SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities Exchange
Act of 1934
Check the appropriate box:
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14c-5(d)(2))
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APPALACHIAN POWER COMPANY
-------------------------
(Name of Registrant As Specified in Its Charter)
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APPALACHIAN POWER COMPANY
40 Franklin Road, S.W.
Roanoke, Virginia 24011
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO THE STOCKHOLDERS OF
APPALACHIAN POWER COMPANY:
The annual meeting of the stockholders of Appalachian Power Company will
be held on Tuesday, April 24, 2001, at 11:00 a.m. at the principal office of
American Electric Power Service Corporation, 1 Riverside Plaza, Columbus, Ohio,
for the following purposes:
1. To elect seven directors of the Company to hold office for one year
or until their successors are elected and qualified; and
2. To transact such other business (none known as of the date of this
notice) as may legally come before the meeting or any adjournment
thereof.
Only holders of record of Common Stock and certain issues of Cumulative
Preferred Stock, no par value, at the close of business on March 5, 2001 are
entitled to notice of and to vote at the annual meeting.
THERE WILL BE NO SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS OF THE
COMPANY.
THOMAS S. ASHFORD,
Secretary
March 22, 2001
INFORMATION STATEMENT
This information statement is being furnished in connection with the
annual meeting of stockholders of Appalachian Power Company (the "Company"), to
be held on Tuesday, April 24, 2001 at 11:00 a.m. at the principal office of
American Electric Power Service Corporation, 1 Riverside Plaza, Columbus, Ohio.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY.
Voting at Meeting
On March 5, 2001, the date for determining stockholders entitled to notice
of and to vote at the meeting, there were 177,905 shares of 4-1/2% Cumulative
Preferred Stock and 13,499,500 shares of Common Stock outstanding.
Each holder of the 4-1/2% Cumulative Preferred Stock and each holder of
Common Stock has the right to one vote for each share standing in such holder's
name on the books of the Company at the close of business on March 5, 2001 for
the election of directors and on any other business which may come before the
meeting. Holders of 5.40% and 5.92% Cumulative Preferred Stock issued by the
Company are not entitled to notice of, or to vote at, the meeting.
Principal Stockholders
American Electric Power Company, Inc. ("AEP"), 1 Riverside Plaza,
Columbus, Ohio 43215, a registered public utility holding company under the
Public Utility Holding Company Act of 1935, owns all of the Company's
outstanding Common Stock. The Common Stock represents approximately 99% of the
combined voting power of the capital stock of the Company entitled to vote at
the meeting. Management of the Company does not know of any person (including
any "group" as that term is used in Section 13(d)(3) of the Securities Exchange
Act of 1934) who beneficially owns more than 5% of the Cumulative Preferred
Stock of the Company entitled to vote at the meeting.
AEP also owns, directly or indirectly, all of the common stock of the
other companies which constitute the American Electric Power System (the "AEP
System"). The AEP System is an integrated electric utility system and, as a
result, the member companies of the AEP System, including the Company, have
contractual, financial and other business relationships with the other member
companies, such as participation in the AEP System savings and retirement plans
and tax returns; sales of electricity; sales, transportation and handling of
fuel; sales or rentals of property; and interest or dividend payments on the
securities held by the companies' respective parents. American Electric Power
Service Corporation (the "Service Corporation"), a wholly-owned subsidiary of
AEP, renders management, advisory, engineering and other similar services at
cost to the principal operating companies of the AEP System, including the
Company.
ELECTION OF DIRECTORS
Seven directors are to be elected to hold office for one year or until
their successors are elected and qualified. The Company has been informed that
AEP will nominate, and cast the votes of all of the outstanding shares of Common
Stock for, the persons named below. In the event that any of such persons should
unexpectedly be unable to stand for election, AEP has informed the Company that
it will cast its votes for a substitute chosen by the Board of Directors of the
Company and approved by AEP.
The following brief biographies of the nominees include their ages as of
March 15, 2001, an account of their business experience and the names of certain
publicly-held corporations of which they are also directors.
Name Age Business Experience
E. LINN DRAPER, JR. 59 Chairman of the board and chief
executive officer of the Company,
chairman of the board, president and
chief executive officer of AEP and the
Service Corporation. Joined the Service
Corporation in 1992 as president and
chief operating officer and assumed his
present position in 1993. President of
AEP and vice president and director of
the Company from 1992 until assuming his
present positions in 1993. From 1987
until 1992 was chairman of the board,
president and chief executive officer of
Gulf States Utilities Company, an
unaffiliated electric utility. A
director of the Company, AEP, certain
other AEP System companies and BCP
Management, Inc., which is the general
partner of Borden Chemicals and Plastics
L.P.
HENRY W. FAYNE 54 Vice president of the Company, vice
president and chief financial officer of
AEP and executive vice president-finance
and analysis of the Service
Corporation. Joined the Service
Corporation in 1974, became assistant
controller in 1978, controller in 1984,
vice president and controller in 1988,
senior vice president in 1993, senior
vice president-corporate planning and
budgeting in 1995, executive vice
president-financial services in 1998 and
assumed his present position in 2000. A
director of the Company and of certain
other AEP System companies.
WILLIAM J. LHOTA 61 President and chief operating officer of
the Company and executive vice
president-energy delivery of the Service
Corporation. Joined Ohio Power Company
("OPCo"), a subsidiary of AEP, in 1965,
was president of Columbus Southern Power
Company ("CSPCo"), a subsidiary of AEP,
from 1987 until 1989, when he became
executive vice president-operations of
the Service Corporation. Became
executive vice president of the Service
Corporation in 1993. Assumed his
present position with the Service
Corporation in 2000. Became a vice
president of the Company in 1989 and
assumed his present position in 1996. A
director of the Company and of certain
other AEP System companies, Huntington
Bancshares Incorporated and State Auto
Financial Corporation.
ARMANDO A. PENA 56 Vice president and treasurer of the
Company, treasurer of AEP and senior
vice president-finance and treasurer of
the Service Corporation. Joined the
Service Corporation in 1971, became
assistant vice president in 1982, vice
president-finance in 1989, senior vice
president in 1996, senior vice
president-finance, treasurer and chief
financial officer in 1998 and assumed
his present position in 2000. Became
treasurer of the Company and AEP in
1996. A director of the Company and of
certain other AEP System companies.
THOMAS V. SHOCKLEY, III 55 Vice president of the Company, vice
chairman of AEP and the Service
Corporation. A director of the Company,
AEP and certain other AEP System
companies. Joined the Service
Corporation in 2000 in his present
position. From 1997-2000 was president
and chief operating officer of Central
and South West Corporation ("CSW") and
from 1990-1997 was executive vice
president of CSW.
SUSAN TOMASKY 47 Vice president of the Company, secretary
of AEP, and executive vice
president-legal, policy and corporate
communications and general counsel of
the Service Corporation. A director of
the Company and of certain other AEP
System companies. Joined the Service
Corporation in 1998 as senior vice
president and general counsel and
assumed her present position in 2000.
From 1993-1997 was general counsel of
the Federal Energy Regulatory Commission.
JOSEPH H. VIPPERMAN 60 Vice president of the Company and
executive vice president-shared services
of the Service Corporation. Joined the
Company in 1962, transferred to the
Service Corporation and became
controller in 1978, vice president in
1980, was executive vice
president-operations from 1984 until
1989, executive vice president-energy
delivery in 1996, executive vice
president-corporate services in 1998 and
assumed his present position in 2000.
Became a vice president of the Company
in 1985, executive vice president in
1989, was president from 1990 until
1995, and assumed his present position
in 1996. A director of the Company and
of certain other AEP System companies.
Dr. Draper, Messrs. Fayne, Lhota, Pena, Shockley and Vipperman and Ms.
Tomasky are directors of Central Power and Light Company, CSPCo, Kentucky Power
Company, OPCo, Public Service Company of Oklahoma, Southwestern Electric Power
Company and West Texas Utilities Company, all of which are direct or indirect
subsidiaries of AEP and have one or more classes of publicly held preferred
stock or debt securities. Dr. Draper, Messrs. Fayne, Lhota, Shockley and
Vipperman and Ms. Tomasky are directors of Indiana Michigan Power Company. Dr.
Draper, Messrs. Fayne, Lhota, Pena, Shockley and Vipperman and Ms. Tomasky are
also directors of AEP Generating Company, another subsidiary of AEP.
OTHER BUSINESS
Management does not intend to bring any matters before the meeting other
than the election of directors and does not know of any matters that will be
brought before the meeting by others.
EXECUTIVE COMPENSATION
Certain executive officers of the Company are employees of the Service
Corporation. The salaries of these executive officers are paid by the Service
Corporation and a portion of their salaries has been allocated and charged to
the Company. The following table shows for 2000, 1999 and 1998 the compensation
earned from all AEP System companies by the chief executive officer and the four
other most highly compensated executive officers (as defined by regulations of
the Securities and Exchange Commission) of the Company at December 31, 2000.
SUMMARY COMPENSATION TABLE
Annual Long-Term
Compensation Compensation
Awards Payouts
Name and Securities LTIP All Other
Principal Salary Bonus Underlying Payouts Compensation
Position Year ($) ($)(1) Options(#) ($)(1) ($)(2)
E. Linn Draper, Jr. - 2000 850,000 485,775 700,000 -0- 106,699
Chairman of the board 1999 820,000 208,280 -0- -0- 103,218
and chief executive 1998 780,000 194,376 -0- 345,906 104,941
officer of the Company;
chairman of the board,
president and chief
executive officer of
AEP and the Service
Corporation; chairman
of the board and chief
executive officer of
other AEP System
companies
William J. Lhota - 2000 415,000 173,927 200,000 -0- 62,394
President, chief 1999 400,000 71,120 -0- -0- 55,690
operating officer and 1998 380,000 82,859 -0- 134,266 56,493
director of the
Company; executive vice
president-energy
delivery and director
of the Service
Corporation; president,
chief operating officer
and director of other
AEP System companies
Henry W. Fayne - Vice 2000 365,000 152,972 200,000 -0- 47,074
president and director 1999 315,000 56,007 -0- -0- 34,885
of the Company; 1998 290,000 63,234 -0- 61,655 34,124
executive vice
president-finance and
analysis and director
of the Service
Corporation; vice
president and chief
financial officer of
AEP, vice president and
director of other AEP
System companies
Susan Tomasky - Vice 2000 355,000 148,780 200,000 -0- 47,946
president and director
of the Company,
executive vice
president-legal, policy
and corporate
communications, general
counsel and director of
the Service
Corporation; vice
president and director
of other AEP System
companies(3)
Joseph H. Vipperman - 2000 350,000 146,685 200,000 -0- 70,112
Vice president and 1999 330,000 58,674 -0- -0- 63,006
director of the 1998 310,000 67,595 -0- 82,859 58,435
Company; executive vice
president-shared
services and director
of the Service
Corporation; vice
president and director
of other AEP System
companies
- -----------
(1)Amounts in the "Bonus" column reflect awards under the Senior Officer Annual
Incentive Compensation Plan. Payments are made in March of the succeeding
fiscal year for performance in the year indicated.
Amounts in the "Long-Term Compensation-Payouts" column reflect performance
share unit targets earned under the AEP 2000 Long-Term Incentive Plan (and
predecessor Performance Share Incentive Plan) for three-year performance
periods.
See below under "Long-Term Incentive Plans - Awards in 2000" and page 10 for
additional information.
(2)Amounts in the "All Other Compensation" column include (i) AEP's matching
contributions under the AEP Employees Savings Plan and the AEP Supplemental
Savings Plan, a non-qualified plan designed to supplement the AEP Savings
Plan, (ii) subsidiary companies director fees, (iii) vehicle allowance, and
(iv) split-dollar insurance. In August 2000, AEP discontinued providing
vehicles for its executive officers and began paying them a monthly
allowance. Split-dollar insurance represents the present value of the
interest projected to accrue for the employee's benefit on the current year's
insurance premium paid by AEP. Cumulative net life insurance premiums paid
are recovered by AEP at the later of retirement or 15 years. Detail of the
2000 amounts in the "All Other Compensation" column is shown below.
Dr. Mr. Mr. Ms. Mr.
Item Draper Lhota Fayne Tomasky Vipperman
Savings Plan
Matching Contributions 3,187 5,100 5,100 3,179 3,937
Supplemental Savings Plan
Matching Contributions 22,313 7,350 5,850 7,471 6,563
Subsidiaries Directors Fees 13,060 11,405 13,060 8,995 8,840
Vehicle Allowance 6,000 8,143 5,000 6,084 5,000
Split-Dollar Insurance 62,139 30,396 18,064 22,217 45,772
------ ------ ------ ------ ------
Total
"All Other Compensation" $106,699 $ 62,394 $47,074 $47,946 $70,112
======== ======== ======= ======= =======
(3)No 1999 and 1998 compensation information is reported for Ms. Tomasky
because she was not an executive officer in those years.
OPTION GRANTS IN 2000
Individual Grants
Percent of
Number of Total
Securities Options Exercise
Underlying Granted to or Grant Date
Options Employees Base Present
Granted in 2000 Price Expiration Value
Name (#)(1) (2) ($/Sh) Date ($)(3)
E. L.
Draper, Jr. 700,000 11.6 35.625 09-20-2010 4,119,675
W. J. Lhota 200,000 3.3 35.625 09-20-2010 1,177,050
H. W. Fayne 200,000 3.3 35.625 09-20-2010 1,177,050
S. Tomasky 200,000 3.3 35.625 09-20-2010 1,177,050
J. H.
Vipperman 200,000 3.3 35.625 09-20-2010 1,177,050
- -----------
(1) Options were granted on September 20, 2000, pursuant to the AEP 2000
Long-Term Incentive Plan. All options granted on this date have an
exercise price equal to the closing price of AEP Common Stock on the New
York Stock Exchange Composite Transactions Tape on September 20, 2000.
These options will vest in equal increments, annually, over a three-year
period beginning on January 1, 2002. Options also fully vest upon
termination due to retirement after one year from the grant date or due to
disability or death and expire five years thereafter, or on their
scheduled expiration date if earlier. Options expire upon termination of
employment for reasons other than retirement, disability or death, unless
the AEP Board Human Resources Committee determines that circumstances
warrant continuation of the options for up to five years. Options are
nontransferable.
(2) A total of 6,046,000 options were granted in 2000.
(3) Value was calculated using the Black-Scholes option valuation model. The
actual value, if any, ultimately realized depends on the market value of
AEP's Common Stock at a future date. Significant assumptions are shown
below:
Stock Price Volatility 24.75% Dividend yield 6.02%
Risk-Free Rate of Return 6.50% Option Term 10 years
AGGREGATED OPTION EXERCISES IN 2000 AND YEAR-END OPTION VALUES
Shares Number of Securities
Acquired Underlying Value of Unexercised
on Value Unexercised Options In-The-Money Options
Exercise Realized at 12-31-00(#) at 12-31-00($)(2)
Name (#)(1) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
E. L.
Draper, Jr. -- -- 0 700,000 0 7,612,500
W. J. Lhota -- -- 0 200,000 0 2,175,000
H. W. Fayne -- -- 0 200,000 0 2,175,000
S. Tomasky -- -- 0 200,000 0 2,175,000
J. H.
Vipperman -- -- 0 200,000 0 2,175,000
- -----------
(1) None of these officers exercised options during 2000.
(2) Based on the difference between the closing price of AEP Common Stock on
the New York Stock Exchange Composite Transactions Tape on December 29, 2000
($46.50) and the option exercise price. "In-the-money" means the market
price of the stock is greater than the exercise price of the option on the
date indicated.
LONG-TERM INCENTIVE PLANS - AWARDS IN 2000
Each of the awards set forth below establishes performance share unit
targets, which represent units equivalent to shares of Common Stock, pursuant to
AEP's 2000 Long-Term Incentive Plan. Since it is not possible to predict future
dividends and the price of AEP Common Stock, credits of performance share units
in amounts equal to the dividends that would have been paid if the performance
share unit targets were established in the form of shares of Common Stock are
not included in the table.
The ability to earn performance share unit targets is tied to achieving
specified levels of total shareholder return ("TSR") relative to the S&P
Electric Utility Index. The AEP Board Human Resources Committee may, at its
discretion, reduce the number of performance share unit targets otherwise
earned. In accordance with the performance goals established for the periods set
forth below, the threshold, target and maximum awards are equal to 20%, 100% and
200%, respectively, of the performance share unit targets. No payment will be
made for performance below the threshold.
Payments of earned awards are deferred in the form of phantom stock units
(equivalent to shares of AEP Common Stock) until officers have met the
equivalent stock ownership target. Once officers meet and maintain their
respective targets, they may elect either to continue to defer or to receive
further earned awards in cash and/or Common Stock.
Estimated Future Payouts of
Performance Share Units Under
Non-Stock Price-Based Plan
Performance
Number of Period
Performance Until
Share Maturation Threshold Target Maximum
Name Units or Payout (#) (#) (#)
E. L. Draper, Jr. 19,988 2000-2002 3,998 19,988 39,976
W. J. Lhota 7,157 2000-2002 1,431 7,157 14,314
H. W. Fayne 6,294 2000-2002 1,259 6,294 12,588
S. Tomasky 6,122 2000-2002 1,224 6,122 12,244
J. H. Vipperman 6,036 2000-2002 1,207 6,036 12,072
RETIREMENT BENEFITS
The American Electric Power System Retirement Plan provides pensions for
all employees of AEP System companies (except for employees covered by certain
collective bargaining agreements or by the Central and South West Corporation
Cash Balance Retirement Plan), including the executive officers of the Company.
The Retirement Plan is a noncontributory defined benefit plan.
The Retirement Plan was amended effective January 1, 2001. The amendment
provides that the final average pay benefit accrual formula currently in effect
terminates on December 31, 2010 and, effective January 1, 2001, a cash balance
accrual formula is added to the Retirement Plan. Employees participating in the
Retirement Plan on December 31, 2000 accrue retirement benefits under both
formulas and employees hired after December 31, 2000 accrue retirement benefits
solely under the cash balance formula. Employees accruing benefits under both
formulas may choose either the final average pay formula or the cash balance
formula for their accrued benefit at the time employment is terminated. The
accrued benefit earned by an employee under the final average pay formula as of
December 31, 2010, the date the final average pay formula will be discontinued,
is the minimum benefit an employee can receive from the Retirement Plan after
that time.
The following table shows the approximate annual annuities that would be
payable to employees in certain higher salary classifications, under the final
average pay formula, assuming retirement at age 65 after various periods of
service.
PENSION PLAN TABLE
Years of Accredited Service
Highest Average
Annual Earnings 15 20 25 30 35 40
400,000 93,345 124,460 155,575 186,690 217,805 244,465
500,000 117,345 156,460 195,575 234,690 273,805 307,130
600,000 141,345 188,460 235,575 282,690 329,805 369,795
700,000 165,345 220,460 275,575 330,690 385,805 432,460
900,000 213,345 284,460 355,575 426,690 497,805 557,790
1,200,000 285,345 380,460 475,575 570,690 665,805 745,785
1,700,000 405,345 540,460 675,575 810,690 945,805 1,059,110
The amounts shown in the table are the straight life annuities payable
under the Retirement Plan final average pay formula without reduction for the
joint and survivor annuity. Retirement benefits listed in the table are not
subject to any deduction for Social Security or other offset amounts. The
retirement annuity is reduced 3% per year in the case of retirement between ages
55 and 62. If an employee retires after age 62, there is no reduction in the
retirement annuity.
Compensation upon which retirement benefits under the final average pay
formula are based, for the executive officers named in the Summary Compensation
Table above, consists of the average of the 36 consecutive months of the
officer's highest aggregate salary and Senior Officer Annual Incentive
Compensation Plan awards, shown in the "Salary" and "Bonus" columns,
respectively, of the Summary Compensation Table, out of the officer's most
recent 10 years of service.
Under the cash balance formula, each employee has an account to which
dollar amount credits are allocated annually based on a percentage of the
employee's compensation. Compensation for the cash balance formula includes
annual salary and annual incentive compensation plan awards up to a maximum
total compensation of $1,000,000. The applicable percentage is determined by age
and years of service with AEP as of December 31 of each year (or as of the
employee's termination date, if earlier). The following table shows the
percentage used to determine dollar amount credits at the age and years of
service indicated:
Sum of Age Plus Applicable
Years of Service Percentage
<30 3.0%
30-39 3.5%
40-49 4.5%
50-59 5.5%
60-69 7.0%
70 or more 8.5%
To transition from the final average pay formula to the cash balance
formula, the employee's account under the cash balance formula was credited with
an opening balance using a number of factors.
The estimated annual annuities at age 65 under the cash balance formula
payable to the executive officers named in the Summary Compensation Table are:
Annual
Name Benefit
E. L. Draper, Jr. $945,000
W. J. Lhota 469,000
H. W. Fayne 329,000
S. Tomasky 309,000
J. H. Vipperman 415,000
These amounts are based on the following assumptions:
o Salary amounts shown in the "Salary" column for calendar year 2000 are
used with no subsequent adjustments in future years plus annual incentive
awards at the 2000 target level.
o Conversion of the lump-sum cash balance to a single life annuity at age
65, based on an interest rate of 5.78% and the 1983 Group Annuity
Mortality Table.
AEP maintains a supplemental retirement plan which provides for the
payment of:
o Retirement benefits that are not payable due to limitations imposed by
Federal tax law on benefits paid by qualified plans.
o Supplemental retirement benefits provided by individual agreements with
certain AEP employees.
The supplemental retirement plan was amended to provide for supplemental
benefits under both the final average pay formula and the cash balance formula.
Retirement Plan benefits shown above include all supplemental retirement
benefits.
Dr. Draper and Ms. Tomasky have individual agreements with AEP which
provide them with supplemental retirement benefits that credit them with 24 and
20 years of service, respectively. The agreements each provide that these
supplemental retirement benefits are reduced by pension entitlements from plans
sponsored by prior employers.
As of December 31, 2000, for the executive officers named in the Summary
Compensation Table, the number of years of service applicable for retirement
benefit calculation purposes under either the final average pay formula or the
cash balance formula were as follows: Dr. Draper, 32 years; Mr. Lhota, 35 years;
Mr. Fayne, 25 years; Ms. Tomasky, 22 years; and Mr. Vipperman, 38 years. The
years of service for Dr. Draper and Ms. Tomasky include years of service
provided by their respective agreements with AEP described in the preceding
paragraph.
Six AEP System employees (including Messrs. Fayne, Lhota and Vipperman)
whose pensions may be adversely affected by amendments to the Retirement Plan
made as a result of the Tax Reform Act of 1986 are eligible for certain
supplemental retirement benefits. Such payments, if any, will be equal to any
reduction occurring because of such amendments. Assuming retirement in 2001 of
the executive officers named in the Summary Compensation Table, none of them
would receive any supplemental benefits.
AEP made available a voluntary deferred-compensation program in 1982 and
1986, which permitted certain members of AEP System management to defer receipt
of a portion of their salaries. Under this program, a participant was able to
defer up to 10% or 15% annually (depending on the terms of the program offered),
over a four-year period, of his or her salary, and receive supplemental
retirement or survivor benefit payments over a 15-year period. The amount of
supplemental retirement payments received is dependent upon the amount deferred,
age at the time the deferral election was made, and number of years until the
participant retires. The following table sets forth, for the executive officers
named in the Summary Compensation Table, the amounts of annual deferrals and,
assuming retirement at age 65, annual supplemental retirement payments under the
1982 and 1986 programs.
1982 Program 1986 Program
Annual Annual Amount of Annual Annual Amount of
Amount Supplemental Amount Supplemental
Deferred Retirement Deferred Retirement
(4-Year Payment (4-Year Payment
Name Period) (15-Year Period) Period) (15-Year Period)
J. H. Vipperman.. $11,000 $90,750 $10,000 $67,500
H. W. Fayne...... -0- -0- 9,000 95,400
SEVERANCE PLAN
In connection with the merger with CSW, AEP's Board of Directors adopted a
severance plan on February 24, 1999, effective March 1, 1999, that includes
Messrs. Lhota, Vipperman and Fayne and Ms. Tomasky. The severance plan provides
for payments and other benefits if, at any time before June 15, 2002 (the second
anniversary of the merger consummation date), the officer's employment is
terminated (i) by AEP without "cause" or (ii) by the officer because of a
detrimental change in responsibilities or a reduction in salary or benefits.
Under the severance plan, the officer will receive:
o A lump sum payment equal to three times the officer's annual base salary
plus target annual incentive under the Senior Officer Annual Incentive
Compensation Plan.
o Maintenance for a period of three additional years of all medical and
dental insurance benefits substantially similar to those benefits to which
the officer was entitled immediately prior to termination, reduced to the
extent comparable benefits are otherwise received.
o Outplacement services not to exceed a cost of $30,000 or use of an office
and secretarial services for up to one year.
AEP's obligation for the payments and benefits under the severance plan is
subject to the waiver by the officer of any other severance benefits that may be
provided by AEP. In addition, the officer agrees to refrain from the disclosure
of confidential information relating to AEP.
CHANGE-IN-CONTROL AGREEMENTS
AEP has change-in-control agreements with Dr. Draper and Messrs. Lhota,
Vipperman and Fayne and Ms. Tomasky. If there is a "change-in-control" of AEP
and the employee's employment is terminated by AEP or by the employee for
reasons substantially similar to those in the severance plan, these agreements
provide for substantially the same payments and benefits as the severance plan
with the following additions:
o Three years of service credited for purposes of determining non-qualified
retirement benefits.
o Transfer to the employee of title to AEP's automobile then assigned to
the employee.
o Payment, if required, to make the employee whole for any excise tax
imposed by Section 4999 of the Internal Revenue Code.
"Change-in-control" means:
o The acquisition by any person of the beneficial ownership of securities
representing 25% or more of AEP's voting stock.
o A change in the composition of a majority of the Board of Directors under
certain circumstances within any two-year period.
o Approval by the shareholders of the liquidation of AEP, disposition of all
or substantially all of the assets of AEP or, under certain circumstances,
a merger of AEP with another corporation.
AEP BOARD HUMAN RESOURCES COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Human Resources Committee of the AEP Board of Directors regularly
reviews executive compensation policies and practices and evaluates the
performance of management in the context of AEP's performance. None of the
members of the Committee is or has been an officer or employee of any AEP System
company or receives remuneration from any AEP System company in any capacity
other than as a director.
The Human Resources Committee recognizes that the executive officers are
charged with managing a $55 billion, multi-state electric utility with
international investments during challenging times and with addressing many
difficult and complex issues.
AEP's executive compensation program is designed to maximize shareholder
value, to support the implementation of AEP's business strategy and to improve
both corporate and personal performance. The Committee's compensation policies
supporting this program are:
o To pay in a manner that motivates both short and long term performance,
focuses on meeting specified corporate goals and promotes the long term
interests of shareholders.
o To place a significant amount of compensation for senior executives at
risk, in the form of variable incentive compensation instead of fixed or
base pay with much of this risk similar to the risk experienced by other
AEP shareholders.
o To establish compensation opportunities that enhance AEP's ability to
attract, retain, reward, motivate and encourage the development of
exceptionally knowledgeable, highly qualified and experienced executives.
o To target compensation levels that are reflective of current market
practices in order to maintain a stable, successful management team.
In carrying out its responsibilities, the Committee utilizes a nationally
recognized independent compensation consultant to obtain information and provide
recommendations relating to changing industry compensation practices and
programs.
The Committee also considers management's initiatives in response to the
impact of increased competition and other significant changes in the rapid
restructuring of the electric utility industry. It is the Committee's opinion
that, in this constantly changing environment, Dr. Draper and the senior
management team continue to develop and implement strategies effectively to
position AEP for the future. This includes AEP's development of unregulated
business activities, proposals and actions taken in connection with the
industry's transition to competition, establishment of an international energy
trading organization and the merger with CSW. The success of these efforts and
their benefits to AEP cannot be precisely measured in advance, but the Committee
is convinced they are vital to AEP's long-term success.
Stock Ownership Guidelines. The Board of Directors, upon the Committee's
recommendation, underscored the importance of aligning executive and shareholder
interests by adopting in December 1994 stock ownership guidelines for senior
management participants receiving performance share awards. The Committee and
senior management believe that linking a significant portion of an executive's
current and potential future net worth to AEP's success, as reflected in the
stock price and dividends paid, gives the executive a stake similar to that of
AEP's owners and further encourages long term management for the benefit of
those owners.
Under the guidelines, the target ownership of AEP Common Stock is directly
related to the officer's corporate position with the greatest ownership target
for the chief executive officer. The targets for the CEO and the other four
officers named in the Summary Compensation Table are 45,000 shares and 15,000
shares, respectively. Each officer is expected to achieve the ownership target
within a five-year period. Common Stock equivalents earned through the Senior
Officer Annual Incentive Compensation Plan and AEP 2000 Long-Term Incentive
Compensation Plan, described below, are included in determining compliance with
the ownership targets. As of January 1, 2001, Dr. Draper and all of the other
officers named in the Summary Compensation Table (except Ms. Tomasky) have met
their ownership requirements within the specified time period.
Components of Executive Compensation
Base Salary. When reviewing base salaries, the Committee considers pay
practices used by other electric utilities and industry in general. In addition,
the Committee considers the respective positions held by the executive officers,
their levels of responsibility, performance and experience, and the relationship
of their base salaries to the base salaries of other AEP managers and employees.
For compensation comparison purposes, the Human Resources Committee uses
certain comparably sized and complex electric utility companies in the S&P
Electric Utility Index. The size and complexity of AEP places it above the
median of its comparative group. However, because AEP's policy is to place more
emphasis on incentive compensation, AEP targets executive officer base salaries
somewhat below the level of its position in the comparative group. Base salary
levels in 2000 for the CEO and the other executive officers named in the Summary
Compensation Table approximated the median of the comparative group consistent
with AEP's policy to place more emphasis on incentive compensation. In
establishing base salary levels in that range, the Human Resources Committee
considers the competitiveness of AEP's entire compensation package.
Base salaries are adjusted, as appropriate, and reviewed annually to
reflect individual and corporate performance and consistency with compensation
changes within AEP and the compensation peer group of other electric utilities.
The Committee meets without the presence of Dr. Draper, chairman,
president and chief executive officer of AEP, to evaluate his performance and
compensation and reports on that evaluation to all outside directors of the AEP
Board. After full discussion, the outside directors then determine Dr. Draper's
base salary.
Annual Incentive. The primary purpose of annual incentive compensation is
to motivate senior managers to meet and exceed annual objectives which are part
of the long term strategic plan in order to maximize shareholder value.
The Senior Officer Annual Incentive Compensation Plan (SOIP) provides a
variable, performance-based portion of the executive officers' total
compensation. Each officer's annual incentive compensation is set forth in the
Bonus column of the Summary Compensation Table.
SOIP participants are assigned an annual target award expressed as a
percentage of their base salary for the period. In January 2000, the Committee
established targets as follows: Dr. Draper, 75%; and the other executive
officers named in the Summary Compensation Table, 55%. Actual awards can vary
from 0-200% of the target award based on performance.
SOIP awards are based on the following preestablished performance
criteria:
o Total investor return.
o Return on stockholder equity.
o Average price of power sold to AEP's retail customers compared with
other utilities.
o Safety.
For 2000, AEP performance merited an award of approximately 76%.
To more closely align the financial interests of the executive officers
with AEP's shareholders, SOIP participants may elect to defer their awards, with
the deferrals treated as if invested in Common Stock of AEP, although no stock
is actually purchased. Dividend equivalents are credited during the deferral
period.
Long-Term Incentive. The primary purpose of longer term, equity based,
incentive compensation is to motivate senior managers to maximize shareholder
value by linking a portion of their compensation directly to shareholder return.
Long-term incentive awards are made under the AEP 2000 Long-Term Incentive
Plan. The plan provides a list of measurements and incentives from which the
Committee may select those which provide the most effective incentives at any
given time as AEP pursues its strategies and plans. In 2000, for the executive
officers, AEP's long term incentive compensation program consisted of grants of
stock options and performance share units. Prior to 2000, grants of performance
share units were made under the Performance Share Incentive Plan.
Stock Options
In September 2000, the Committee granted stock options to executive
officers (as described in the table, Option Grants in 2000). This initial grant
was structured to provide a special incentive to achieve the benefits upon which
the merger between AEP and CSW was based. It is not expected that additional
options will be awarded to these persons before 2003.
Stock options granted to the executive officers, when combined with base
salaries plus annual incentive payments and the value of performance share units
that these officers may potentially earn at target, are set by the Committee so
that total compensation is intended to fall at the median range paid by AEP's
electric utility comparator group for median performance. The number of options
granted is based on the Black-Scholes option pricing model.
Performance Shares
The Committee has annually established performance share unit targets
which are earned based on AEP's subsequent three-year total shareholder returns
measured relative to the S&P peer utilities. In January 2000, the Committee
established targets as a percentage of then base salaries as follows: Dr.
Draper, 75%; and the other executive officers named in the Summary Compensation
Table, 55%. The performance share awards which will ultimately be paid to
participants for a performance period can range from 0-200% of the target.
AEP's total shareholder return for 1998-2000 ranked twenty-first relative
to the S&P peer utilities and, as a result, none of the performance share unit
targets originally established for that period (and dividend credits) were
earned.
Payments of earned performance share awards are deferred in the form of
phantom stock units (equivalent to shares of AEP Common Stock). Such deferrals
continue until termination of employment or, if so elected by the recipient,
with payments commencing not later than five years thereafter. Once the officers
meet and maintain their respective equivalent stock ownership targets discussed
above, they may then elect either to continue to defer or to receive further
earned performance share awards in cash and/or Common Stock. When awards are
deferred, dividend equivalents are credited as though reinvested in additional
phantom stock units. The performance share unit targets and a further
description of performance share awards are shown under Long-Term Incentive
Plans--Awards in 2000.
Tax Policy on Deductibility of Compensation
The Committee has considered the impact of Section 162(m) of the Internal
Revenue Code, which provides a limit on the deductibility of compensation in
excess of $1,000,000 paid in any year to AEP's chief executive officer or any of
its other four most highly compensated executive officers. It is the Committee's
expectation, when consistent with sound executive compensation principles and
the needs of AEP, that compensation would be qualified for deductibility where
appropriate.
Award payments under the AEP 2000 Long-Term Incentive Plan have been
structured to be exempt from the deduction limit because they are made pursuant
to a shareholder approved performance driven plan.
Award payments under the SOIP plan are not eligible for the
performance-based exemption and the deduction limit does apply to such awards.
Since Dr. Draper has deferred his 2000 SOIP award to dates past his retirement
from AEP (providing an exemption from the deduction limit), the Committee has
not deemed it necessary at this time to qualify compensation paid pursuant to
the SOIP for deductibility under Section 162(m). The Committee may decide to do
so in the future.
No named officer in the Summary Compensation Table had taxable
compensation paid in 2000 in excess of the deduction limit and all such
compensation was fully deductible. The Committee intends to continue to evaluate
the impact of this Code restriction.
Human Resources
Committee Members
Morris Tanenbaum, Chair Lester A. Hudson, Jr.
John P. DesBarres Donald G. Smith
William R. Howell
SHARE OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the beneficial ownership of AEP Common
Stock and stock-based units as of January 1, 2001 for all directors as of the
date of this Information Statement, each of the persons named in the Summary
Compensation Table and all directors and executive officers as a group. Unless
otherwise noted, each person had sole voting and investment power over the
number of shares of AEP Common Stock and stock-based units of AEP set forth
across from his or her name. Fractions of shares have been rounded to the
nearest whole share. No executive officer, director or nominee owns any shares
of any series of the Cumulative Preferred Stock of the Company.
Stock
Name Shares Units(a) Total
E. L. Draper, Jr................ 9,535(b)(d) 106,181 115,716
H. W. Fayne..................... 5,590(b) 11,163 16,753
W. J. Lhota..................... 18,854(b)(c)(d) 16,249 35,103
T. V. Shockley, III............. 93,965(b)(e)(f) -0- 93,965
S. Tomasky...................... 1,744(b) 98 1,842
J. H. Vipperman................. 11,626(b)(c)(d) 4,549 16,175
A. A. Pena...................... 5,768(b) 5,611 11,379
All directors and
executive officers
as a group (7 persons)......... 148,826(g) 143,851 292,677
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(a) This column includes amounts deferred in stock units and held under
AEP's various officer benefit plans. Certain of these stock units are subject to
forfeiture based on length of employment.
(b) Includes the following numbers of share equivalents held in the AEP
Retirement Savings Plan and, for Mr. Shockley, the CSW Retirement Savings Plan
(in the case of the AEP Retirement Savings Plan such persons have sole voting
power, but the investment/disposition power is subject to the terms of the
Savings Plan): Dr. Draper, 3,947; Mr. Fayne, 5,014; Mr. Lhota, 16,674; Mr.
Shockley, 6,234; Ms. Tomasky, 1,744; Mr. Pena, 4,145; Mr. Vipperman, 11,626; and
all executive officers, 49,384.
(c) Does not include, for Messrs. Lhota and Vipperman, 85,231 shares in the
American Electric Power System Educational Trust Fund over which Messrs. Lhota
and Vipperman share voting and investment power as trustees (they disclaim
beneficial ownership). The amount of shares shown for all directors and
executive officers as a group includes these shares.
(d) Includes the following numbers of shares held in joint tenancy with a
family member: Dr. Draper, 5,588; Mr. Lhota, 2,180; and Mr. Vipperman, 71.
(e) Includes the following numbers of shares held by family members over
which beneficial ownership is disclaimed: Mr. Shockley, 496.
(f) Includes the following numbers of shares attributable to options
exercisable within 60 days: Mr. Shockley, 49,938.
(g) Represents less than 1% of the total number of shares outstanding.
MEETINGS OF THE BOARD OF DIRECTORS
Regular meetings of the Board of Directors were held once each month during
the year. In addition, the Board of Directors holds special meetings from time
to time as required. During 2000, the Board held twelve regular meetings.
Directors of the Company receive a fee of $50 for each meeting of the Board
of Directors attended in addition to their salaries.
The Board of Directors of the Company has no committees.
INDEPENDENT AUDITORS
The public accounting firm of Deloitte & Touche LLP has been selected as
the independent auditors of the Company for the year 2001.
A representative of Deloitte & Touche LLP will not be present at the
meeting unless prior to the day of the meeting the Secretary of the Company has
received written notice from a stockholder addressed to the Secretary at 1
Riverside Plaza, Columbus, Ohio 43215, that such stockholder will attend the
meeting and wishes to ask questions of a representative of the firm.
THOMAS S. ASHFORD,
Secretary
March 22, 2001