedy School of Government. She is
proposed to be newly elected as a director of CMS and Consumers at the annual
meeting of shareholders.
EARL D. HOLTON, 70, has served since 1999 as Vice Chairman of Meijer, Inc., a
Grand Rapids, Michigan based operator of food and general merchandise centers.
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 and has served as the presiding director at the executive sessions of
the Boards since his appointment to that position in 2002.
DAVID W. JOOS, 51, has served since 2001 as President and Chief Operating
Officer of CMS and Consumers. He served from 2000 to 2001 as Executive Vice
President and Chief Operating Officer -- Electric of CMS and from 1997 to 2000
as President and Chief Executive Officer -- Electric of Consumers. He is a
director of Steelcase, Inc., the Michigan Colleges Foundation, Michigan Economic
Development Corporation, is a director and Chairman of Nuclear Management Co.
and of the Michigan Manufacturers Association. He has been a director of CMS and
of Consumers since 2001.
MICHAEL T. MONAHAN, 65, has served since 1999 as President of Monahan
Enterprises, LLC, a Bloomfield Hills, Michigan based consulting firm. He was
Chairman of Munder Capital Management, an investment management company, from
October 1999 to December 2000 and Chairman and Chief Executive Officer of Munder
from October 1999 until January 2000. Prior to that, he was President and a
director of Comerica Bank from 1992 to 1999 and President and a director of
Comerica Inc. from 1993 to 1999. He is a director of The Munder Funds, Inc.,
Chairman of the Board of Guilford Mills, Inc., a member of the Boards of
Trustees of Henry Ford Health Systems, Inc., and of the Community Foundation for
Southeastern Michigan. He has been a director of CMS and of Consumers since
December 2002.
25
JOSEPH F. PAQUETTE, JR., 69, served from 1988 to 1995 as Chairman and Chief
Executive Officer and from 1995 until his retirement in 1997 as Chairman of PECO
Energy, formerly the Philadelphia Electric Company, a major supplier of electric
and gas energy. He is a director of USEC, Inc. and Mercy Health Systems. He has
been a director of CMS and of Consumers since December 2002. He had previously
served as a director of CMS and Consumers and as President of CMS from 1987 to
1988.
WILLIAM U. PARFET, 57, has served since 1999 as Chairman and Chief Executive
Officer of MPI Research, Inc., Mattawan, Michigan, a contract research
laboratory conducting risk assessment toxicology studies. He served from 1995 to
1999 as Co-Chairman of MPI Research. He is a director of Stryker Corporation,
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.
PERCY A. PIERRE, 65, has served since 1990 as Professor of Electrical
Engineering at 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). 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.
S. KINNIE SMITH, JR., 73, has served as Vice Chairman and General Counsel of CMS
and Vice Chairman of Consumers since June 2002. He served as Senior Counsel for
the law firm Skadden, Arps, Slate, Meagher & Flom from 1996 to 2002. He has been
a director of CMS and of Consumers since August 2002. He had held the positions
of Vice Chairman and President of CMS and Vice Chairman of Consumers and served
as a director of CMS and of Consumers from 1987 to 1996. In May and June of
2002, he served as Vice Chairman and as a director of Trans-Elect, Inc., an
owner and operator of interstate electric transmission systems.
KENNETH L. WAY, 64, served from 1988 through 2002 as Chairman of Lear
Corporation, a Southfield, Michigan based supplier of automotive interior
systems to the automotive industry. He remains a director of Lear Corporation.
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 System, Inc. He has been a director of CMS and of
Consumers since 1998.
KENNETH WHIPPLE, 69, has served since May of 2002 as Chairman and Chief
Executive Officer of CMS and Consumers. He 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 1999 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 Korn/Ferry International, as well as a trustee of
certain mutual funds in the JP Morgan family of mutual funds. He has been a
director of CMS and of Consumers since 1993.
JOHN B. YASINSKY, 64, served from 1999 until his retirement in 2000 as Chairman
and Chief Executive Officer and continued as Chairman until February 2001 of
OMNOVA Solutions Inc., a Fairlawn, Ohio based developer, manufacturer, and
marketer of emulsion polymers, specialty chemicals, and building products. 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.
26
YOUR BOARD RECOMMENDS A VOTE FOR THE ELECTION OF EACH NOMINEE.
PROPOSAL 2: RATIFY THE APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committees of the Corporation's and Consumers' Boards of Directors
have adopted the following policy:
The Audit Committee's selection of the Corporation's independent auditor
shall be submitted to the Corporation's shareholders for their ratification
at the Corporation's Annual Meeting of Shareholders. If a majority of shares
voted do not ratify the Audit Committee's selection, the Audit Committee
will consider the shareholder views when considering its selection of a
different independent auditor for the Corporation or its continued retention
of its existing auditor for that year. This policy will be in effect
commencing with the Corporation's 2004 Annual Meeting of Shareholders.
The Audit Committees have selected Ernst and Young, LLP, independent auditors,
to audit our financial statements for the year 2004. Ernst and Young, LLP also
served as our auditors for the year 2003. A representative of Ernst and Young,
LLP will be present at the annual meeting of shareholders and will have an
opportunity to make a statement and respond to appropriate questions.
The Audit Committee believes it is very important to the Corporation, Consumers
and our shareholders to retain Ernst and Young, LLP as independent auditor for
the balance of the 2004 audit cycle. Continued retention will allow us and Ernst
and Young, LLP to complete the substantial investment of time and money in the
audit process generally, and the Sarbanes-Oxley Act Section 404 internal
controls certification specifically.
Approval of this proposal requires the affirmative vote of the holders of a
majority of shares of Common Stock voting on the proposal.
YOUR BOARD RECOMMENDS RATIFICATION OF THE APPOINTMENT OF AUDITORS
PROPOSAL 3: PROPOSAL FOR APPROVAL OF AMENDMENT TO THE CORPORATION'S PERFORMANCE
INCENTIVE STOCK PLAN
The Board of Directors of the Corporation, upon recommendation of its
Organization and Compensation Committee (the "Committee") and conditioned upon
shareholder approval, has approved an amendment to the Corporation's Performance
Incentive Stock Plan (the "Plan") that would:
- establish a 5 year term for the Plan (in lieu of the "evergreen" nature of the
Plan prior to amendment);
- reduce the maximum total shares awarded or subject to options
- from not more than 5% of the outstanding shares of each class of Common
Stock of the Corporation on January 1 of any year less the number of shares
awarded or subject to options granted under the Plan during the previous
four years (which was the Plan's share limit prior to amendment)
- to 6,000,000 shares of the outstanding shares of the Common Stock of the
Corporation during the term of the amended Plan;
- explicitly prohibit re-pricing of any options granted under the Plan;
- provide for grants or awards to non-employee Directors and consultants;
- include phantom shares and performance units within the Plan;
27
- eliminate the limitation on the number of restricted shares that could be
granted under the Plan;
- allow for restoration of options when shares are used to pay the purchase
price;
- create flexibility for grants or awards to employees outside the United States
to comply with applicable laws; and
- increase the number of shares that can be granted to any individual in any one
year from 100,000 to 250,000.
The Board proposes the approval of the terms of the Plan including the
above-described amendments. A copy of the Plan, including the proposed
amendments, is included as Appendix A to this proxy statement. The Board
believes that the proposed changes to the Plan give the Committee the
opportunity to encourage Common Stock ownership by executives to link their
financial interests with other shareholders. Based upon data provided by the
Committee's independent compensation consultant, we believe this proposal
enables us to remain competitive in our ability to attract executive talent by
increasing the number of restricted shares available for award. At the same
time, we will reduce the total number of shares or options available for award
to a level commensurate with the numbers available under long term incentive
benefit plans of comparable energy companies.
DESCRIPTION OF PLAN
The Plan is administered by the Committee, which is entirely composed of
independent members of the Board. Each officer or other key employee of the
Corporation or its subsidiaries, non-employee Director or consultant is eligible
to participate. As of December 31, 2003 approximately 60 people were
participating in the Plan. The Committee selects the participants, determines
the amount of grants and prescribes the other terms and conditions of each
award.
The Board of Directors may amend, suspend or terminate the Plan, but no
amendment to the Plan that increases the total number of shares available under
the Plan, changes the Plan's eligibility requirements or materially increases
benefits to eligible employees and directors under the Plan may be made without
shareholder approval.
Under the Plan, the Committee may grant share awards representing a contingent
right to receive shares of our Common Stock ("Restricted Stock"), as well as
incentive stock options ("ISOs") intended to qualify as such under federal tax
law and/or nonqualified stock options ("NQOs"). (ISO's and NQO's are
collectively referred to herein as "Options"). Stock appreciation rights
("SARs") may also be granted in conjunction with ISOs or NQOs. The Committee
also may grant phantom shares that provide a participant with a right to receive
a payment based upon the increase in value of the Common Stock of the
Corporation, or performance units which provide a participant with a right to a
payment based upon the attainment of various goals which are established at the
time of grant. A select group of officers of the Corporation or a subsidiary in
the future may be given the opportunity to receive a portion of any incentive
payment under the Officer's Incentive Compensation Plan in Common Stock or
Restricted Stock under the terms of the Management Stock Purchase Plan
provisions of the Plan. The Committee in the future may also award additional
shares of Common Stock or Restricted Stock to participants who elect to receive
their incentive payment in Common Stock or Restricted Stock.
Under the current Plan, shares awarded or subject to Options may not be more
than 5% of the outstanding shares of each class of our Common Stock on January 1
of any year less the number of shares awarded or subject to Options granted
under the Plan during the previous four years. Restricted Stock grants are
limited to 20% of all awards. Any shares or Options that are forfeited become
available to be granted under the Plan. In effect, the current Plan allows the
granting each year, on average, of 1% of the total outstanding shares. Under the
revised Plan, shares awarded or
28
subject to Options, phantom stock and performance units may not exceed 6 million
shares from June 2004 through May 2009 nor may such grants or awards to any
participant exceed 250,000 shares in any fiscal year.
Under the Plan, the exercise price for all Options and SARs is at least 100% of
the fair market value of the related shares on the date of the grant. Options
and SARs terminate as specified in the award, but no later than 10 years and one
month after the date of grant. Transfers of Options and SARs are limited and
generally end upon termination of employment or service other than by death, but
the Committee may agree to extend the Option or SAR. In the event of death, the
Option and SAR may be exercised for up to one year. Under no event may an Option
or SAR be exercised subsequent to its expiration date.
Upon the exercise of an Option, a participant may purchase all or a portion of
the optioned shares by paying cash or surrendering Common Stock already owned by
the participant. The Committee may in the award provide that a participant using
shares to pay the exercise price may receive a restoration grant at the then
fair market value and only for the remaining term of the initial grant equal to
the number of shares used for the purchase. Upon the exercise of a SAR, the
participant will receive an amount equal to the difference between the exercise
price and the fair market value on the exercise date. Such amount may be paid in
cash, Common Stock or partly in each. If a SAR is granted in conjunction with an
Option, exercise of the Option reduces the number of shares as to which the SAR
may be exercised and exercise of the SAR cancels the Option as to such number of
shares.
During the period of restriction relating to a grant of Restricted Stock, the
participant has the right to vote the shares, to receive dividends, when
declared for all shareholders, and to exercise other shareholder rights with
respect to the Restricted Stock, except that the participant may not transfer
the shares. If a participant's employment is terminated during the restriction
period other than by death, all rights to any shares of Restricted Stock will be
forfeited to the Corporation. However, the Committee may, if circumstances
warrant, approve the distribution of such otherwise forfeitable shares.
Phantom shares and performance units are generally governed by the terms of the
grant and may be paid at the Committee's discretion in Common Stock or cash.
Payment upon termination is dependent upon the terms of the grant, the nature of
the termination and will generally be a prorated payment except as the Committee
may otherwise determine.
We believe that under present federal tax laws the grant of Options or SARs will
create no tax consequences for a participant or the Corporation. An optionee
will have no taxable income upon exercising an ISO (except that the alternative
minimum tax may apply), and we will receive no deduction when an ISO is
exercised. After exercise of a NQO or SAR, the participant must generally
recognize ordinary income equal to the difference between the exercise price and
the fair market value of the shares on the date of exercise and we will be
entitled to a deduction of the same amount. If the participant does not dispose
of shares acquired pursuant to an ISO within two years from the date of grant or
within one year of the transfer of the shares to such participant, any gain or
loss realized on their subsequent disposition will be a capital gain or loss. If
these holding period requirements are not satisfied, the participant will
generally realize ordinary income at the time of disposition in an amount equal
to the lesser of (i) the excess of the fair market value of the shares on the
date of exercise over the option price or (ii) the excess of the amount realized
upon disposition, if any, over the option price and we will be entitled to a
corresponding deduction. Generally, there will be no tax consequence to the
Corporation from dispositions of shares acquired pursuant to NQOs or SARs.
The grant of awards under the Plan is in the Committee's discretion and,
accordingly, it is not possible to determine amounts that will be received
thereunder in the future. The Committee may award Restricted Stock, phantom
shares
29
and performance units conditioned on the attainment of performance goals that
relate to shareholder return, measured by factors determined by the Committee as
set forth in the award. For example, the performance goals may track business
measures for CMS Energy, its subsidiaries or business units such as earnings per
share, stock price, total shareholder return, cash flow, return on equity,
return on capital, sales or costs.
Awards under the Plan during 2003 for Messrs. Joos, Smith, Webb, Elward and
Mikelonis are shown in the tables presented earlier in this proxy statement
under the heading "EXECUTIVE COMPENSATION". (As detailed in that same section,
Mr. Whipple has not received any awards under the Plan, but in lieu thereof did
receive a restricted phantom stock unit award pursuant to substantially similar
provisions of his amended and restated employment agreement.) The Restricted
Stock shown had a market value at December 31, 2003 of $852,000; $511,200;
$511,200; $170,400 and $102,240; respectively. The executive officers as a group
and the non-executive officer group of CMS and Consumers were awarded stock
options for 1,004,000 and 589,000 shares, respectively, and Restricted Stock of
384,000 shares with a market value at December 31, 2003 of $3,271,680 and
216,000 shares with a market value of $1,840,320, respectively.
Approval of this proposal requires the affirmative vote of the holders of a
majority of the shares of Common Stock voting on the proposal. If the proposal
is not approved by the shareholders, the Plan will remain in effect in its
current form without the proposed amendments.
YOUR BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSAL
PROPOSAL 4: PROPOSAL TO PERMIT AWARDS UNDER THE CORPORATION'S INCENTIVE
COMPENSATION PLANS AND RELATED CONTRACTUAL ARRANGEMENTS TO BE INCOME TAX
DEDUCTIBLE BY THE CORPORATION
Section 162(m) of the Internal Revenue Code limits the tax deductibility of
compensation in excess of $1 million paid to the Corporation's chief executive
officer and to the other four highest-paid executive officers unless such
compensation qualifies as "performance-based" and is approved by shareholders.
Approval of the performance criteria related to awards under the Corporation's
Performance Incentive Stock Plan and its Executive Incentive Compensation Plan
(since renamed the Officer's Incentive Compensation Plan) by CMS shareholders in
prior years permitted compensation paid under these plans to be deductible by
the Corporation. Under the tax regulations, the material terms of the
performance goals must be re-approved by shareholders every five years in order
to permit the Corporation to continue to deduct the compensation.
The Organization and Compensation Committee of the Board of Directors (the
"Committee"), which is entirely composed of independent members of the Board of
Directors, administers the Corporation's incentive compensation plans and
related contractual arrangements; specifically, the Officer's Incentive
Compensation Plan ("OICP"), the Performance Incentive Stock Plan ("PISP") and
the Chief Executive Officer's amended and restated employment agreement (which
contains provisions and terms substantially similar to, and in lieu of, awards
and grants under those plans.
As of January 1, 2003, the Corporation's officers, approximately 30 people, were
eligible to receive incentive compensation based on the performance goals of the
OICP. Payments under the OICP and the incentive plan's performance-based
criteria are described under the "Annual Compensation" section of the
Committee's report above. Payments are based on the attainment of performance
goals related to the Corporation's ongoing earnings per share and free cash
flow. If the performance goals are met, the award for officers is based on a
percentage of salary depending on salary grade. The maximum amount of an award
for any employee covered by Section 162(m) cannot exceed $2.5 million in any one
year.
30
The PISP is described in Proposal 3. Each officer or other key employee of the
Corporation or its subsidiaries is eligible to participate. As of December 31,
2003, approximately 60 people were participating in the Plan. The Committee
selects the participants, determines the amount of grants and prescribes the
other terms and conditions of each award. Awards of stock options qualify as
performance-based compensation. Awards of restricted stock may qualify as
performance-based, when the grant includes performance-based vesting criteria.
The Committee may award Restricted Stock conditioned on the attainment of a
performance goal that relates to shareholder return, measured by factors
determined by the Committee as set forth in the award. For example, the
performance goals may track business measures for CMS Energy, its subsidiaries
or business units such as earnings per share, stock price, total shareholder
return, cash flow, return on equity, return on capital, sales or costs. The
maximum total number of shares that can be granted to any individual through
Restricted Stock, Stock Options and Phantom Shares in any one-year is 250,000.
The maximum amount that any individual may receive in Performance Units in any
one year is $2.5 million. The maximum additional award that any one individual
may receive through the Management Stock Purchase Plan provisions of the Plan,
if the Committee in the future determines to utilize those provisions, in any
one year is $2.5 million.
The Board of Directors may amend, suspend or terminate the incentive plans,
subject to any requirement of shareholder approval required by applicable law or
regulation.
The Board of Directors recommends that the material terms of the performance
goals of the incentive plans be approved so that bonuses paid under the OICP and
appropriate types of awards under the PISP will be qualified performance-based
compensation under Section 162(m) and income tax deductible by the Corporation.
Approval of this proposal requires the affirmative vote of the holders of a
majority of shares of Common Stock voting on the proposal.
YOUR BOARD RECOMMENDS A VOTE FOR THE APPROVAL OF THE PROPOSAL
PROPOSAL 5: PROPOSAL TO ADOPT AN AMENDMENT TO OUR RESTATED ARTICLES OF
INCORPORATION INCREASING THE NUMBER OF AUTHORIZED SHARES OF OUR COMMON STOCK
FROM 250 MILLION SHARES TO 290 MILLION SHARES AND TO RE-DESIGNATE 60 MILLION
SHARES OF OUR AUTHORIZED BUT UNISSUED CLASS G COMMON STOCK INTO 60 MILLION
SHARES OF OUR COMMON STOCK, RESULTING IN A TOTAL OF 350 MILLION AUTHORIZED
SHARES OF OUR COMMON STOCK
The Board of Directors recommends an amendment to our Restated Articles of
Incorporation to increase the number of authorized shares of our Common Stock,
par value $.01 per share ("Common Stock"), from 250 million shares to 290
million shares and to re-designate 60 million shares of our authorized but
unissued Class G Common Stock, no par value ("Class G Common Stock"), into 60
million shares of our Common Stock.
These two changes would result in a total of 350 million authorized shares of
Common Stock. The authorized number of shares of our preferred stock, par value
$.01 per share, will remain at 10 million. Therefore, as a result of the
proposed amendment, our total authorized capital stock will increase from 320
million shares to 360 million shares. Specifically, the Board of Directors
recommends that the first paragraph of Article III of our Restated Articles of
Incorporation should be amended to read as follows:
The total number of shares of all classes of stock which the Corporation
shall have authority to issue is 360,000,000, of which 10,000,000 shares,
par value $.01 per share, are of a class designated Preferred Stock
31
("Preferred Stock"), and 350,000,000 shares, par value $.01 per share, are
of a class designated Common Stock ("Common Stock").
As of April 1, 2004, of the 250 million shares of our Common Stock authorized
for issuance:
- approximately 161 million shares were outstanding;
- approximately 58 million shares were reserved for issuance upon conversion of
our outstanding convertible securities; and
- approximately [8] million shares were reserved for issuance under our employee
benefit and shareholder stock purchase plans.
That leaves approximately [23] million authorized shares of our Common Stock
available for future issuances of any type. The Board of Directors believes that
it is prudent to approve the proposed increase in authorized Common Stock and
re-designation of our Class G Common Stock in order to give us the flexibility
necessary to issue additional shares of our Common Stock as needed for general
corporate purposes. In particular, the proposed increase and re-designation are
desirable to make available sufficient shares for possible future stock splits,
stock dividends, employee benefit and shareholder stock purchase plans
issuances, equity financings, acquisitions and other general corporate purposes.
We do not currently have any specific transaction or plan that requires an
increase in the number of authorized shares of our Common Stock. Authorized but
unissued shares of our Common Stock may be issued at such time, for such
purposes, and for such consideration as the Board of Directors may determine
without the requirement of further action by shareholders, except as required by
applicable corporate law, stock exchange policies or our Restated Articles of
Incorporation.
The adoption of the proposed amendment to our Restated Articles of Incorporation
to increase the number of authorized shares of our Common Stock from 250 million
shares to 290 million shares and to re-designate the 60 million shares of
currently authorized but unissued shares of our Class G Common Stock into 60
million shares of our Common Stock, resulting in a total of 350 million
authorized shares of our Common Stock, requires a majority vote of the
outstanding shares of our Common Stock.
Our Restated Articles of Incorporation previously provided for a Series of
Preferred Stock designated as the "Series A Mandatorily Convertible Preferred
Stock." This series of Preferred Stock was redeemed in January 2002, and we will
eliminate the designation of this series of Preferred Stock from our Restated
Articles of Incorporation in accordance with state law at the time of our
amendment if this proposal is approved. There are at present no shares of any
series of our Preferred Stock issued and outstanding.
YOUR BOARD RECOMMENDS A VOTE FOR THE ADOPTION OF THE
PROPOSED AMENDMENT TO OUR RESTATED ARTICLES OF INCORPORATION.
32
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG CMS, S&P 500 INDEX & DOW JONES UTILITY INDEX
[PERFORMANCE GRAPH]
INDEXED RETURN
---------------------------------------
COMPANY/INDEX 1998 1999 2000 2001 2002 2003
------------- ---- ---- ---- ---- ---- ----
CMS 100 67 73 58 25 22
S & P 500 100 121 110 97 76 97
DOW JONES UTILITY 100 94 142 106 81 105
These cumulative total returns assume reinvestment of dividends (except for CMS
in the 12-month period through December 31, 2003 when we have not paid a
dividend on our Common Stock. The calculations also assume the value of the
investment in our Common Stock and each index was $100 on December 31, 1998.
2005 PROXY STATEMENT INFORMATION
A shareholder who wishes to submit a proposal for consideration at the 2005
annual meeting pursuant to the applicable rules of the SEC must send the
proposal to reach our Corporate Secretary on or before [December 24, 2004]. In
any event, if we have not received written notice of any matter to be proposed
at that meeting by [March 9, 2005], the holders of the proxies may use their
discretionary voting authority on any such matter. The proposals should be
addressed to: Corporate Secretary, CMS Energy Corporation, One Energy Plaza,
Jackson, Michigan 49201.
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OTHER MATTERS
The Board of Directors knows of no 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. We have
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. We 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 our Common Stock held of record by such brokers, dealers,
banks, voting trustees or other record holders.
In some instances, only one annual report or proxy statement is being delivered
to multiple security holders sharing an address unless we have 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 CMS 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 our Investor Services Department, One Energy Plaza,
Jackson, Michigan 49201, telephone 517-788-1868.
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APPENDIX A
PERFORMANCE INCENTIVE STOCK PLAN
The CMS Energy Performance Incentive Stock Plan, first effective February 3,
1988, is hereby set forth as amended and restated effective June 1, 2004.
Article I. Purpose
The CMS Energy Corporation Performance Incentive Stock Plan (hereinafter called
the "Plan") is a Plan to provide incentive compensation to Eligible Persons,
based upon such Eligible Persons' individual contributions to the long-term
growth and profitability of the Corporation, and in order to encourage such
Eligible Persons to identify with shareholder concerns and their current and
continuing interest in the development and financial success of the Corporation.
Because it is expected that the efforts of the key employees selected for
participation in the Plan will have a significant impact on the results of the
Corporation's operations in future years, the Plan is intended to assist the
Corporation in attracting and retaining as key employees individuals of superior
ability and in motivating their activities on behalf of the Corporation.
Article II. Definitions
2.1 Definitions: When used in the Plan, the following words and phrases shall
have the following meanings:
a. "Beneficiary" means the beneficiary or beneficiaries designated to
receive the amount, if any, payable under the Plan upon the death of a
Participant.
b. "Board" means the Board of Directors of the Corporation.
c. "Committee" means the Organization and Compensation Committee of the
Board which shall be comprised in such a manner to comply with the
requirements, if any, of the New York Stock Exchange or other
applicable stock markets, Rule 16b-3 (or any successor rule) under the
Securities Exchange Act of 1934, as amended, and Section 162(m) of the
Internal Revenue Code of 1986, as amended.
d. "Common Stock" means the Common Stock of the Corporation as authorized
for issuance in its Articles of Incorporation at the time of an award
or grant under this Plan.
e. "Corporation" means CMS Energy Corporation, its successors and assigns,
and each of its Subsidiaries, or any of them individually.
f. "Director" means any person who is a member of the Board of Directors
of the Corporation or a Subsidiary.
g. "Eligible Person" means a key employee, non-employee Director or
advisor. A key employee must at the end of the fiscal year be a regular
full-time salaried employee of the Corporation or a Subsidiary, or, to
the extent the Committee may determine, a person whose services to the
Corporation terminated before the end of the fiscal year, who, in the
opinion of the Committee, made a significant contribution to the
Corporation or a Subsidiary.
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h. "Incentive Option" means an option to purchase Common Stock of the
Corporation which meets the requirements set forth in the Plan and also
meets the definition of an Incentive Stock Option set forth in Section
422 of the Internal Revenue Code of 1986, as amended (the "Code").
i. "Non-Employee Director" means a member of the Board of Directors of
the Corporation or a Subsidiary who is not currently an employee of
the Corporation or a Subsidiary and has not been an employee of the
Corporation or a Subsidiary within the preceding 3 years.
j. "Nonqualified Option" means an option to purchase Common Stock of the
Corporation which meets the requirements set forth in the Plan but
does not meet the definition of an Incentive Stock Option set forth in
Section 422 of the Code.
k. "Officers Incentive Compensation Plan" means the incentive compensation
plan, including any amendments thereto, authorized and approved by the
Board to provide incentive compensation to the Officers of the
Corporation or a Subsidiary.
l. "Optionee" means any person to whom an option or right has been
granted or who becomes a holder of an option or right under Article VI
of the Plan.
m. "Participant" means a person to whom a grant or award has been made
which has not been paid, forfeited, or otherwise terminated or
satisfied under the Plan, or a person included under the Management
Stock Purchase Plan.
n. "Performance Criteria" are the factors used by the Committee to
establish goals to track business measures such as net earnings;
operating earnings or income; earnings growth; net income (absolute or
competitive growth rates comparative); cash flow (including operating
cash flow, free cash flow, discounted cash flow return on investment,
and cash flow in excess of cost of capital); earnings per share; stock
price (absolute or peer-group comparative); total shareholder return;
absolute and/or relative return on common shareholders equity; return
on shareholders equity (absolute or peer-group comparative); absolute
and/or relative return on capital; absolute and/or relative return on
assets; economic value added (income in excess of cost of capital);
customer satisfaction; expense reduction; sales; or ratio of operating
expenses to operating revenues.
o. "Performance Unit" means a contractual right granted to a Participant
pursuant to Article VIII to receive a designated dollar value equal to
the value established by the Committee and subject to such terms and
conditions as are set forth in this Plan and the applicable grant.
p. "Phantom Share" means a contractual right granted to a Participant
pursuant to Article VIII to receive an amount equal to the Appreciation
Value at such time, and subject to such terms and conditions as are set
forth in this Plan and the applicable grant.
q. "Restricted Common Stock" means Common Stock delivered subject to the
restrictions described in Article VII.
r. "Restricted Stock Unit" means a notional account established pursuant
to a matching grant to a Participant, as described in Article VIII,
that is (a) credited with amounts equal to Shares or some other unit
of measurement specified in the award, (b) subject to restrictions and
(c) payable in cash or shares.
s. "Shareholders" means the shareholders of the Corporation.
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t. "Stock Appreciation Right" shall mean a right, granted in conjunction
with a Stock Option, to surrender the Stock Option and receive the
appreciation in value of the optioned shares over the option price.
u. "Stock Option" means an option to purchase shares of Common Stock,
granted pursuant to this Plan.
v. "Subsidiary" means a corporation, domestic or foreign, 50 percent or
more of the voting stock of which is owned directly or indirectly by
the Corporation.
Article III. Effective Date. Duration, Scope and Administration of the Plan
3.1 This Plan shall be effective June 1, 2004, conditioned upon approval of the
shareholders of the Corporation, and shall continue until May 31, 2009.
3.2 The Committee shall have full power and authority to construe, interpret
and administer the Plan. All decisions, actions or interpretations of the
Committee shall be final, conclusive and binding upon all parties. If any
person objects to any such interpretation or action formally or informally,
the expenses of the Committee and its agents and counsel shall be
chargeable against any amounts otherwise payable under the Plan to or on
account of the Participant or Optionee.
3.3 No member of the Committee shall be personally liable by reason of any
contract or other instrument executed by him or on his behalf in his
capacity as a member of the Committee nor for any mistake of judgment made
in good faith, and the Corporation shall indemnify and hold harmless each
member of the Committee and each other officer, employee or director of the
Corporation to whom any duty or power relating to the administration or
interpretation of the Plan may be allocated or delegated, against any cost
or expense (including counsel fees) or liability (including any sum paid in
settlement of a claim with the approval of the Board) arising out of any
act or omission to act in connection with the Plan unless arising out of
such person's own fraud or bad faith.
Article IV. Participation, Stock Awards and Option Grants
4.1 Each year the Committee shall designate as Participants and/or Optionees in
the Plan those Eligible Persons who, in the opinion of the Committee, have
significantly contributed to the Corporation.
4.2 Each year, the Committee may award shares of Common Stock, Restricted Stock
Units, and/or may grant Phantom Shares, Performance Units, Stock Options
which qualify as "Incentive Stock Options" within the meaning of Section
422 of the Code or Stock Options which do not qualify as Incentive Stock
Options and/or Stock Appreciation Rights for use in connection with Stock
Options to each Eligible Person whom it has designated as an Optionee or
Participant for such year. No Incentive Stock Option will be granted to an
Eligible Person who is not a full or part-time employee of the Corporation
or a subsidiary of the Corporation.
4.3 Awards of Common Stock or Restricted Stock Units and grants of Stock
Options, Phantom Shares or Performance Units may be made, without amending
the Plan, to Eligible Persons who are foreign nationals or employed outside
the United States or both, on such terms and conditions different from
those specified in the Plan as may, in the judgment of the Committee, be
necessary or desirable to further the purposes of the Plan or to
accommodate differences in local law, tax policy or custom. Moreover, the
Committee may approve such supplements to or alternative versions of the
Plan as it may consider necessary or appropriate for such purposes without
thereby affecting the terms of the Plan as in effect for any other purpose;
provided, however,
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no such supplement or alternative version shall: (a) increase the number of
available shares of Common Stock under Section 5.1; or (b) increase the
limitations contained in Section 5.3.
Article V. Shares Reserved Under the Plan
5.1 There is hereby reserved for award under this Plan 6 million whole shares
of Common Stock, less the number of shares awarded, granted or purchased
under the provisions of this Plan which have not been forfeited. To the
extent permitted by law or the rules and regulations of any stock exchange
on which the Common Stock is listed, shares of Common Stock with respect to
which payment or exercise is in cash as well as any shares or options which
are forfeited may thereafter again be awarded or made subject to grant
under the Plan. The number of shares made available for option and sale
under Article VI of this Plan plus the number of shares awarded under
Article VII of this Plan plus the number of shares awarded or purchased
under Article VIII of this Plan will not exceed, at any time, the number of
shares of Common Stock reserved pursuant to this Article V.
5.2 If a dividend shall be declared upon the Common Stock payable in shares of
Common Stock, the number of shares of Common Stock then subject to any such
option and the number of shares reserved for issuance pursuant to the Plan
but not yet covered by an option shall be adjusted by adding to each such
option or share the number of shares which would be distributable thereon
if such share had been outstanding on the date fixed for determining the
shareholders entitled to receive such stock dividend. In the event that the
outstanding shares of the Common Stock shall be changed into or exchanged
for a different number or kind of shares of stock or other securities of
CMS Energy Corporation or of another corporation, whether through
reorganization, recapitalization, stock split-up, combination of shares,
merger or consolidation or otherwise, then there shall be substituted for
each share of Common Stock subject to any such option and for each share of
Common Stock reserved for issuance pursuant to the Plan but not yet covered
by an option, the number and kind of shares of stock or other securities
into which each outstanding share of Common Stock shall be so changed or
for which each such share shall be exchanged. In the event there shall be
any change, other than as specified above in this Section 5.2, in the
number or kind of outstanding shares of Common Stock of the Corporation or
of any stock or other securities into which such Common Stock shall have
been changed or for which it shall have been exchanged, then if the
Committee shall in its sole discretion determine that such change equitably
requires an adjustment in the number or kind of shares theretofore reserved
for issuance pursuant to the Plan but not yet covered by an option and of
the shares then subject to an option or options, such adjustment shall be
made by the Committee and shall be effective and binding for all purposes
of the Plan and each Stock Option agreement. In the ease of any such
substitution or adjustment as provided for in this paragraph, the option
price in each Stock Option agreement for each share covered thereby prior
to such substitution or adjustment will be the option price for all shares
of stock or other securities which shall have been substituted for such
share or to which such share shall have been adjusted pursuant to this
section. No adjustment or substitution provided for in this Section 5.2
shall require the Corporation in any Stock Option agreement to sell a
fractional share, and the total substitution or adjustment with respect to
each Stock Option agreement shall be limited accordingly.
5.3 Individual Grant Limit: The combined maximum shares awarded or granted for
any one Eligible Person for any one year under this Plan, excluding (a) any
shares or Restricted Share Units purchased or awarded under the Management
Stock Purchase Plan in Section 8.3 and (b) any Performance Units awarded
under Section 8.2, will not exceed 250,000 shares of Common Stock.
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Article VI. Stock Options and Stock Appreciation Rights
6.1 The Committee may from time to time provide for the option and sale of
shares of Common Stock, which may consist in whole or in part of the
authorized and unissued Common Stock of the Corporation.
6.2 Optionees: The Committee shall determine and designate from time to time,
in its discretion, those Eligible Persons of the Corporation to whom Stock
Options and Stock Appreciation Rights are to be granted and who thereby
become Optionees under the Plan.
6.3 Allotment of Shares: The Committee shall determine and fix the number of
shares of Common Stock subject to options to be offered to each Optionee.
6.4 Option Price: The Committee shall establish the option price at the time
any option is granted at not less than 100% of the fair market value of the
stock on the date on which such option is granted; provided, however, that
with respect to an Incentive Option granted to an employee who at the time
of the grant owns (after applying the attribution rules of Section 425(d)
of the Code) more than 10% of the total combined voting stock of the
Corporation or of any parent or Subsidiary, the option price shall not be
less than 110% of the fair market value of the stock subject to the
Incentive Option on the date such option is granted. In no event shall
Options previously granted under this Plan be re-priced by reducing the
exercise price thereof, nor shall Options previously granted under this
Plan be cancelled and replaced by a subsequent re-grant under this Plan of
Options having an exercise price lower than the options so cancelled.
6.5 Stock Appreciation Rights: At the discretion of the Committee, any Stock
Option granted under this Plan may, at the time of such grant, include a
Stock Appreciation Right. A Stock Appreciation Right shall pertain to, and
be granted only in conjunction with, a related underlying Stock Option, and
shall be exercisable only at the time and to the extent the related
underlying Stock Option is exercisable and only if the fair market value of
the Common Stock of the Corporation exceeds the Stock Option price in the
related underlying Stock Option. An Optionee who is granted a Stock
Appreciation Right may elect to surrender the related underlying Stock
Option with respect to all or part of the number of shares subject to the
related underlying Stock Option and exercise in lieu thereof the Stock
Appreciation Right with respect to the number of shares as to which the
Stock Option is surrendered.
The exercise of the underlying Stock Option shall terminate the related
Stock Appreciation Right to the extent of the number of shares purchased
upon exercise of the underlying Stock Option. The exercise of a Stock
Appreciation Right shall terminate the related underlying Stock Option to
the extent of the number of shares with respect to which the Stock
Appreciation Right is exercised. Upon exercise of a Stock Appreciation
Right, an Optionee shall be entitled to receive, without payment to the
Company (except for applicable withholding taxes), an amount equal to the
excess of (i) the then aggregate fair market value of the number of shares
with respect to which the Optionee exercises the Stock Appreciation Right,
over (ii) the aggregate Stock Option price per share for such number of
shares. Such amount may be paid by the Corporation, at the election of the
Optionee, in cash, Common Stock of the Corporation or any combination
thereof; provided, however, that the Committee shall have sole discretion
to approve or disapprove an election of an Optionee to receive cash upon
exercise of a Stock Appreciation Right.
6.6 Granting and Exercise of Stock Options and Stock Appreciation Rights: The
granting of Stock Options and Stock Appreciation Rights hereunder shall be
effected in accordance with determinations made by the Committee pursuant
to the provisions of the Plan, by execution of instruments in writing in
form approved by
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the Committee. The Committee may grant Stock Options that provide for the
grant of a subsequent restoration Stock Option if the exercise price has
been paid for by tendering shares to the Company. Any restoration Stock
Option shall be for the number of shares tendered in exercising the
predecessor option. The restoration Stock Option exercise price shall be
the then-current Fair Market Value, and the term of such restoration option
may not extend beyond the remaining term of the original option.
Each Stock Option and Stock Appreciation Right granted hereunder shall be
exercisable at any such time or times or in any such installments as may be
determined by the Committee at the time of the grant, subject to the
limitation that for each Incentive Option and related Stock Appreciation
Right granted, a maximum of $100,000 (based on the price at the date of
grant) may be exercised per year, plus any unused carry-over from a
previous year(s). Except as provided in Section 6.10, Stock Options and
Stock Appreciation Rights may be exercised only while the Optionee is an
employee, Non-Employee Director or advisor of the Corporation.
Successive Stock Options and Stock Appreciation Rights may be granted to
the same Optionee, whether or not the Stock Option(s) and Stock
Appreciation Right(s) previously granted to such Optionee remain
unexercised. An Optionee may exercise a Nonqualified Option or related
Stock Appreciation Right, if then exercisable, notwithstanding that Stock
Options and Stock Appreciation Rights previously granted to such Optionee
remain unexercised.
6.7 Payment of Stock Option Price: At the time of the exercise in whole or in
part of any Stock Option granted hereunder, payment of the option price in
full in cash or in Common Stock of the Corporation shall be made by the
Optionee for all shares so purchased. No Optionee shall have any of the
rights of a Shareholder of the Corporation under any such Stock Option
until the actual issuance of shares to said Optionee, and prior to such
issuance no adjustment shall be made for dividends, distributions or other
rights in respect of such shares, except as provided in Section 5.2.
6.8 Nontransferability of Stock Options and Stock Appreciation Rights: No Stock
Option or Stock Appreciation Right granted under the Plan to an Optionee
shall be transferable by such Optionee otherwise than by will, pursuant to
a valid Domestic Relations Order which limits the rights of the alternate
payee to those available to the Optionee, or by the laws of descent and
distribution except that the Optionee may transfer to an immediate family
member or a family trust for estate planning purposes, and such Stock
Option and Stock Appreciation Right shall be exercisable, during the
lifetime of the Optionee, only by the Optionee or by a member of such
Optionee's immediate family or by the family trust.
6.9 Term of Stock Options and Stock Appreciation Rights: If not sooner
terminated, each Stock Option and Stock Appreciation Right granted
hereunder shall expire not more than ten years from the date of the
granting thereof; provided, that with respect to an Incentive Option and a
related Stock Appreciation Right granted to an Optionee who, at the time of
the grant, owns (after applying the attribution rules of Section 425(d) of
the Code) more than 10% of the total combined voting stock of all classes
of stock of the Corporation or of any parent or Subsidiary, such Incentive
Option and Stock Appreciation Right shall expire not more than five years
after the date of granting thereof.
6.10 Termination of Employment: If the employment of an Optionee by the
Corporation shall be terminated due to a reason other than the Optionee's
death, the Committee may, in its discretion, permit the exercise of Stock
Options and Stock Appreciation Rights granted to such Optionee for a period
not to exceed one year following such termination of employment or three
years following termination of employment upon the Optionee's
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disability as determined by the Committee or retirement in accordance with
a pension plan of the Corporation; provided, however, that no Incentive
Option or related Stock Appreciation Right may be exercised after three
months following an Optionee's termination of employment, unless such
termination of employment is due to the Optionee's death or disability. If
the termination is due to the Optionee's disability, the Committee may
permit the Incentive Option and related Stock Appreciation Right to be
exercised for one year following the Optionee's termination of employment.
If the employment of an Optionee by the Corporation shall be terminated due
to the Optionee's death, any Stock Option, or related Stock Appreciation
Right, transferred to a family trust or by will or by the laws of descent
and distribution, may be exercised for one year following the Optionee's
death. In no event, however, shall a Stock Option or Stock Appreciation
Right be exercisable subsequent to its expiration date and, furthermore, a
Stock Option or Stock Appreciation Right may only be exercised after
termination of an Optionee's employment to the extent exercisable on the
date of termination of employment. Upon the termination of employment of an
Optionee by the Corporation, every Stock Option and related Stock
Appreciation Right shall terminate, except as otherwise specifically
provided in this Plan. Further, no Stock Option or related Stock
Appreciation Right may be exercised after such termination of employment,
except within a time period provided in this Section 6.10.
6.11 Termination of Service: If a Non-Employee Director ceases to be a member of
the Board for any reason, or if an advisor no longer provides service to
the Corporation, the Non-Employee Director or advisor may exercise any
Option or related Stock Appreciation Right for one year following such
termination of service. In no event, however, shall a Stock Option or Stock
Appreciation Right be exercisable subsequent to its expiration date and,
furthermore, a Stock Option or Stock Appreciation Right may only be
exercised after termination of an Optionee's service to the extent
exercisable on the date of termination of service. Further, no Stock Option
or related Stock Appreciation Right may be exercised after such termination
of service, except within a time period provided in this Section 6.11.
6.12 Investment Purpose: Any shares of Common Stock subject to option under the
Plan may be made subject to such other restrictions as the Committee deems
advisable, including without limitation provisions to comply with Federal
and state securities laws. In making determinations of legal requirements
the Committee shall rely on an opinion of counsel for the Corporation.
6.13 Withholding Payments: If upon the exercise of a Nonqualified Option and/or
a Stock Appreciation Right or as a result of a disqualifying disposition
(within the meaning of Section 422 of the Code) of shares acquired upon
exercise of an Incentive Option, there shall be payable by the Corporation
any amount for income tax withholding, either the Corporation shall
appropriately reduce the amount of stock or cash to be paid to the Optionee
or the Optionee shall pay such amount to the Corporation to reimburse it
for such income tax withholding.
6.14 Restrictions on Sale of Shares: If, at the time of exercise of any Stock
Option or Stock Appreciation Right granted hereunder, the Corporation is
precluded by any legal, regulatory or contractual restriction from selling
and/or delivering shares pursuant to the terms of such Stock Option or
Stock Appreciation Right, the sale and delivery of the shares may be
delayed until the restrictions are resolved and only cash may be paid upon
exercise of the Stock Appreciation Right. At any time during such delay,
the Committee, in its discretion, may permit the Optionee to revoke a Stock
Option exercise, in which event any corresponding Stock Appreciation Right
shall be reinstated.
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6.15 Compliance With Rule 16b-3: Notwithstanding any other provision of the Plan
to the contrary, the administration of the Plan and the grant, exercise and
terms of Stock Appreciation Rights hereunder shall comply with Rule 16b-3,
or any successor rule, under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
Article VII. Restricted Common Stock
7.1 Awards: The Committee may from time to time award restricted shares of
Common Stock to any Eligible Person it has designated as a Participant for
such year. Awards shall be made to Eligible Persons in accordance with such
rules as the Committee may prescribe. The Committee may also award
restricted shares of Common Stock conditioned on the attainment of a
performance goal that relates to Shareholder return, measured by
Performance Criteria as determined by the Committee as set forth in the
award.
7.2 Restrictions:
a. Any shares of Corporation Common Stock awarded or issued under the Plan
may be made subject to such other restrictions as the Committee deems
advisable, including without limitation provisions to comply with
Federal and state securities laws. In making determinations of legal
requirements the Committee shall rely on an opinion of counsel for the
Corporation. The restrictions with respect to the Common Stock awarded
will extend for such period, or periods, of at least twelve months from
and after the date of the award, as may be determined for each award by
the Committee (the Award Period). Notwithstanding the foregoing, the
restrictions shall terminate upon the death of the Participant or,
within the discretion of the Committee, upon Participant's retirement
pursuant to a pension plan of the Corporation on or after Participant's
62nd birthday, except as may otherwise be determined to be necessary or
desirable in the opinion of the Committee, to comply with the law or to
prevent Restricted Common Stock from being subject to Federal income
tax prior to the termination of restrictions.
b. Whenever shares of Common Stock are awarded to a Participant, such
shares shall be outstanding, and stock certificates shall be issued in
the name of the Participant, which certificates may bear a legend
stating that the shares are issued subject to the restrictions set
forth in the Plan. All certificates issued for shares of Common Stock
awarded under the Plan shall be deposited for the benefit of the
Participant with the Secretary of the Corporation as custodian until
such time as the shares are vested and transferable.
c. A Participant who is awarded shares of Common Stock under the Plan
shall have full voting rights on such shares, whether or not the shares
are vested or transferable.
d. Shares of Common Stock awarded to a Participant under the Plan, whether
or not vested or transferable, may have full dividend rights as
determined by the Committee. However, if shares or securities are
issued as a result of a merger, consolidation or similar event, such
shares shall be issued in the same manner, and subject to the same
deposit requirements, vesting provisions and transferability
restrictions as the shares of Common Stock which have been awarded.
e. Deliveries of Restricted Common Stock by the Corporation may consist in
whole or in part of the authorized and unissued Common Stock of the
Corporation (at such time or times and in such manner as it may
determine). The Restricted Common Stock shall be paid and delivered as
soon as practicable after the award period in accordance with Section
7.3.
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f. The shares may not be sold, exchanged, transferred, pledged,
hypothecated, or otherwise disposed of by the Participant until their
release. However, nothing herein shall preclude a Participant from
making a gift of any shares of Restricted Common Stock to a spouse,
child, stepchild, grandchild, parent or sibling, or legal dependent of
the Participant or to a trust of which the beneficiary or
beneficiaries of the corpus and the income shall be either such a
person or the Participant; provided that, the Restricted Common Stock
so given shall remain subject to the restrictions, obligations and
conditions described in this Article VII.
g. If a Participant has received an award pursuant to the provisions of
the Plan, is employed by the Corporation or remains a Non-Employee
Director or is an advisor at the end of the award period and the
performance goals have been met, then the Participant shall be fully
vested, at the end of the award period, in the shares of Common Stock
awarded to the Participant for that award period.
h. In the event of termination of employment of an employee Participant or
termination of service of a Non-Employee Director or advisor prior to
the last day of an award period for any reason other than Participant's
death, all rights to any shares of Restricted Common Stock held in a
deposit account with respect to such award, including any additional
shares delivered with respect to such shares as described in subsection
7.2d above shall be forfeited to the Corporation. However, the
Committee may, if the Committee determines that the circumstances
warrant such action, approve the distribution of all or any part of the
Restricted Common Stock which would otherwise be forfeited.
7.3 Distribution of Restricted Common Stock
a. Distribution After Award Period: Except as otherwise provided,
distribution of vested awards of Common Stock shall be made as soon as
practicable after the last day of the applicable award period in the
form of full shares of Common Stock, with fractional shares, if any,
being awarded in cash.
b. Distribution After Death of Participant: Upon the death of the
Participant, either before or after retirement, any shares of
Restricted Common Stock then held shall, subject to this Article VII,
be delivered within a reasonable time under the circumstances to
Participant's Beneficiary or, in the absence of an appropriate
Beneficiary designation to the Participant's estate, in such one or
more installments as the Committee may then determine.
7.4 Designation of Beneficiaries
If a Participant dies prior to the receipt in full of any award under the
Plan to which the Participant is entitled, the award shall be distributed
to the Participant's Beneficiary or, in the absence of a Beneficiary
designation, to the Participant's estate. The designation of a Beneficiary
shall be made in writing on a form prescribed by and filed with the
Committee prior to the Participant's death. If the Committee is in doubt as
to the right of any person to receive such amount, the Committee may retain
such amount, without liability for any interest thereon, until the rights
thereto are determined, or the Committee may pay such amount into any court
of appropriate jurisdiction and such payment shall be a complete discharge
of the liability of the Plan and the Corporation therefor.
7.5 Transferability: Subject to the provision of this Article VII, shares of
Common Stock awarded to a Participant will become freely transferable by
the Participant only at the end of the award period established with
respect to such shares.
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7.6 Distribution to Person Other Than Employee: If the Committee shall find
that any person to whom any award is payable under this Article VII of the
Plan is unable to care for such person's affairs because of illness or
accident, or is a minor, or has died, then any payment due Participant or
Participant's estate (unless a prior claim therefor has been made by a duly
appointed legal representative), may, if the Committee so directs the
Corporation, be paid to Participant's spouse, a child, a relative, an
institution maintaining or having custody of such person, or any other
person deemed by the Committee to be a proper recipient on behalf of such
person otherwise entitled to payment. Any such payment shall be a complete
discharge of the liability of the Committee and the Corporation therefor.
7.7 Restricted Common Stock for employee Participants is intended to constitute
an unfunded deferred compensation arrangement for a select group of
management or highly compensated personnel.
7.8 A forfeiture of shares of Common Stock pursuant to subsection 7.2h of the
Plan shall effect a complete forfeiture of voting rights, dividend rights
and all other rights relating to the award or grant as of the date of
forfeiture.
7.9 Each distribution of Common Stock under this Article VII of the Plan shall
be made subject to such federal, state and local tax withholding
requirements as apply on the distribution date. For this purpose, the
Committee may provide for the withholding of shares of Common Stock or
allow a Participant to pay to the Corporation funds sufficient to satisfy
such withholding requirements.
7.10 Notwithstanding any other provisions in the Plan, in the event of a Change
in Control as defined under any written employment contract or agreement
between the Corporation or a subsidiary and an Officer of the Corporation
or a subsidiary, awards of Common Stock granted under this Plan, as well as
grants of any Performance Units, Restricted Stock Units and Phantom Share
Appreciation Value, shall vest to the extent, if any, provided for in the
written employment agreement or contract or in such separate contractual
arrangement relating to such an award or grant as may exist from time to
time. Notwithstanding any other provisions of the Plan, the provisions of
this Section 7.10 may not be amended after the date a Change in Control
occurs.
Article VIII. Phantom Shares, Performance Units, Restricted Stock Units and
Management Stock Purchase Plan
8.1 Phantom Shares.
a. Grants of Phantom Shares. The Committee may from time to time grant
Phantom Shares, the value of which is determined by reference to a
share of Common Stock on terms and conditions as the Committee, in its
discretion, may from time to time determine. Each grant of Phantom
Shares shall specify the number of Phantom Shares granted, the Initial
Value of such Phantom shares which shall not be less than 100% of the
Fair Market Value of the Common Stock as of the date of grant, the
Valuation Dates, the number of Phantom Shares whose appreciation value
shall be determined on each such Valuation Date, any applicable vesting
schedule for such Phantom Shares, and any applicable limitation on
payment for such Phantom Shares.
b. Appreciation Value.
(i) Valuation Dates; Measurement of Appreciation Value. The Committee
shall provide for one or more Valuation Dates on which the
Appreciation Value of the Phantom Shares granted shall be measured
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and fixed, and shall designate the number of such Phantom Shares whose
Appreciation Value is to be calculated on each such Valuation Date.
(ii) Payment of Appreciation Value. Except as otherwise provided in this
Section 8.1, the Appreciation Value of a Phantom Share shall be
paid to a Participant in cash in a lump sum as soon as practicable
following the Valuation Date applicable to such Phantom Share. The
Committee may in its discretion, establish and set forth a maximum
dollar amount payable under the Plan for each Phantom Share
granted.
(iii) The Committee may, in its discretion, provide that Phantom Shares
shall vest (subject to such terms and conditions as the Committee
may provide in the award) over such period of time, from the date
of grant, as may be specified in a vesting schedule contained in
the grant.
(iv) Termination. In the event of termination of employment of an
employee Participant or termination of service of a non-Employee
Director or advisor prior to one or more Valuation Dates, unless
the Committee in its discretion determines otherwise, the
Appreciation Value for any Phantom Share to which the Participant's
Rights are vested, shall be the lesser of the Appreciation Value as
of the termination date or the Appreciation Value of such Phantom
Share calculated as of the originally scheduled Valuation Date
applicable thereto in accordance with Section 8.1(b)(i). Unless the
Committee, in its discretion determines otherwise, the Appreciation
Value so determined for each such vested outstanding Phantom Share
shall then be payable to the Participant or the Participant's
estate following the originally scheduled Valuation Date applicable
thereto in accordance with Section 8.1(b)(ii). Upon a termination
as described in this Section 8.1(b)(iv), all rights with respect to
Phantom Shares that are not vested as of such date will be
relinquished.
8.2 Performance Units. The Committee may, in its discretion, grant Performance
Units to Eligible Persons. Each Performance Unit will have an initial value
that is established by the Committee at the time of grant and credited to a
bookkeeping account established for the Participant, but no Participant
shall be granted Performance Units during any one fiscal year with an
initial value in excess of $2.5 million. The Committee will set performance
periods and objectives and other terms and conditions of the grant based
upon Performance Criteria as determined by the Committee that, depending
upon the extent to which they are met, will determine the value of
Performance Units that will be paid out to the Participant. The Committee
may pay earned Performance Units in cash, Common Stock or a combination
thereof.
Unless otherwise set forth in the grant, in the event the employment of an
employee Participant is terminated during a performance period due to
death, disability or retirement under the provisions of the Pension Plan
the Participant will receive a prorated payout of Performance Units. In the
event the employment is terminated for any other reason, then all
Performance Units will be forfeited. If the service of a Non-Employee
Director or advisor is terminated during a performance period, the
Participant will receive a prorated payout of Performance Units.
Notwithstanding the above, no payouts will be made to the extent that
objectives other than the duration of the performance period have not been
met except to the extent that the Committee in its discretion decides to
waive any such other achievement or objectives.
8.3 Management Stock Purchase Plan. The Committee may permit select employee
Participants to elect to receive all or a portion of their incentive
payment under the Officer's Incentive Compensation Plan in the form of
cash, shares of Restricted Common Stock, shares of Restricted Stock Units
or a combination of these and any such election of Restricted Common Stock
and/or Restricted Stock Units shall be referred to for purposes of this
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Plan as a purchase. The Committee may also award additional shares of
Restricted Common Stock or Restricted Stock Units to such select
Participants who elect to receive their incentive payment in the form of
Common Stock or Restricted Stock Units, provided that the value of all such
additional Common Stock and Restricted Stock Units awarded to any one
Participant will not exceed $2.5 million for any fiscal year. Shares of
Common Stock and Restricted Stock Units will be granted under and governed
by the terms and conditions of this Plan (other than the limitations with
respect to maximum shares under Section 5.3) as well as any terms of the
grant. Each grant will set forth the extent to which the Participant has
the right to retain unvested Restricted Common Stock or Restricted Stock
Units after his or her termination of employment with the Corporation or a
Subsidiary. These terms will be determined by the Committee in its sole
discretion, need not be uniform among all grants, and may reflect, among
other things, distinctions based on the reasons for termination of
employment.
Article IX. Amendment, Duration and Termination of the Plan
9.1 Duration of Plan. No grants or awards may be made under this Plan after May
31, 2009. Any grant or award effective prior to May 31, 2009 will be
continue to vest and otherwise be effective after the expiration of this
Plan in accordance with the terms and conditions of this Plan as well as
any requirements set forth in the grant or award.
9.2 Right To Amend, Suspend or Terminate Plan: The Board reserves the right at
any time to amend, suspend or terminate the Plan in whole or in part and
for any reason and without the consent of any Optionee, Participant or
Beneficiary; provided, that no such amendment shall:
a. Change the Stock Option price or adversely affect any Stock Option or
Stock Appreciation Right outstanding under the Plan on the effective
date of such amendment or termination, or
b. Adversely affect any award or grant then in effect or rights to receive
any amount to which Participants or Beneficiaries have become entitled
prior to such amendment, or
c. Unless approved by the Shareholders of the Corporation, increase the
aggregate number of shares of Common Stock reserved for award or grant
under the Plan, change the group of Eligible Persons under the Plan or
materially increase benefits to Eligible Persons under the Plan.
9.3 Periodic Review of Plan: In order to assure the continued realization of
the purposes of the Plan, the Committee shall periodically review the Plan,
and the Committee may suggest amendments to the Board as it may deem
appropriate.
9.4 Amendments May Be Retroactive: Subject to Section 9.1 above, any amendment,
modification, suspension or termination of any provisions of the Plan may
be made retroactively.
Article X. General Provisions
10.1 Rights to Continued Employment, Award or Option: Nothing contained in the
Plan or in any Stock Option, Stock Appreciation Right or Restricted Common
Stock award shall give any employee the right to be retained in the
employment of the Corporation or affect the right of the Corporation to
terminate the employee's employment at any time. The adoption of the Plan
shall not constitute a contract between the Corporation and any employee.
No Eligible Person who is an employee shall receive any right to be granted
an option, right or
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award hereunder nor shall any such option, right or award be considered as
compensation under any employee benefit plan of the Corporation.
10.2 Governing Law: The provisions of this Plan and all rights thereunder shall
be governed by and construed in accordance with the laws of the State of
Michigan.
IN WITNESS WHEREOF, execution is hereby effected.
ATTEST:
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Secretary
CMS ENERGY CORPORATION
By:
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Chairman and Chief Executive Officer
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[CMS ENERGY LOGO]
COMMON STOCK PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned appoints KENNETH WHIPPLE and MICHAEL D. VANHEMERT, 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 Potter Center, 2111 Emmons Road, Jackson, Michigan, at 10:30 AM
Eastern Daylight Saving Time on May 28, 2004 and at any adjournment(s) 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 notice and 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 AS RECOMMENDED BY
THE BOARD OF DIRECTORS ON ALL ITEMS.
YOU DO NOT NEED TO COMPLETE OR PLEASE VOTE, SIGN AND DATE THIS PROXY
RETURN THIS PROXY IF YOU VOTE USING A ON THE REVERSE SIDE. THANK YOU
TELEPHONE OR THE INTERNET FOR YOUR PROMPT RESPONSE
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 to be
marked. If additional boxes are marked, this box will take precedence.)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2, 3, 4 AND 5.
(1) ELECTION OF [ ] FOR all nominees listed below (except as indicated below)
DIRECTORS [ ] WITHHOLD AUTHORITY to vote for all nominees listed below
(01) Merribel S. Ayres (02) Earl D. Holton, (03) David W. Joos, (04)
Michael T. Monahan, (05) Joseph F. Paquette, Jr., (06) William U. Parfet,
(07) Percy A. Pierre, (08) S. Kinnie Smith, Jr., (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 independent auditors [ ] [ ] [ ]
(3) Proposal to amend Performance Incentive [ ] [ ] [ ]
Stock Plan Signed
---------------------------------
(4) Proposal to approve deductibility of [ ] [ ] [ ]
incentive awards
(5) Proposal to amend Articles of Incorporation [ ] [ ] [ ] Dated , 2004
---------------------------------