SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the Securities Exchange
Act of 1934
Check the appropriate box:
[ ] Preliminary Information Statement
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APPALACHIAN POWER COMPANY
-------------------------
(Name of Registrant As Specified in Its Charter)
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APPALACHIAN POWER COMPANY
1 Riverside Plaza
Columbus, Ohio 43215
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 23, 2002, 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 11, 2002 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, 2002
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 23, 2002 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 11, 2002, the date for determining stockholders entitled to
notice of and to vote at the meeting, there were 177,904 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 11, 2002 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, 2002, 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. 60 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 55 President of the Company, vice president
of AEP and executive vice president and
director 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,
executive vice president-finance and
analysis in 2000 and assumed his present
position in 2001. A director of the
Company and president and director of
certain other AEP System companies.
ARMANDO A. PENA 57 Vice president and treasurer of the
Company, treasurer of AEP and senior
vice president-finance, treasurer and
director 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
vice president, treasurer and director
of certain other AEP System companies.
ROBERT P. POWERS 48 Vice president of the Company and
executive vice president-nuclear
generation and technical services and
director of the Service Corporation.
Joined the Service Corporation in 1998
as senior vice president-nuclear
generation, became senior vice
president-nuclear operations in 2000 and
assumed his present position in 2001.
From 1996-1998 was vice president of
Pacific Gas & Electric and plant manager
of its Diablo Canyon Nuclear Generating
Station. A director of the Company and
vice president and director of certain
other AEP System companies.
THOMAS V. SHOCKLEY, III 56 Vice president of the Company, vice
chairman of AEP and vice chairman and
chief operating officer of the Service
Corporation. A director of the Company,
AEP and vice president and director of
certain other AEP System companies.
Joined the Service Corporation in 2000
as vice chairman and assumed his present
position in 2001. 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 48 Vice president of the Company, vice
president, chief financial officer and
secretary of AEP, and executive vice
president-policy, finance and strategic
planning, assistant secretary and
director of the Service Corporation. A
vice president and director of the
Company and of certain other AEP System
companies. Joined the Service
Corporation in 1998 as senior vice
president and general counsel, became
executive vice president-legal, policy
and corporate communications and general
counsel in 2000 and assumed her present
position in 2001. From 1993-1997 was
general counsel of the Federal Energy
Regulatory Commission.
JOSEPH H. VIPPERMAN 61 Vice president of the Company and
executive vice president-shared services
and director 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 vice
president and director of certain other
AEP System companies.
Dr. Draper, Messrs. Fayne, Pena, Powers, Shockley and Vipperman and Ms.
Tomasky are directors of Central Power and Light Company, Columbus Southern
Power Company, Kentucky Power Company, Ohio Power Company, 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, Powers, Shockley and Vipperman and
Ms. Tomasky are directors of Indiana Michigan Power Company. Dr. Draper,
Messrs. Fayne, Pena, Powers, 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 2001, 2000 and 1999 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, 2001 and
Mr. Lhota, who resigned as an executive officer on December 12, 2001.
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. - 2001 910,000 682,090 -0- 311,253 122,395
Chairman of the board 2000 850,000 485,775 700,000 -0- 106,699
and chief executive 1999 820,000 208,280 -0- -0- 103,218
officer 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
Thomas V. Shockley, III - 2001 590,000 353,788 -0- 79,781 100,678
Vice president and 2000 304,417 140,500 250,000 824,399 9,170,069
director of the Company;
vice chairman and chief
operating officer of the
Service Corporation;
vice chairman of AEP;
president and director
of AEP Energy Services,
Inc.; vice president
and director of other
other AEP System companies
(3)
Henry W. Fayne - President 2001 420,000 305,861 -0- 83,697 75,576
and director of the 2000 365,000 152,972 200,000 -0- 47,074
Company; executive vice 1999 315,000 56,007 -0- -0- 34,885
president and director of
the Service Corporation;
vice president of AEP,
president and director of
other AEP System companies
Susan Tomasky - Vice 2001 410,000 300,365 -0- 54,455 73,483
president and director 2000 355,000 148,780 200,000 -0- 47,946
of the Company,
executive vice
president-policy, finance
and strategic planning,
assistant secretary and
director of the Service
Corporation; vice
president, secretary and
chief financial officer
of AEP, vice president
and director of other AEP
System companies (4)
William J. Lhota - 2001 435,000 239,250 -0- 106,271 2,165,742
President, chief 2000 415,000 173,927 200,000 -0- 62,394
operating officer and 1999 400,000 71,120 -0- -0- 55,690
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 (5)
Joseph H. Vipperman - 2001 370,000 203,378 -0- 87,692 82,209
Vice president and 2000 350,000 146,688 200,000 -0- 70,112
director of the Company; 1999 330,000 58,674 -0- -0- 63,006
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 (SOIP), except for Mr. Shockley as disclosed in
footnote 3, and, in the case of Mr. Fayne and Ms. Tomasky, lump sum payments
of $75,000 each in 2001 in lieu of immediate salary increases in connection
with their promotions during the year. Payments pursuant to the SOIP are made
in the first quarter 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 for three-year performance periods, except for Mr. Shockley as
disclosed in footnote 3. See below under "Long-Term Incentive Plans - Awards
in 2001".
(2)Amounts in the "All Other Compensation" column, except for the additional
compensation to Messrs. Shockley and Lhota as disclosed in footnotes (3) and
(5), respectively, 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.
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 2001 amounts in the
"All Other Compensation" column is shown below.
Dr. Mr. Mr. Ms. Mr. Mr.
Item Draper Shockley Fayne Tomasky Lhota Vipperman
- ---- ------ -------- ----- ------- ----- ---------
Savings Plan
Matching Contributions $ 5,119 $ 7,650 $ 5,775 $ 5,825 $ 7,650 $ 6,950
Supplemental
Savings Plan
Matching Contributions 35,831 18,876 20,009 19,320 19,752 16,301
Subsidiaries
Directors Fees 16,550 14,650 16,300 16,300 13,450 10,450
Vehicle Allowance 14,400 12,000 12,000 12,000 12,000 12,000
Split-Dollar Insurance 50,495 47,502 21,492 20,038 24,055 36,508
(3)Mr. Shockley joined AEP from Central and South West Corporation and became
an executive officer when the merger with CSW was consummated on June 15,
2000. The "Salary" column for Mr. Shockley shows the amount earned for his
AEP service after the date of the merger. The amounts in the "Bonus" and
"LTIP Payouts" columns for 2000 represent his prorated payment under the CSW
Annual Incentive Plan and the value of Common Stock awarded under the CSW
Annual Incentive Plan and the value of Common Stock awarded under the CSW
1992 Long-Term Incentive Plan, respectively. He also received a payment of
$9,154,924 under his change in control agreement with CSW that is included in
the "All Other Compensation" column.
(4)No 1999 compensation information is reported for Ms. Tomasky because
she was not an executive officer in that year.
(5)Mr. Lhota resigned from his executive positions with AEP on December 12,
2001, and left active employment on December 31, 2001. He is receiving
severance of $2,022,750, equal to three times base salary and annual
incentive at target, with $1,152,750 paid upon his termination of active
employment and the remainder as a continuation of his annual salary of
$435,000 through December 2003. As a result, Mr. Lhota retains his
eligibility for the upcoming two-year period under AEP's savings and
retirement plans. Mr. Lhota also received a lump sum payment of accrued
vacation pay of $66,085.
AGGREGATED OPTION EXERCISES IN 2001 AND YEAR-END OPTION VALUES
Shares
Acquired
on Value Number of Securities Value of Unexercised
Exercise Realized Underlying Unexercised In-The-Money
Name (#) ($) Options at 12-31-01(#) Options at 12-31-01($)
- ---- -------- -------- ---------------------- ----------------------
Exercisable Unexercisable Exercisable Unexercisable
E. L.
Draper, Jr. -- -- -0- 700,000 -0- 5,533,500
T. V.
Shockley, III 38,821 379,703 11,117 250,000 -0- 1,976,250
H. W. Fayne -- -- -0- 200,000 -0- 1,581,000
S. Tomasky -- -- -0- 200,000 -0- 1,581,000
W. J. Lhota -- -- -0- 200,000 -0- 1,581,000
J. H.
Vipperman -- -- -0- 200,000 -0- 1,581,000
__________
* Based on the difference between the closing price of AEP Common Stock on the
New York Stock Exchange Composite Transactions Tape on December 31, 2001
($43.53) 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 2001
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 Until
Performance Maturation Threshold Target Maximum
Name Share Units or Payout (#) (#) (#)
---- ----------- ----------- --- --- ---
E.L. Draper, Jr. 14,919 2001-2003 2,984 14,919 29,838
T.V. Shockley, III 7,738 2001-2003 1,548 7,738 15,476
H. W. Fayne 5,049 2001-2003 1,010 5,049 10,098
S. Tomasky 4,929 2001-2003 986 4,929 9,858
W. J. Lhota 5,230 2001-2003 1,046 5,230 10,460
J. H. Vipperman 4,448 2001-2003 890 4,448 8,896
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 93,210 124,280 155,350 186,420 217,490 244,090
500,000 117,210 156,280 195,350 234,420 273,490 306,740
600,000 141,210 188,280 235,350 282,420 329,490 369,390
700,000 165,210 220,280 275,350 330,420 385,490 432,040
1,000,000 237,210 316,280 395,350 474,420 553,490 619,990
1,200,000 285,210 380,280 475,350 570,420 665,490 745,290
2,000,000 447,210 636,280 795,350 954,420 1,113,490 1,246,490
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 a termination of
employment and commencement of benefits between ages 55 and 62. If an employee
terminates employment and commences benefits at or 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
(except for Mr. Shockley, who participates in the Central and South West
Corporation retirement plan discussed below) are:
Annual
Name Benefit
---- -------
E. L. Draper,Jr. $685,000
H. W. Fayne 254,000
S. Tomasky 280,000
W. J. Lhota 343,000
J. H. Vipperman 305,000
These amounts are based on the following assumptions:
o Salary amounts shown in the "Salary" column for calendar year 2001 are
used with no subsequent adjustments in future years plus annual incentive
awards at the 2001 target level.
o Conversion of the lump-sum cash balance to a single life annuity at age
65, based on an interest rate of 5.12% 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 provides for supplemental benefits under
both the final average pay and the cash balance formulas. 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
years of service in addition to their years of service with AEP as follows:
Dr. Draper, 24 years and Ms. Tomasky, 20 years. The agreements each provide
that these supplemental retirement benefits are reduced by pension
entitlements from plans sponsored by prior employers.
As of December 31, 2001, for the executive officers named in the Summary
Compensation Table (except for Mr. Shockley as discussed in the following two
paragraphs), 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, 33 years; Mr. Fayne, 26 years; Ms.
Tomasky, 23 years; Mr. Lhota, 36 years; and Mr. Vipperman, 39 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.
Under the terms of the merger agreement between AEP and Central and South
West Corporation, the CSW Cash Balance Retirement Plan continues as a separate
plan through at least July 1, 2002, for those AEP System employees who were
participants in the CSW Cash Balance Plan as of December 31, 2000. Employees of
CSW who had attained age 50 and completed 10 years of service with a CSW company
as of July 1, 1997, accrue retirement benefits under the CSW Cash Balance Plan
under both the final average pay and cash balance formulas. Employees accruing
benefits under both formulas may choose the benefit accrued under either formula
at the time employment is terminated.
As an employee of CSW before the merger, Mr. Shockley participates in the
CSW Cash Balance Plan. Under the CSW plan, at age 65 the estimated annual
annuities payable to Mr. Shockley under the final average pay and cash balance
formulas are $201,000 and $216,000, respectively. Mr. Shockley's estimated
annual annuity under (i) the final average pay formula is computed as of January
1, 2002 and (ii) the cash balance formula is based on the same assumptions
described above for the AEP cash balance formula. Mr. Shockley has an agreement
with CSW entered into prior to the merger under which he is entitled to a
retirement benefit that credits him with 30 years of service if he remains
employed with AEP until age 60 or thereafter.
Four 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 2002 of
the executive officers named in the Summary Compensation Table, only Mr.
Vipperman would be affected and his annual supplemental benefit would be $4,000.
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% annually, 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
--------------------------------
Annual Annual Amount of
Amount Supplemental
Deferred Retirement
(4-Year Payment
Name Period) (15-Year Period)
- ---- ------- ----------------
J. H. Vipperman.. $11,000 $90,750
1986 Program
--------------------------------
Annual Annual Amount of
Amount Supplemental
Deferred Retirement
(4-Year Payment
Name Period) (15-Year Period)
- ---- ------- ----------------
J. H. Vipperman.. $ 9,000 $95,400
H. W. Fayne...... 10,000 67,500
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. 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.
Shockley, Fayne and Vipperman 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, with such credited service proportionately reduced to
zero if termination occurs between ages 62 and 65.
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 AEP the 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 over $50 billion in assets, multi-state electric utility
with trading operations and 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, Chairman and CEO, and
the senior management team continue to develop and implement strategies
effectively to position AEP for the future. This includes AEP's:
o Establishment and operation of a major energy trading organization.
o Proposals and actions taken in connection with the industry's transition
to competition, including the implementation of AEP's corporate separation
into regulated and unregulated businesses.
o Development of unregulated business activities.
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 current officers named in
the Summary Compensation Table are as follows: CEO, 45,000 shares; COO, 20,000
shares; and the other three current officers, 15,000 shares each. 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, both
described below, are included in determining compliance with the ownership
targets. As of January 1, 2002, Dr. Draper has met his ownership requirement and
all of the other current officers named in the Summary Compensation Table have
either met, or are on target to meet, their ownership requirements within the
specified time period. See the table on page 13 for actual ownership amounts.
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, which is the peer group used in the Comparison of Five
Year Cumulative Total Return graph in this proxy statement. The size of AEP
places it above the median of its comparative group. Base salary levels in 2001
for the CEO and the other executive officers of AEP named in the Summary
Compensation Table approximated the median of AEP's compensation peer group
consistent with our policy to target these salaries at that level and 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, to evaluate his performance and
compensation and reports on that evaluation to all outside directors of the
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 2001, the Committee
established targets as follows: Dr. Draper, 75%; Mr. Shockley, 60%; and the
other executive officers named in the 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 Earnings per share.
o Return on stockholder equity.
o Annual strategic objectives.
For 2001, AEP performance merited an award of 99.94% (except in the case of Mr.
Lhota who was paid at 100% as part of his severance benefit).
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 2001, AEP's long-term
incentive compensation program consisted of grants of stock options previously
made and performance share units.
Stock Options
In September 2000, the Committee granted stock options to executive
officers and other AEP employees intended to be sufficient for a two- to
three-year period. This initial grant was structured to provide a special
incentive to achieve the benefits upon which the merger between AEP and Central
and South West Corporation was based.
Stock options granted to the executive officers, when combined with base
salaries plus annual incentive payments and the value of performance shares 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
compensation peer group for median performance.
Performance Shares
The Committee has annually established performance share targets which are
earned based on AEP's subsequent three-year total shareholder returns measured
relative to the S&P peer utilities. In January 2001, the Committee established
targets based on the same percentages of then base salaries as those for the
SOIP described above. The performance share awards which will ultimately be paid
to participants for a performance period can range from 0-200% of the target
plus accumulated dividends.
AEP's total shareholder return for 1999-2001 ranked fifteenth relative to
the S&P peer utilities and, as a result, 70% of the performance share targets
originally established for that period (and dividend credits) were earned. The
associated awards are listed in the Summary Compensation Table.
Payments of earned performance share awards are initially 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 and
select among various investment options, including AEP stock equivalents, or to
receive further earned performance share awards in cash and/or Common Stock. The
performance share targets and a further description of performance share awards
are shown under Long-Term Incentive Plans--Awards in 2001.
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 executive officers named in the Summary Compensation Table who
are serving as such at the end of the year. 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 are not eligible for the performance-based
exemption and the deduction limit does apply to such awards. Since Dr. Draper
has deferred his 2001 SOIP award to dates past his retirement from the Company
(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 2001 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
John P. DesBarres, Chair William R. Howell
Robert W. Fri Donald G. Smith
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, 2002 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................ 238,274(b)(d)(f) 119,218 357,492
H. W. Fayne..................... 72,685(b)(c)(f) 13,735 86,420
W. J. Lhota..................... 86,807(b)(d)(f) 17,117 103,924
R. P. Powers.................... 21,269(b)(f) 1,209 22,478
T. V. Shockley, III............. 138,822(b)(c)(e)(f) -0- 138,822
S. Tomasky...................... 67,322(b)(f) 4,329 71,651
J. H. Vipperman................. 78,043(b)(c)(d)(f) 7,201 85,244
A. A. Pena...................... 27,051(b)(f) 7,030 34,081
All directors and
executive officers
as a group (8 persons)......... 730,273(g) 169,839 900,112
__________
(a)This column includes amounts deferred in stock units and held under AEP's
various officer benefit plans.
(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, 4,280; Mr. Fayne, 5,412; Mr.
Lhota, 17,961; Mr. Powers, 436; Mr. Shockley, 6,579; Ms. Tomasky, 656; Mr.
Vipperman, 10,498; Mr. Pena, 4,510; and all executive officers, 50,332.
(c)Does not include, for Messrs. Fayne, Shockley and Vipperman, 85,231 shares
in the American Electric Power System Educational Trust Fund over which
Messrs. Fayne, Shockley 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, 661; Mr. Lhota, 2,180; and Mr. Vipperman, 80.
(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: Dr. Draper, 233,333; Mr. Fayne, 66,666; Mr.
Lhota, 66,666; Mr. Powers, 20,833; Mr. Shockley, 94,450; Ms. Tomasky,
66,666; Mr. Vipperman, 66,666; and Mr. Pena, 20,833.
(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 2001, 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 2002.
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, 2002