American Electric Power System
Performance Share Incentive Plan
as Amended and Restated through November 1, 1996
Article 1. Establishment and Purpose
1.1 Establishment of the Plan.
The Company hereby establishes an incentive compensation plan to be
known as the "American Electric Power System Performance Share
Incentive Plan" (the "Plan"), as set forth in this document.
1.2 Purposes.
The Purposes of the Plan are to provide competitive, longer-term,
performance driven, incentive compensation opportunities to
Participants, which are directly related to and dependent upon the
competitiveness of the longer-term returns realized by the
Company's shareholders; and to facilitate ownership of Restricted
Stock Units by Participants so as to equate further their long-term
financial interests with those of the shareholders.
Article 2. Effective Date and Term of Plan
The Plan was approved by the Company's shareholders and the
Securities and Exchange Commission effective January 1, 1994.
While the Board may suspend or terminate the Plan at any time, no
such suspension or termination shall adversely affect any
outstanding Performance Share Units without the Participant's
written consent as specified in Section 12.2. No Performance Share
Units shall be granted for Performance Periods commencing after
December 31, 2003.
Article 3. Definitions
Whenever used in the Plan, the following terms shall have the
meanings set forth below and, when the meaning is intended, the
initial letter of the word is capitalized:
(a) "Award Certificate" means a certificate setting forth
the terms and provisions applicable to each grant of Performance
Share Units, which shall include, but shall not be limited to, the
number of Performance Share Units granted to the Participant, the
Performance Measure, the levels of Performance Share Unit payment
opportunities based on the Performance Measure, the method of
determining earned Performance Share Units pursuant to Section 8.1
and the length of the Performance Period.
(b) "Board" means the Board of Directors of the Company.
(c) "Committee" shall mean the Human Resources Committee of
the Board.
(d) "Common Stock" shall mean the common stock of the
Company.
(e) "Company" means American Electric Power Company, Inc.,
a New York corporation, and any successor thereto.
(f) "Director" means an individual who is a member of the
Board.
(g) "Disability" shall have the definition set forth in the
American Electric Power System Retirement Plan.
(h) "Equivalent Stock Ownership Target" means a stock
ownership target for each Participant established by the Board
which is a combination of Common Stock and Common Stock equivalents
held by a Participant.
(i) "Fair Market Value" means the closing sale price of the
Common Stock, as published in The Wall Street Journal report of New
York Stock Exchange - Composite Transactions on the date in
question or, if the Common Stock shall not have been traded on such
date or if the New York Stock Exchange is closed on such date, then
the first day prior thereto on which the Common Stock was so
traded.
(j) "Participant" means any full-time, nonunion employee of
any Subsidiary, who has been selected to participate in the Plan
for a stipulated Performance Period by the Committee.
(k) "Performance Measure" means, for a period of at least
three years, the financial objective to be applied to the
Performance Period in which Performance Share Units held by a
Participant for a Performance Period are earned, based on the
relative ranking of the Company's TSR compared to the TSR's of the
companies comprising the S&P Electric Utility Index.
(l) "Performance Period" means the period established by
the Committee, during which the number of Performance Share Units
earned by Participants shall be determined.
(m) "Performance Share Unit" means a measure of
participation, expressed as a share of Common Stock, received as a
grant under Section 7.1 or as a dividend under Section 7.2.
(n) "Restricted Stock Unit" means a measure of value,
expressed as a share of Common Stock, allocated to a Participant
under Section 8.1. No certificates shall be issued with respect to
such Restricted Stock Units, but the Company shall maintain a
bookkeeping account in the name of the Participant to which the
Restricted Stock Units shall relate.
(o) "Retirement" means termination of employment with any
Subsidiary other than for cause after attaining age 55 and at least
five (5) years of service.
(p) "Section 162(m)" means Section 162(m) of the Internal
Revenue Code of 1986, as amended and applicable interpretive
authority thereunder.
(q) "Subsidiary" shall mean any corporation in which the
Company owns directly or indirectly through its Subsidiaries, at
least fifty percent (50%) of the total combined voting power of all
classes of stock, or any other entity (including, but not limited
to, partnerships and joint ventures) in which the Company owns at
least fifty percent (50%) of the combined equity thereof.
(r) "Transition Performance Period" means the one (1) and
two (2) year Performance Periods that may be made available on a
one-time basis to Participants receiving Performance Share Units at
the commencement of the Plan and Participants receiving their first
grant of Performance Share Units for a Performance Period at any
time during the term of the Plan.
(s) "TSR" means total shareholder return and is the
compound product of the annual TSR amounts obtained by dividing:
(1) the sum of: (i) the annual amount of dividends for each year of
the Performance Period, assuming dividend reinvestment, and (ii)
the difference between the share price at the end and the beginning
of each year of the Performance Period; by (2) the share price at
the beginning of each year of the Performance Period.
Article 4. Administration
4.1 The Committee.
The Plan shall be administered by the Committee consisting of not
less than three (3) Directors. Each member of the Committee shall
at all times while serving be an "outside director" within the
meaning of Section 162(m).
4.2 Authority of the Committee.
Subject to the provisions herein and to the approval of the Board,
the Committee shall have full power for the following:
(a) Selecting Participants to whom Performance Share Units
are granted.
(b) Determining the size and frequency of grants (which
need not be the same for each Participant), except as limited by
Article 5.
(c) Construing and interpreting the Plan and any agreement
or instrument entered into under the Plan.
(d) Establishing, amending, rescinding or waiving rules and
regulations for the Plan's administration.
(e) Amending, modifying, and/or terminating the Plan,
subject to the provisions of Article 12 herein.
Further, the Committee shall have the full power to make all other
determinations which may be necessary or advisable for the
administration of the Plan, to the extent consistent with the
provisions of the Plan, and subject to the approval of the Board.
As permitted by law, the Committee may delegate its authority as
identified hereunder; provided, however, that the Committee may not
delegate certain of its responsibilities hereunder if such
delegation may jeopardize compliance with the "outside directors"
provision of Section 162(m).
4.3 Decisions Binding.
All determinations and decisions made by the Committee pursuant to
the provisions of the Plan, and all related orders or resolutions
of the Board shall be final, conclusive, and binding on all
persons, including the Company, its shareholders, Participants and
their estates, and beneficiaries.
Article 5. Maximum Awards and Adjustments
5.1 Maximum Amount Available for Awards.
The maximum number of Performance Share Units which may be earned
during the term of the Plan on an aggregate basis is 1,000,000 and,
for one Performance Period, the maximum number of Performance Share
Units which may be earned by a Participant is 25,000.
Not more than 1,000,000 shares of Common Stock will be available
for delivery upon payment for Performance Share Units earned under
the Plan. The shares to be delivered under the Plan will be made
available from shares reacquired by the Company.
The limitations in this Section 5.1 on the maximum amount of
Performance Share Units and shares of Common Stock available under
the Plan are subject to adjustment as provided in Section 5.2.
5.2 Adjustments.
If the Committee determines that the occurrence of any merger,
reclassification, consolidation, recapitalization, stock dividend
or stock split requires an adjustment in order to preserve the
benefits intended under the Plan, then the Committee may, in its
discretion, make equitable proportionate adjustments in the maximum
number of Performance Share Units which may be earned on an
aggregate basis or by a Participant, the maximum number of shares
of Common Stock which may be delivered, as specified in Section
5.1, and the number of Restricted Stock Units held by a
Participant.
Article 6. Eligibility and Participation
6.1 Eligibility.
Eligibility for participation in the Plan shall be limited to
senior officers of the Company and/or its Subsidiaries who, in the
opinion of the Committee, have the capacity for contributing in a
substantial measure to the successful performance of the Company.
6.2 Actual Participation.
Participation in the Plan shall begin on the first day of each
Performance Period. At the beginning of each Performance Period,
the Committee will identify which, if any, Participants shall
receive a grant of Performance Share Units for that Performance
Period. As soon as practicable following selection, a Participant
shall receive an Award Certificate.
Article 7. Grants of Performance Share Units
7.1 Grant Timing, Frequency and Number.
Performance Share Units may be granted to Participants as of the
first day of each Performance Period on an annual basis. It is
intended that Performance Periods will overlap. However, grants do
not necessarily have to be on an annual basis. The number of
Performance Share Units to be granted to each Participant shall be
determined by the Committee in its sole discretion.
7.2 Dividends.
During the Performance Period, Participants will be credited with
dividends, equivalent in value to those declared and paid on shares
of the Common Stock, on all Performance Share Units granted to
them. These dividends will be regarded as having been reinvested
in Performance Share Units on the date of the Common Stock dividend
payments based on the then Fair Market Value of the Common Stock,
thereby increasing the number of Performance Share Units held by a
Participant.
Participants will be credited with dividend equivalents, equal in
value to those declared and paid on shares of Common Stock, on all
Restricted Stock Units allocated to the Participants. Dividend
equivalents on Restricted Stock Units required to be held pursuant
to Section 8.2 or deferred pursuant to Section 8.4 will be regarded
as having been reinvested in Restricted Stock Units on the date of
the Common Stock dividend payments based on the then Fair Market
Value of the Common Stock, thereby increasing the number of
Restricted Stock Units held by a Participant.
7.3 Performance Periods.
Subject to the next sentence, the Committee shall establish
Performance Periods in its discretion. Performance Periods shall,
in all cases, be at least three (3) years in length, except for the
Transition Performance Periods.
The first Performance Periods shall be the one (1) and two (2) year
Transition Performance Periods ending December 31, 1994 and
December 31, 1995, respectively, and the three-year period
beginning January 1, 1994 and ending December 31, 1996.
Performance Share Units granted as part of the initial grant of
Performance Share Units for such Performance Periods shall be
deemed to be granted as of the first day of such Performance
Periods.
Article 8. Determination and Payment
8.1 Determination.
The number of Performance Share Units earned by a Participant for
a Performance Period shall be determined by multiplying the number
of Performance Share Units held by the Participant at the end of
the Performance Period by a factor based upon the Performance
Measure. No Performance Share Units shall be earned by any
Participant if, at the end of the Performance Period, shareholders
do not realize a positive TSR under the Performance Measure. In
any event, the Committee may, at its discretion, reduce the number
of Performance Share Units earned by any Participant for a
Performance Period.
Earned Performance Share Units shall be converted to Restricted
Stock Units if the Participant has not met the Equivalent Stock
Ownership Target. A Participant shall receive one Restricted Stock
Unit for each earned Performance Share Unit. Once a Participant
has attained the Equivalent Stock Ownership Target, earned
Performance Share Units shall be paid to the Participant at the end
of the Performance Period as provided in Section 8.3 or may be
deferred by the Participant as provided in Section 8.4.
8.2 Holding of Restricted Stock Units.
Restricted Stock Units required to meet the Equivalent Stock
Ownership Target will be held until the Participant terminates
employment at which time the Participant shall receive payment for
the Restricted Stock Units unless the Participant has elected
deferral of such payment in accordance with Section 8.4.
8.3 Payment of Restricted Stock Units and Earned Performance
Share Units.
The payment of Restricted Stock Units that were required to be held
pursuant to Section 8.2 shall be made in cash or shares of Common
Stock, or a combination of both, as then elected by the
Participant. Any cash payments of Restricted Stock Units shall be
calculated on the basis of the average of the Fair Market Value of
the Common Stock for the last 20 trading days prior to the date the
Participant terminates employment. Payment in Common Stock shall
be at the rate of one share of Common Stock for each Restricted
Stock Unit.
The payment of earned Performance Share Units not required to be
converted to Restricted Stock Units pursuant to Section 8.1 shall
be made in cash or shares of Common Stock, or a combination of
both, as then elected by the Participant. Any cash payment of
earned Performance Share Units shall be calculated on the basis of
the average of the Fair Market Value of the Common Stock for the
last 20 trading days of the Performance Period for which the
Performance Share Units were earned. Payment in Common Stock shall
be at the rate of one share of Common Stock for each earned
Performance Share Unit.
8.4 Deferrals.
Once the Participant attains the Equivalent Stock Ownership Target,
the Participant may make annual elections to defer the payment of
subsequent earned Performance Share Units for one or more years;
however, if the Participant's deferral period extends beyond the
Participant's employment termination date, payment will be made no
later than five years after the Participant's termination of
employment. The deferral election must be made at least one year
prior to the end of the Performance Period for which the
Participant has received an allocation with regard to a Performance
Period and each earned Performance Share Unit shall be converted
into a Restricted Stock Unit. The Participant may also elect to
defer the payment of Restricted Stock Units provided under Section
8.2 for a period of one or more years up to a maximum of five years
following termination of employment, but such election must be made
at least one year prior to termination of employment. Payment of
the elective deferrals will be made at the end of the deferral
period in cash or shares of Common Stock, or a combination of both
as then elected by the Participant. Cash payments of Restricted
Stock Units shall be calculated on the basis of the average of the
Fair Market Value of the Common Stock for the last 20 trading days
of the deferral period. Payment in Common Stock shall be at the
rate of one share of Common Stock for each Restricted Stock Unit.
8.5 Performance Share Units Granted in 1994.
Performance Share Units granted in 1994 for the two Transition
Performance Periods ending December 31, 1994 and December 31, 1995
and for the Performance Period ending December 31, 1996 shall be
paid 50% in cash and 50% in Common Stock unless the Participant
consents to have the Performance Share Units earned for the
Transition Performance Period ending December 31, 1995 and the
Performance Share Units earned for the Performance Period ending
December 31, 1996 paid in accordance with the provisions of
Sections 8.1 through 8.4. The payment in cash and Common Stock
shall be as provided in the second paragraph of Section 8.3.
8.6 Limitations on Sales of Common Stock.
A Participant shall not be permitted to sell the shares of Common
Stock distributed to such Participant pursuant to Section 8.5 which
are required to meet the Equivalent Stock Ownership Target until
the Participant terminates employment with the Subsidiaries.
In order to enforce the limitations imposed upon the shares of
Common Stock distributed pursuant to Section 8.5, the Committee may
(i) direct the delivery of stock certificates to Participants to be
withheld until the shares of Common Stock covered by such
certificates may be sold by the Participant, (ii) cause a legend or
legends to be placed on any such certificates, and/or (iii) issue
"stop transfer" instructions as it deems necessary or appropriate.
Holders of shares of Common Stock limited as to sale under this
Section 8.6 shall have rights as a shareholder with respect to such
shares to receive dividends in cash or other property or other
distribution or rights in respect of such shares and to vote such
shares as the record owner thereof.
Article 9. Termination of Employment
9.1 Termination of Employment Due to Death, Disability,
Retirement or Involuntary Termination Other Than for Cause.
In the event of a Participant's termination of employment with the
Subsidiaries, prior to the end of a Performance Period but after
the first six months of such Performance Period, by reason of the
Participant's death, Disability, Retirement or involuntary
termination other than for cause, the Participant will be eligible
to earn prorated Performance Share Units for each such Performance
Period which has not yet ended, determined pursuant to Section 8.1
for such period and the number of days of participation during such
Performance Period. In the case of the Transition Performance
Periods, the Performance Share Units earned would not be subject to
proration if the employment period and termination conditions
specified in this Section 9.1 were met.
9.2 Termination for Reasons Other Than Death, Disability,
Retirement or Involuntary Termination Other Than for Cause.
In the event a Participant's employment is terminated for reasons
other than death, Disability, Retirement or involuntary termination
other than for cause, all rights to any unearned Performance Share
Units under the Plan shall be forfeited.
Article 10. Beneficiary Designation
10.1 Designation of Beneficiary.
Each Participant shall be entitled to designate a beneficiary or
beneficiaries who, following the Participant's death, will be
entitled to receive any amounts that otherwise would have been paid
to the Participant under the Plan. All designations shall be
signed by the Participant, and shall be in such form as prescribed
by the Committee. Each designation shall be effective as of the
date delivered to the Company by the Participant. The Participant
may change his or her designation of beneficiary on such form as
prescribed by the Committee. The payment of any amounts owing to
a Participant pursuant to such Participant's outstanding
Performance Share Units or Restricted Stock Units held under the
Plan shall be in accordance with the last unrevoked written
designation of beneficiary that has been signed by the Participant
and delivered by the Participant to the Company prior to the
Participant's death.
10.2 Death of Beneficiary.
In the event that all of the beneficiaries named by a Participant
pursuant to Section 10.1 herein predecease the Participant, any
amounts that would have been paid to the Participant or the
Participant's beneficiaries under the Plan shall be paid to the
Participant's estate.
Article 11. Rights of Participants
11.1 Employment.
Nothing in the Plan shall interfere with or limit in any way the
right of the Company or any Subsidiary to terminate any
Participant's employment at any time, nor confer upon any
Participant any right to continue in the employ of the Company or
Subsidiary.
11.2 Participation.
No Participant shall at any time have a right to be selected for
participation in the Plan for any Performance Period, despite
having been selected for participation in a previous Performance
Period.
11.3 Nontransferability.
No Performance Share Units held by a Participant or Restricted
Stock Units held pursuant to Sections 8.2 or 8.4 may be sold,
transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and
distribution.
11.4 Rights to Common Stock.
Performance Share Units or Restricted Stock Units do not give a
Participant any rights whatsoever with respect to shares of Common
Stock until such time and to such extent that payment of earned
Performance Share Units or Restricted Stock Units is made in shares
of Common Stock as requested by the Participant.
Article 12. Amendment, Modification and Termination
12.1 Amendment, Modification and Termination.
The Committee may amend or modify the Plan at any time, with the
approval of the Board. However, without the approval of the
shareholders of the Company, no such amendment or modification may:
(a) Materially modify the eligibility requirements of the
Plan.
(b) Materially increase the benefits accruing to
Participants under the Plan.
(c) Materially increase the number of Performance Share
Units which may be earned on an aggregate basis or by a Participant
(except as provided in Section 5.2).
(d) Materially increase the maximum number of shares of
Common Stock available for payment under the Plan (except as
provided in Section 5.2).
(e) Modify the Performance Measure and the method of
determining Performance Share Units earned pursuant to Section 8.1,
except as may be permitted by Section 162(m).
12.2 Performance Share Units Previously Granted.
No termination, amendment or modification of the Plan shall in any
manner adversely affect any outstanding Performance Share Units or
Restricted Stock Units under the Plan, without the written consent
of the Participant holding such Performance Share Units or
Restricted Stock Units.
Article 13. Miscellaneous Provisions
13.1 Costs of the Plan.
The costs of the Plan awards shall be paid directly by the
Subsidiary that pays each Participant's base salary during the
Performance Period. Although not prohibited from doing so, the
Subsidiary is not required in any way to segregate assets in any
manner or to specifically fund the benefits provided under the
Plan.
13.2 Relationship to Other Benefits.
No payment under the Plan shall be taken into account in
determining any benefits under any pension, retirement, group
insurance, or other benefit plan of the Company and/or its
Subsidiaries.
13.3 Governing Law.
To the extent not preempted by Federal law, the Plan, and all
agreements hereunder, shall be construed in accordance with and
governed by the laws of the State of New York.