<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the registrant [X]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
CMS ENERGY CORPORATION
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
CMS ENERGY LOGO
CMS ENERGY CORPORATION
CALL AND NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
MAY 27, 1997
To the Shareholders of CMS Energy Corporation:
The annual meeting of shareholders of CMS Energy Corporation will be held on
Tuesday, the 27th day of May 1997, at 10:30 A.M., Eastern Daylight Saving Time,
at the Dearborn Inn, 20301 Oakwood Boulevard, Dearborn, Michigan 48124 for the
following purposes:
(1) Electing a Board of Directors of 11 members;
(2) Ratifying the appointment of Arthur Andersen LLP, independent public
accountants, to audit the financial statements of the Corporation for
the year ending December 31, 1997;
(3) Considering the shareholder proposal set forth in the accompanying proxy
statement, if properly presented at the meeting; and
(4) Transacting such other business as may properly come before the meeting.
The annual report to the shareholders for the year 1996, including financial
statements, has been furnished to you.
The Board of Directors has fixed March 31, 1997 as the record date for the
determination of shareholders entitled to notice of and to vote at the meeting.
All shareholders are cordially invited to attend the annual meeting and will be
entitled to vote on all matters that come before the meeting. The Board of
Directors requests that you sign and date the enclosed proxy and return it in
the enclosed envelope, which requires no postage if mailed in the United States.
By order of the Board of Directors,
Thomas A. McNish, Secretary
CMS Energy Corporation
Fairlane Plaza South
Suite 1100
330 Town Center Drive
Dearborn, Michigan 48126
April 21, 1997
<PAGE> 3
PROXY STATEMENT
----------------
INTRODUCTION
The Board of Directors solicits your proxy for use at this year's annual
meeting. The shares represented by your proxy will be voted as you direct if the
proxy is signed and returned prior to the meeting. You may revoke your proxy at
any time before it is exercised, provided that you so notify the Secretary of
CMS Energy Corporation (the "Corporation") in writing before the proxy is
exercised.
As of December 31, 1996, the Corporation's outstanding Common Stock
consisted of a total of 102,689,087 shares. This total consisted of 94,812,613
shares of the Corporation's Common Stock, $.01 par value, and 7,876,474 shares
of the Corporation's Class G Common Stock, no par value. Each outstanding share
is entitled to one vote on all matters which may come before the annual meeting.
All shares represented by signed proxies will be voted at the annual meeting.
The Corporation has received a copy of Schedule 13G filed with the
Securities and Exchange Commission ("SEC") by Brinson Partners, Inc., 209 South
LaSalle, Chicago, Illinois 60604, which indicates holdings of 6,118,748 shares
representing 6.0% of the outstanding Common Stock of the Corporation. This form
indicates that the shares were purchased in a fiduciary capacity in the ordinary
course of business for investment purposes. To the knowledge of management, no
other person owns beneficially more than 5% of any class of the Corporation's
outstanding voting securities.
The determination of approval of corporate action by the shareholders is
based on votes "for" and "against". Abstentions and broker non-votes are not
counted as "against" votes but are counted in the determination of a quorum.
NOMINEES FOR ELECTION AS MEMBERS OF
THE BOARD OF DIRECTORS
The nominees for directors of the Corporation and Consumers Energy Company
("Consumers") will hold office until the next annual meeting or until their
successors are elected and qualified. Unless a shareholder withholds authority
to vote for the election of directors as provided in the proxy, the returned
proxy will be voted for the listed nominees. The Board of Directors has no
reason to believe that the persons named will not be available but in the event
any nominee is unable to serve, the proxy will be voted for a substitute nominee
designated by the Board of Directors. All of the nominees are presently serving
as directors. Lois A. Lund, who has announced her retirement, is not standing
for reelection. The eleven nominees receiving the greatest number of votes will
be elected.
2
<PAGE> 4
<TABLE>
<S> <C>
WILLIAM T. MCCORMICK WILLIAM T. MCCORMICK, JR., 52, has served as Chairman of the
[PHOTO] Board and Chief Executive Officer of the Corporation since
it was incorporated in 1987 and as Chairman of the Board of
Consumers since 1985. Until 1992 he was also CEO of
Consumers, and until 1987, he was also President of the
Corporation and of Consumers. He is a director of First
Chicago NBD Corporation, Rockwell International Corporation,
and Schlumberger Ltd. He is also a director of the American
Gas Association, the Edison Electric Institute, and the
National Petroleum Council. He has been a director of the
Corporation since 1987 and of Consumers since 1985.
JOHN M. DEUTCH [PHOTO] JOHN M. DEUTCH, 58, is Institute Professor of Massachusetts
Institute of Technology (MIT), Cambridge, Massachusetts.
Previously, he served as Director of the Central
Intelligence Agency from 1995 through 1996, as U.S. Deputy
Secretary of Defense from 1994 to 1995, and as
Undersecretary of the U.S. Department of Defense from 1993
to 1994. Dr. Deutch had served as Institute Professor of MIT
from 1990 through 1993. He is a director of Citicorp. He has
been a director of the Corporation and of Consumers since
January 1997. He had previously served as a director of the
Corporation and of Consumers from 1986 to 1993, when he
resigned following his confirmation as Undersecretary of
Defense.
JAMES J. DUDERSTADT JAMES J. DUDERSTADT, 54, has been President Emeritus and
[PHOTO] University Professor of Science and Engineering at the
University of Michigan, Ann Arbor, Michigan, since 1996. Dr.
Duderstadt also serves as President of the Michigan Virtual
Auto College, a recently established state university
affiliated with the University of Michigan. Previously, he
served as the President of the University of Michigan from
1988 to 1996. He is a director of Unisys Corporation. He has
been a Director of the Corporation and of Consumers since
1993.
KATHLEEN R. FLAHERTY KATHLEEN R. FLAHERTY, 45, has served since 1995 as National
[PHOTO] Marketing Director for British Telecom, a provider of global
telecommunications services. Previously, she served from
1993 to 1995 as Corporate Senior Vice President of MCI
Communications Corporation, and as Senior Vice President,
Worldwide Sales and Marketing, of Concert Management
Services, Inc., a joint venture with British Telecom. Prior
to that, she had served from 1985 to 1993 as Vice President
of MCI Communications Corporation. She has been a director
of the Corporation and of Consumers since 1995.
</TABLE>
3
<PAGE> 5
VICTOR J. FRYLING [PHOTO] VICTOR J. FRYLING, 49, has served as Chief
Operating Officer of the Corporation since January
1996 and as President of the Corporation and Vice
Chairman of Consumers since 1992. Previously, he
had been Executive Vice President and Chief
Financial Officer of the Corporation and of
Consumers from 1988 to 1991. He has been a
director of the Corporation and of Consumers since
1990.
EARL D. HOLTON [PHOTO] EARL D. HOLTON, 63, has served since 1980 as
President of Meijer, Inc., a Grand Rapids,
Michigan based operator of food and general
merchandise centers. He is a director of Meijer,
Inc. and Old Kent Financial Corporation. He has
been a director of the Corporation and of
Consumers since 1989.
MICHAEL G. MORRIS [PHOTO] MICHAEL G. MORRIS, 50, has served as Executive
Vice President of the Corporation since January
1996 and as President and Chief Executive Officer
of Consumers since 1994. Previously, he had been
Chief Operating Officer of Consumers from 1992 to
1993 and Executive Vice President of Consumers
from 1988 to 1991. He is a Regent of Eastern
Michigan University. He has been a director of the
Corporation and of Consumers since February 1996.
4
<PAGE> 6
WILLIAM U. PARFET [PHOTO] WILLIAM U. PARFET, 50, has served since 1995 as
Co-Chairman of MPI Research, Mattawan, Michigan, a
research laboratory conducting risk assessment
toxicology studies. Previously, he served from
1993 to 1996 as President and Chief Executive
Officer of Richard-Allan Medical Industries,
Richland, Michigan. Prior to that, he served as
Vice Chairman from 1992 to 1993; as President from
1991 to 1992; and as Executive Vice President from
1989 to 1990 of The Upjohn Company. He is a
director of Pharmacia & Upjohn, Inc., Old Kent
Financial Corporation, Stryker Corporation, and
Universal Foods Corporation. He has been a
director of the Corporation and of Consumers since
1991.
PERCY A. PIERRE [Photo] PERCY A. PIERRE, 58, has served since 1990 as
Professor of Electrical Engineering, Michigan
State University, East Lansing, Michigan. He also
served as Vice President for Research and Graduate
Studies at Michigan State University from 1990 to
1995. Dr. Pierre is a former Assistant Secretary
of the Army for Research, Development and
Acquisition. He is a director of Old Kent
Financial Corporation and the Whitman Education
Group. He has been a director of the Corporation
and of Consumers since 1990.
KENNETH WHIPPLE [PHOTO] KENNETH WHIPPLE, 62, has served since 1988 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 has served since
March 1997 as Chairman and Chief Executive Officer
of Ford Motor Credit Company. He previously served
as Chairman and Chief Executive Officer of Ford of
Europe, Inc. from 1986 to 1988. He has been a
director of the Corporation and of Consumers since
1993.
JOHN B. YASINSKY [PHOTO] JOHN B. YASINSKY, 57, has served as Chairman
and Chief Executive Officer since 1995, President
and Chief Executive Officer from 1994 to 1995, and
President and Chief Operating Officer from 1993 to
1994 of GenCorp, Fairlawn, Ohio, a manufacturer of
aerospace, automotive and polymer products.
Previously, he served as Group President of
Westinghouse Electric Corporation in 1993 and as
President of Westinghouse Power Systems from 1990
to 1993. He is a director of GenCorp. He has been
a director of the Corporation and of Consumers
since 1994.
5
<PAGE> 7
MANAGEMENT SECURITY OWNERSHIP
The following chart sets forth the ownership of the Corporation's Common
Stock by the directors and executive officers.
<TABLE>
<CAPTION>
Shares
Name Beneficially Owned*
---- -------------------
<S> <C>
William T. McCormick, Jr. .............. 169,303
John M. Deutch.......................... 2,700
James J. Duderstadt..................... 1,911
Kathleen R. Flaherty.................... 2,052
Victor J. Fryling....................... 87,861
Earl D. Holton.......................... 8,906
Lois A. Lund............................ 2,711
Michael G. Morris....................... 63,036
William U. Parfet....................... 11,300
Percy A. Pierre......................... 3,715
Kenneth Whipple......................... 3,300
John B. Yasinsky........................ 3,627
Alan M. Wright.......................... 25,252
David W. Joos........................... 28,182
All Directors and Executive Officers.... 630,764
</TABLE>
* In addition to the shares shown above, Messrs McCormick, Fryling, Morris,
Wright, Joos, and other Executive Officers own options to acquire 395,000,
181,500, 131,000, 37,000, 54,000, and 409,937 shares, respectively.
Shares shown as beneficially owned include (1) shares to which a person has
or shares voting power and/or investment power, and (2) the number of shares and
share equivalents represented by interests in the Employees' Savings and
Incentive Plan, the Deferred Salary Savings Plan, the Performance Incentive
Stock Plan, and the Directors' Deferred Compensation Plan as of December 31,
1996. Both CMS Energy Corporation Common Stock and CMS Energy Corporation Class
G Common Stock are included in the calculation of Shares Beneficially Owned. Mr.
McCormick, Mr. Duderstadt, Ms. Flaherty, Mr. Fryling, Mr. Holton, Mr. Whipple,
Mr. Wright, Mr. Joos, and all other Executive Officers as a group own 3,000,
100, 400, 1,500, 527, 1,000, 632, 3,023, and 12,431 shares, respectively, of
Class G Common Stock. One executive officer has disclaimed beneficial ownership
of 7,943 shares of Common Stock and 150 shares of Class G Common Stock on which
he has no voting or investment power. The directors each own 10 shares of
Preferred Stock of Consumers as qualifying shares. Two executive officers own a
total of 2,200 shares of non-voting Preferred Stock of Consumers. No other
executive officer owns shares of Consumers Preferred Stock. The directors and
executive officers together own less than 1% of the outstanding shares of the
Corporation.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Federal securities laws require the Corporation's directors and executive
officers, and persons who own more than 10% of the Corporation's Common Stock,
to file with the SEC reports of ownership and changes in ownership of any
securities or derivative securities of the Corporation. To the Corporation's
knowledge, during the year ended December 31, 1996 the Corporation's officers
and directors made all required filings except Alan M. Wright, Senior Vice
President, Chief Financial Officer and Treasurer of the Corporation, who filed
an amended Form 4 in July 1996 regarding a June 1996 sale of 2,605 shares.
6
<PAGE> 8
BOARDS OF DIRECTORS AND COMMITTEES OF THE CORPORATION AND CONSUMERS
The Board of Directors of the Corporation met 11 times and Consumers' Board
of Directors met 10 times during 1996. All incumbent directors attended more
than 75% of the board and assigned committee meetings during 1996.
AUDIT COMMITTEES
Members: William U. Parfet (Chair), Lois A. Lund, Percy A. Pierre, and John
B. Yasinsky.
Meetings during 1996: Corporation 3 -- Consumers 3
These committees meet with representatives of the independent public
accountants from time to time during the year and after the completion of the
annual audit of the Corporation's and Consumers' financial statements to review
and discuss such audit, internal controls and other appropriate matters; review
the activities of the Internal Audit Department; review the relationship of the
Corporation's and Consumers' independent public accountants with the Corporation
and Consumers insofar as they perform nonaudit services; and review and
recommend to the Boards of Directors the appointment of independent public
accountants.
NOMINATING COMMITTEES
Members: Percy A. Pierre (Chair), John M. Deutch, James J. Duderstadt,
Kathleen R. Flaherty, Kenneth Whipple, and John B. Yasinsky.
Meetings during 1996: Corporation 2 -- Consumers 2
These committees conduct a continuing study of the size, structure,
composition and compensation of the Boards; seek out possible candidates to fill
board positions; aid in attracting qualified candidates to the Boards; recommend
annually, prior to the solicitation of proxies, a slate of qualified candidates
for election to the Boards at the annual meeting and, in case of any vacancies
on the boards, candidates to fill those vacancies; review periodically and
recommend to the Boards of Directors modifications, as appropriate, to the
director tenure policy; and determine from time to time criteria for selection
and retention of Board members. The committees consider shareholders'
recommendations of nominees for election to the Boards of Directors. The
recommendations must be accompanied by the consent of each of the recommended
nominees to act as a director. Shareholders should send their written
recommendations of nominees to: Mr. Thomas A. McNish, Corporate Secretary, CMS
Energy Corporation, Fairlane Plaza South, Suite 1100, 330 Town Center Drive,
Dearborn, Michigan 48126.
ORGANIZATION AND COMPENSATION COMMITTEES
Members: Earl D. Holton (Chair), John M. Deutch, William U. Parfet, Kenneth
Whipple, and John B. Yasinsky.
Meetings during 1996: Corporation 4 -- Consumers 4
These committees review the executive organization of the Corporation and of
Consumers from time to time; review from time to time the salaries and other
compensation of all the officers of the Corporation and of Consumers; monitor
the development of personnel for availability to fill key management positions
as vacancies occur; establish goals annually for the Executive Incentive
Compensation Plan; review and approve the incentive compensation payment
schedule; review and approve grants under the Executive Stock Option and Stock
Appreciation Rights Plan; administer the Corporation's Performance Incentive
Stock Plan; and report to the Boards of Directors with respect to the
committees' recommendations.
7
<PAGE> 9
ENVIRONMENTAL AND CORPORATE RESPONSIBILITY COMMITTEES
Members: Lois A. Lund (Chair), James J. Duderstadt, Kathleen R. Flaherty,
Earl D. Holton, and Percy A. Pierre.
Meetings during 1996: Corporation 2 -- Consumers 2
These committees make recommendations to the Boards of Directors regarding
significant environmental matters affecting the Corporation's and Consumers'
operations; advise the Boards on the adoption and evaluation of policies
designed to maintain the Corporation's and Consumers' position of corporate
responsibility; review and monitor the Corporation's and Consumers' policies and
objectives related to equal employment opportunities; review the Corporation's
and Consumers' policies to comply with federal and state laws and regulations
affecting personnel matters; and review the Corporation's and Consumers'
policies related to contributions and support of charitable, educational and
community organizations.
EXECUTIVE COMMITTEES
Members: William T. McCormick, Jr. (Chair), Victor J. Fryling, Earl D.
Holton, Lois A. Lund, Michael G. Morris, William U. Parfet, Percy
A. Pierre and Kenneth Whipple.
Meetings during 1996: Corporation 1 -- Consumers 0
These committees exercise the power and authority of the Boards of Directors
as may be necessary during the intervals between meetings of the Boards of
Directors, subject to such limitations as are provided by law or by resolution
of the boards.
FINANCE AND PENSION COMMITTEES
Members: Kenneth Whipple (Chair), Kathleen R. Flaherty, Earl D. Holton, Lois
A. Lund, and William U. Parfet.
Meetings during 1996: Corporation 3 -- Consumers 3
These committees give advice and counsel to the officers of the Corporation
and Consumers with respect to the means for providing the funds required to
carry out the Corporation's and Consumers' programs; review the financial
policies including capitalization objectives, use of short-term financing and
issuance of long-term securities; and recommend to the Boards of Directors
financial policies for the Corporation and Consumers. In addition, the committee
of Consumers reviews the investment policies for all employee benefit funds with
respect to assets being managed, including adequacy of funding; reviews
quarterly the investment performance of each of the investment managers for all
employee benefit funds of Consumers; reports to the Board of Directors on
findings regarding selection and retention of managers; and reviews the
administration of the employee benefit plans.
8
<PAGE> 10
COMPENSATION OF DIRECTORS
Directors who are not officers of the Corporation or Consumers received in
1996 an annual retainer fee of $30,000, and $1,250 for attendance at each Board
meeting and $750 for attendance at each committee meeting. Committee chairs
receive $1,000 for attendance at each committee meeting. Retainer and attendance
fees are set by the Boards of Directors. In 1996 such Directors were vested in
300 restricted shares of Common Stock of the Corporation with a fair market
value at the time of vesting of $8,925 and were granted an additional 200
restricted shares of Common Stock of the Corporation with a fair market value at
the time of grant of $5,950. 600 shares of restricted stock will vest 50% per
year in 1997 and 1998 for those Directors who continue to serve through such
years. Directors are reimbursed for expenses incurred in attending Board or
committee meetings. Directors who are officers of the Corporation or Consumers
do not receive retainers or meeting fees for service on the Board or as a member
of any Board committee. Pursuant to the Directors' Deferred Compensation Plan, a
Director of the Corporation or Consumers who is not an officer may at any time
prior to a calendar year in which a retainer and fees are to be earned, or at
any time during the year prior to the month in which a retainer and fees are
earned, may irrevocably elect to defer payment for that year, or a portion
thereof, through written notice to the Corporation or Consumers, of all or half
of any of the retainer and fees which would otherwise be paid to the Director,
to a time following the Director's retirement from the Board of Directors. Any
amount deferred will either (a) accrue interest at either the prime rate or the
rate for 10-year Treasury Notes (whichever is greater), (b) be treated as if it
were invested as an optional cash payment in the Corporation's Stock Purchase
Plan, or (c) be treated as if it were invested in a Standard & Poor's 500 stock
index fund. Accrued amounts will be distributed in a lump sum or in five or ten
annual installments in cash. Outside Directors who retire with five years of
service on the Board will receive monthly retirement payments equal to the
retainer. These payments will continue for a period of time equal to their years
of service on the Board. All benefits will cease at the death of the retired
Director. Outside Directors are offered optional life insurance coverage,
business-related travel accident insurance, and optional health care insurance,
and the Corporation and Consumers pay the premiums associated with participation
by Directors. The imputed income for the life insurance coverage in 1996 was:
Messrs. Duderstadt, $634; Holton, $1,021; Merlotti, $901; Parfet, $520; Pierre,
$722; Whipple, $1,021; Yasinsky, $722; and Ms. Lund, $998. The value for health
care coverage in 1996 was $1,850 for Ms. Lund, the only selecting Director.
9
<PAGE> 11
EXECUTIVE COMPENSATION
The following charts contain information concerning annual and long-term
compensation and awards of stock options and restricted stock under the
Corporation's Performance Incentive Stock Plan. The charts include the Chairman
of the Board and the next four most highly compensated executive officers in
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation(1)
------------------------
Awards Payouts
Annual ---------- ----------
Compensation Securities Long-Term
-------------------- Underlying Incentive All Other
Name and Principal Position Year Salary Bonus Options Payouts(2) Compensation(3)
- --------------------------- ---- ------ ----- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William T. McCormick, Jr. 1996 $780,000 $700,000 50,000 $439,291 $23,400
Chairman and CEO, 1995 750,000 560,000 40,000 166,765 22,500
Corporation and Chairman, 1994 725,000 470,000 36,000 104,400 21,750
Consumers
Victor J. Fryling 1996 550,000 429,000 30,000 246,165 16,500
President and COO, 1995 495,000 350,000 24,000 82,714 14,850
Corporation and Vice 1994 466,000 312,015 22,000 51,613 13,980
Chairman, Consumers
Michael G. Morris 1996 490,000 398,130 24,000 205,905 14,700
Executive Vice President, 1995 451,000 314,780 20,000 72,220 13,530
Corporation, and 1994 423,667 289,935 18,000 45,022 12,710
President and CEO, Consumers
Alan M. Wright 1996 289,583 184,820 16,000 124,897 8,687
Senior Vice President 1995 255,000 170,000 12,000 45,292 1,912
and CFO, Corporation 1994 240,000 147,195 11,000 27,949 0
and Consumers
David W. Joos 1996 287,500 205,130 16,000 84,393 8,625
Executive Vice President 1995 240,000 154,250 12,000 25,938 7,200
and COO-Electric, Consumers 1994 190,833 109,350 9,000 16,204 5,725
</TABLE>
(1) Aggregate non-performance based restricted stock held as of December 31,
1996 by named officers was: Victor J. Fryling, 20,000 shares and Michael G.
Morris, 12,500 shares, with respective values based on market price at
December 31, 1996 of $672,500 and $420,312. Regular dividends are paid on
such restricted stock.
(2) Market value of common stock paid under the Corporation's Performance
Incentive Stock Plan for three-year performance periods.
(3) Employer matching contribution to defined contribution plans.
10
<PAGE> 12
EMPLOYMENT ARRANGEMENTS
Agreements with the executive officers named above and six other senior
executive officers provide for payments of two times annual cash compensation if
there is a change of control and adverse change of responsibilities. The
Corporation and Consumers also provide long-term disability insurance policies
for all executive officers which would provide payments of 60% of compensation
in the event of disability.
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
Number of
Securities
Underlying Percentage of Total Exercise Grant Date
Options Options Granted to Price Per Expiration Present
Name Granted Employees in 1996 Share Date Value(1)
---- ---------- ------------------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
William T. McCormick, Jr. ............. 50,000 13.6 $30.625 8/24/06 $347,000
Victor J. Fryling...................... 30,000 8.1 30.625 8/24/06 208,200
Michael G. Morris...................... 24,000 6.5 30.625 8/24/06 166,560
Alan M. Wright......................... 16,000 4.3 30.625 8/24/06 111,040
David W. Joos.......................... 16,000 4.3 30.625 8/24/06 111,040
</TABLE>
(1) The present value is based on the Black-Scholes Model, a mathematical
formula used to value options traded on securities exchanges. The model
utilizes a number of assumptions, including the exercise price, the
underlying stock's volatility of 24.08% using weekly closing prices for a
five year period prior to grant date, the dividend rate of $0.27 per quarter
with 5% annual dividend growth, the term of the option, and the level of
interest rates at 6.63%, equivalent to the rate of 10-year Treasury notes.
However, the Model does not take into account a significant feature of
options granted to employees under the Corporation's Plan, i.e., the non-
transferability of options awarded.
AGGREGATED OPTIONS/SARS EXERCISES IN 1996 AND YEAR-END OPTIONS/SARS VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Securities Underlying In-the-Money
Shares Acquired Value Unexercised Options/ Options/SARs At
Name On Exercise Realized SARS at Year End Year End(1)(2)
---- --------------- -------- --------------------- ---------------
<S> <C> <C> <C> <C>
William T. McCormick, Jr. ............. 35,000 $562,500 395,000 $3,715,625
Victor J. Fryling...................... 10,000 165,187 181,500 1,438,625
Michael G. Morris...................... 0 0 131,000 981,500
Alan M. Wright......................... 21,000 192,750 37,000 220,875
David W. Joos.......................... 4,500 47,812 54,000 312,875
</TABLE>
(1) All options/SARs listed in this table are exercisable. The named officers
have no unexercisable options/SARs.
(2) Based on the December 31, 1996 closing price of the Corporation's Common
Stock as shown in the report of the NYSE Composite Transactions ($33.625).
11
<PAGE> 13
LONG-TERM INCENTIVE PLANS -- AWARDS IN 1996
<TABLE>
<CAPTION>
Estimated Future Payouts
Under Non-Stock Price-Based
Plans (Shares)(1)
Number Period -------------------------------------
Name of Shares Until Payout Threshold Target Maximum
---- --------- ------------ --------- ------ -------
<S> <C> <C> <C> <C> <C>
William T. McCormick, Jr............ 25,000 2-5 years 6,250 25,000 37,500
Victor J. Fryling................... 15,000 2-5 years 3,750 15,000 22,500
Michael G. Morris................... 12,000 2-5 years 3,000 12,000 18,000
Alan M. Wright...................... 8,000 2-5 years 2,000 8,000 12,000
David W. Joos....................... 8,000 2-5 years 2,000 8,000 12,000
</TABLE>
(1) Under the Corporation's Performance Incentive Stock Plan, awards of
restricted stock for the above officers vest at the rate of 25% per year
after two years and are subject to achievement of specified levels of total
shareholder return over a three-year period. The target number of shares as
shown above will be earned if 100% of the targeted average 15% annual total
shareholder return is achieved. The threshold number of shares will be
earned on achievement of 40% of the target, and the maximum number of shares
will be earned on achieving 140% of the target.
PENSION PLAN TABLE
The following table shows the aggregate annual pension benefits at Normal
Retirement Date presented on a straight life annuity basis under the
Corporation's qualified Pension Plan and non-qualified Supplemental Executive
Retirement Plan (offset by a portion of Social Security benefits).
Years of Service
----------------------------------------------------
Compensation 15 20 25 30 35
------------ -------- -------- -------- -------- --------
[S] [C] [C] [C] [C] [C]
$ 400,000 $126,000 $168,000 $198,000 $228,000 $258,000
600,000 189,000 252,000 297,000 342,000 387,000
800,000 252,000 336,000 396,000 456,000 516,000
1,000,000 315,000 420,000 495,000 570,000 645,000
1,200,000 378,000 504,000 594,000 684,000 774,000
1,400,000 441,000 588,000 693,000 798,000 903,000
Regular, straight-time salary, as shown in the Summary Compensation Table
during the 5 years of highest earnings, is used in computing benefits under the
Pension Plan. In addition, awards under the Executive Incentive Compensation
Plan, as shown in the Summary Compensation Table during the 5 years of highest
earnings, are used in computing benefits under the Supplemental Executive
Retirement Plan. The estimated years of service for each named executive is:
William T. McCormick, Jr., 21.27 years, Victor J. Fryling, 21.00 years,
Michael G. Morris, 16.79 years, Alan M. Wright, 11.36 years, and David W. Joos,
23.80 years.
12
<PAGE> 14
ORGANIZATION AND COMPENSATION COMMITTEE REPORT
Compensation Philosophy
The Corporation's executive compensation program is directed by a committee
composed entirely of independent outside directors. The Committee is responsible
for determining and administering executive compensation policies and plans as
well as reviewing and recommending officer appointments to the Board of
Directors. The Committee also has the responsibility for approving both annual
compensation and awards under long-term stock ownership programs. Such programs
seek to enhance the profitability of the Corporation and, hence, shareholder
value by aligning the financial interests of the Corporation's officers with
those of its shareholders. In doing so, the Committee relies to a large degree
on incentive compensation including stock-related awards to attract and retain
outstanding officers.
Compensation for Mr. McCormick and the other executive officers consists of
a base salary, which is intended to be at the competitive median of the amounts
paid to senior executives with equivalent positions at other energy companies of
comparable size, and substantial annual and long-term incentive compensation
closely tied to the Corporation's success in achieving earnings, stock
appreciation and other performance goals. The incentive program is also designed
to be competitive with plans of other comparable energy companies and variable
"at risk" compensation is intended to be above median in years when the
corporation meets or exceeds its performance goals, which in recent years have
exceeded industry norms in terms of earnings and dividend growth.
Annual Compensation
Just prior to the beginning of each fiscal year, the Committee reviews the
base salary of Mr. McCormick and the other officers and approves annual salaries
for them based on industry, peer group, and national surveys and judgment as to
the past and expected future contributions of each individual. In the case of
Mr. McCormick, such judgment also involves the Committee's assessment of his
past performance and its expectation as to his future contribution in leading
the Corporation.
The annual incentive compensation (bonus) payment, if any, is based on the
Corporation's success in meeting challenging earnings per share goals set by the
Committee at the beginning of each year. In addition, individual performance
goals are established for each executive officer for specific financial,
operating and management achievements. Following the end of each year, the
results on a corporate and individual basis are reviewed by the Committee to
determine the appropriate awards. Under the Corporation's Executive Incentive
Compensation Plan for 1996, because the Corporation achieved its earnings goal,
the Committee granted annual incentive bonuses to officers, including those
shown in the Summary Compensation Table. The Plan has a threshold payout at 80%
of the earnings per share goal and a maximum payout at 120% of goal. Mr.
McCormick's award was based on a standard award under the Plan of 75% of his
salary, adjusted to reflect the Committee's judgement as to his leadership
performance for the year.
Long-term Compensation
The last element of executive compensation considered by the Committee
during each year is long-term incentive awards in the form of stock options and
restricted stock awards under the Corporation's Performance Incentive Stock
Plan. The Committee believes such awards are desirable in encouraging Common
Stock ownership by executives, thus linking their interests directly to that of
other shareholders. Therefore, in 1996, the Committee
13
<PAGE> 15
decided to grant stock options with an exercise price equal to the market price
on the date of the grant to the officers, including those shown in the above
charts. Options have been granted annually, usually for approximately the same
number of shares. The Committee believes grants should be made annually on a
generally consistent basis. In determining grants, the Committee weighed a
number of factors including prior grants and corporate performance. The
Committee also awarded performance-based restricted stock which will vest at the
rate of 25% per year after two years, with 100% vested after five years.
However, the nominal restricted stock award will be paid only if the average
annual shareholder return target of 15% is achieved for each three-year
performance period. If the average annual shareholder return is less than the
target, then the award will be smaller, and if the return is more than the
target, then the award will be greater.
Compensation Deductibility
The Committee has reviewed the Corporation's compensation plans and the
applicability of Section 162(m) of the Internal Revenue Code and regulations
thereunder dealing with federal income tax deductibility for compensation in
excess of $1 million. The Committee believes that awards of stock options and
vesting of performance based restricted stock under the Corporation's
Performance Incentive Stock Plan are not considered compensation under the
regulations under Section 162(m), because both have been approved by
shareholders and are based on pre-established performance goals. However, bonus
awards under the Executive Incentive Compensation Plan are considered
compensation because the Committee believes that it is in the best interests of
the Corporation to retain maximum flexibility in rewarding superior performance.
Compensation Consultant
In connection with its ongoing independent review of executive compensation,
the Committee has retained Hewitt Associates, a recognized compensation and
benefit consultant, to assist the Committee in evaluating the appropriateness
and competitiveness of its compensation policies and programs.
Submitted by the Organization and Compensation Committee: Earl D. Holton
(Chair), John M. Deutch, William U. Parfet, Kenneth Whipple, and John B.
Yasinsky.
14
<PAGE> 16
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG CMS ENERGY CORPORATION, S&P 500 INDEX & DOW JONES UTILITY INDEX
<TABLE>
<CAPTION>
MEASUREMENT PERIOD CMS S&P 500 DOW
(FISCAL YEAR COVERED) ENERGY JONES
UTILITY
<S> <C> <C> <C>
1991 100 100 100
1992 103 107 103
1993 144 118 113
1994 136 120 96
1995 184 165 126
1996 214 203 137
</TABLE>
Total return assumes reinvestment of dividends.
Fiscal years ending December 31.
Assumes the value of the investment in the Corporation's common stock and each
index was $100 on December 31, 1991.
15
<PAGE> 17
RATIFICATION OF THE APPOINTMENT OF AUDITORS
Subject to the approval of the shareholders, the Board of Directors has
appointed Arthur Andersen LLP, independent public accountants, to audit the
financial statements of the Corporation for the year 1997. Arthur Andersen LLP
also served as the Corporation's auditors for the year 1996. A representative of
Arthur Andersen LLP will be present at the annual meeting of shareholders and
will have an opportunity to make a statement and respond to appropriate
questions.
Approval of the proposal to ratify the appointment of auditors requires the
affirmative vote of a majority of the shares of Common Stock present at the
meeting.
THE BOARD OF DIRECTORS RECOMMENDS RATIFICATION OF
THE APPOINTMENT OF AUDITORS
SHAREHOLDER PROPOSAL
Gary M. Ruffner, 4801 Illana, Lansing, Michigan 48910, owner of 104 shares
of Common Stock, has notified the Corporation that he intends to present the
following proposal for action at the meeting:
Whereas, continuing deregulation of the utility industry will force
companies, including Consumers Power, to question the underlying corporate
assumptions about mission service and cost, and
Whereas, users and consumers of Consumers Power service will be bombarded
with a massive campaign by other providers, private and public, to accept
competing power and services, and
Whereas, consumers and the public need to more fully understand the factors
like quality, safety, reliability, being a provider of stable community jobs,
corporate dedication to community goals, and overall company accountability that
make a utility worthy to be regarded as a "Utility of Choice" by its users and
consumers,
Therefore, be it resolved, that the shareholders urge the Board of Directors
to strengthen the Company's internal commitment to continuing to be the "Utility
of Choice" by its users and consumers through adoption of the following five
point program:
1. That the Board of Directors expand the membership of the Environmental
and Corporate Responsibility Committee to include more consumers and
representatives of the Company's employee and Union groups, and direct the
expanded committee to undertake the drafting of a clear statement of the
Company's responsibility to quality, safety, reliability, being a provider of
stable community jobs, corporate dedication to community goals, and overall
Company accountability which taken together, make a utility worthy to be
regarded as a "Utility of Choice" by its users and consumers;
2. That the Compensation Committee be directed to consider the inclusion of
"Utility of Choice" indicators in the corporate performance factors used in the
calculation of compensation for Company officials;
3. That the Company publicize the "Utility of Choice" guidelines to give
consumers and users a basis for calculation when considering energy and service
alternatives, and as the basis of questions to ask competitors who seek to have
consumers and users change service;
16
<PAGE> 18
4. That the Company use the "Utility of Choice" guidelines in its
legislative education and lobbying efforts so as to have our public officials
understand the importance of an expanded cost/benefit analysis in the era of
utility deregulation;
5. That the Company make the "Utility of Choice" campaign a priority by
setting a January 1, 1998 deadline for the completion of the Committee's work
and the Company's implementation of their report and recommendations.
DIRECTORS' RECOMMENDATION
The Board of Directors recommends a vote AGAINST the above shareholder
proposal for the following reasons:
The Board believes the proposal does not recognize that the Corporation's
subsidiary, Consumers Energy Company, has had for many years a Strategic Plan
consisting of its Vision, Goals and Creed. The beliefs embodied in the existing
Creed already include pledges to "our customers, employees, shareholders,... and
neighbors" to "facilitate training and career development and promote employee
fulfillment,... to provide a safe, clean, and productive work environment,... to
protect the environment, and the locations where we operate to preserve them for
the benefit of the communities we serve and, to be good corporate citizens
through charitable giving and voluntary service to our communities..."
The Board strongly believes that management and employees of Consumers
Energy have a strong commitment and dedication to these principles.
Management of Consumers developed the Strategic Plan to ensure the company's
success in the evolving competition in the utility industry which will provide
substantial benefits to "shareholders, employees and the communities we serve."
Also importantly, the proposal suggests action by the Board which would not
be permitted by the governing Michigan Business Corporation Act, i.e.,
appointment of non-Directors to a Committee of the Board. Further, the Board
thinks the inclusion of the suggested indicators in determining executive
compensation is inconsistent with its financial results and shareholder
value-oriented compensation philosophy as outlined in the report of the
Organization and Compensation Committee above, and would unduly limit the
flexibility of that Committee. Also, by requiring Consumers to publicize utility
of choice guidelines, the proposal ignores the generally accepted principle that
electric customers will choose their provider only on the basis of cost and
reliability and not on soft and nebulous considerations, which may tend to
dilute Consumers' marketing message. In mandating Consumers to use the
guidelines in its legislative efforts, the proposal could severely limit
Consumers' effectiveness in appealing to various constituencies with differing
requirements. By establishing an arbitrary implementation date, the proposal
effectively short circuits thoughtful consideration of its efficacy.
Thus, the Board firmly believes the proposal should be rejected because, in
general, it attempts to impinge on management's conduct of the ordinary business
of a separate subsidiary company and to direct the specific details of the
implementation of guidelines which are already reflected in long-held company
policies and philosophies as embodied in Consumers' Strategic Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST
THE SHAREHOLDER PROPOSAL.
Adoption of the above shareholder proposal requires the affirmative vote of
a majority of the shares of Common Stock present at the meeting.
17
<PAGE> 19
1997 PROXY STATEMENT INFORMATION
A shareholder who intends to submit a proposal for consideration at the 1998
annual meeting pursuant to the applicable rules of the Securities and Exchange
Commission must send the proposal to reach the Corporation's Corporate Secretary
on or before December 19, 1997. The proposals should be addressed to: Mr. Thomas
A. McNish, Corporate Secretary, Fairlane Plaza South, Suite 1100, 330 Town
Center Drive, Dearborn, Michigan 48126.
OTHER MATTERS
The Board of Directors does not know of any other matters that might be
presented to the meeting except matters incident to the conduct of the meeting.
However, if any other matters (including matters incident to the conduct of the
meeting) do come before the meeting, it is intended that the holders of the
proxies will vote thereon in their discretion.
The cost of solicitation of proxies will be borne by the Corporation.
Proxies may be solicited by officers and other employees of the Corporation or
their subsidiaries, personally or by telephone, facsimile or mail. The
Corporation has arranged for Morrow & Co. of 909 Third Ave., 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. The
Corporation may also reimburse brokers, dealers, banks, voting trustees or other
record holders for postage and other reasonable expenses of forwarding the proxy
material to the beneficial owners of shares of stock held of record by such
brokers, dealers, banks, voting trustees or other record holders.
- - - - -
PLEASE MARK, SIGN AND MAIL THE ENCLOSED PROXY
IN THE ACCOMPANYING ENVELOPE
NO POSTAGE STAMP NECESSARY IF MAILED IN THE UNITED STATES
18
<PAGE> 20
<TABLE>
<S><C>
[CMS ENERGY LOGO]
COMMON STOCK PROXY
SOLICITED BY THE BOARD OF DIRECTORS
FOR ANNUAL MEETING OF SHAREHOLDERS
The undersigned appoints W. T. MC CORMICK, JR. and T. A. MC NISH, and each of them, proxies with full power of substitution, to
vote on behalf of the undersigned at the annual meeting of shareholders of CMS Energy Corporation to be held at the Dearborn Inn,
20301 Oakwood Boulevard, Dearborn, Michigan on May 27, 1997 and at any adjournment or adjournments thereof. Said proxies, and each
of them present and acting at the meeting, may vote on the matters set forth on the reverse side hereof and with discretionary
authority on all other matters that come before the meeting, all as more fully set forth in the Proxy Statement received by the
undersigned. The shares represented hereby will be voted on the proposals as specified. IF THIS PROXY IS RETURNED SIGNED BUT NOT
COMPLETED, IT WILL BE VOTED IN FAVOR OF THE ELECTION OF DIRECTORS AND THE RATIFICATION OF APPOINTMENT OF AUDITORS AND AGAINST THE
SHAREHOLDER PROPOSAL.
PLEASE VOTE, SIGN AND DATE
THIS PROXY ON THE REVERSE
SIDE AND RETURN IT IN THE
ENCLOSED ENVELOPE.
Thank you for your prompt response.
</TABLE>
<PAGE> 21
<TABLE>
<S><C>
PLEASE VOTE, SIGN AND DATE BELOW
/ / TO VOTE AS RECOMMENDED by the Board of Directors on all items, MARK THIS BOX, SIGN, DATE AND RETURN THIS
PROXY. (No additional boxes need be marked. if additional boxes are marked, this box will take precedence.)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1 AND 2.
(1) ELECTION OF / / FOR all nominees listed below (except as indicated below)
DIRECTORS / / WITHHOLD AUTHORITY to vote for all nominees listed below
William T. McCormick, Jr., John M. Deutch, James J. Duderstadt, Kathleen R. Flaherty, Victor J. Fryling, Earl D. Holton,
Michael G. Morris, William U. Parfet, Percy A. Pierre, Kenneth Whipple and John B. Yaslnsky
(INSTRUCTION: To withhold authority to vote for any individual nominee, write that nominee's name on the space provided below.)
_________________________________________________________________________________________________________________________________
(2) Ratification of appointment of auditors PLEASE SIGN, DATE AND RETURN THIS PROXY
/ / FOR / / AGAINST / / ABSTAIN IN THE ENCLOSED ENVELOPE. No postage is
needed if mailed in the United States.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
AGAINST THE FOLLOWING PROPOSAL.
(3) Shareholder Proposal recommending that the Board adopt a Signed___________________________________________________
five point program involving customer selection of power
supplier.
/ / AGAINST / / FOR / / ABSTAIN Dated______________________________________________, 1997
</TABLE>
