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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by Rule 14c-5(d)(2))
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OHIO POWER COMPANY
(Name of Registrant As Specified in Its Charter)
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OHIO POWER COMPANY
301 Cleveland Avenue, S.W.
Canton, Ohio 44702
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO THE SHAREHOLDERS OF
OHIO POWER COMPANY:
The annual meeting of the shareholders of Ohio Power Company will be held
on Tuesday, May 2, 2000, at 2:30 p.m. at the principal office of American
Electric Power Service Corporation, 1 Riverside Plaza, Columbus, Ohio, for the
following purposes:
1. To elect five 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 Cumulative Preferred Stock, par
value $100 per share, at the close of business on March 6, 2000 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.
JOHN F. DI LORENZO, JR.,
Secretary
March 23, 2000
INFORMATION STATEMENT
This information statement is being furnished in connection with the
annual meeting of shareholders of Ohio Power Company (the "Company"), to be held
on Tuesday, May 2, 2000 at 2:30 p.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 6, 2000, the date for determining shareholders entitled to notice
of and to vote at the meeting, there were 241,520 shares of Cumulative Preferred
Stock, par value $100 per share, and 27,952,473 shares of Common Stock
outstanding.
Each holder of Cumulative Preferred Stock, par value $100 per share, 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
6, 2000 for the election of directors and on any other business which may come
before the meeting. Holders of Cumulative Preferred Stock, $25 non-voting of the
par value $25 per share, and Cumulative Preferred Stock, $100 non-voting of the
par value of $100 per share, are not entitled to notice of, or to vote at, the
meeting.
If notice in writing is given by any shareholder to the President, any
Vice President, or the Secretary of the Company, not less than 48 hours before
the time fixed for the meeting, that such shareholder desires that the voting at
the meeting for directors shall be cumulative, and if an announcement of the
giving of such notice is made upon the convening of the meeting by the Chairman
or Secretary or by or on behalf of the shareholder giving such notice, each
shareholder will have the right to cumulate such voting power as he possesses
and to give one candidate as many votes as the number of directors to be
elected, multiplied by the number of his votes, or to distribute his votes on
the same principle among two or more candidates, as he sees fit.
Principal Shareholders
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 outstanding shares of
Cumulative Preferred Stock, par value $100 per share.
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
Five directors are to be elected to hold office for one year or until
their successors are elected and qualify. 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, 2000, 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. 58 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, BCP
Management, Inc., which is the general
partner of Borden Chemicals and Plastics
L.P., and CellNet Data Systems, Inc.
HENRY W. FAYNE 53 Vice president of the Company, vice
president and chief financial officer of
AEP and executive vice
president-financial services 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 and assumed his
present position in 1998. A director of
certain other AEP System companies.
WILLIAM J. LHOTA 60 President and chief operating officer of
the Company and executive vice president
of the Service Corporation. Joined the
Company in 1965, was president of
Columbus Southern Power Company, a
subsidiary of AEP, from 1987 until 1989,
when he became executive vice
president-operations of the Service
Corporation. Assumed his present
position with the Service Corporation in
1993. Became a vice president of the
Company in 1989 and assumed his present
position in 1996. Has been a director
of the Company since 1989. A director
of certain other AEP System companies,
Huntington Bancshares Incorporated and
State Auto Financial Corporation.
ARMANDO A. PENA 55 Vice president of the Company, treasurer
of AEP and senior vice
president-finance, treasurer and chief
financial officer 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 and assumed his
present position in 1998. Became
treasurer of the Company and AEP in
1996. A director of certain other AEP
System companies.
JOSEPH H. VIPPERMAN 59 Vice president of the Company and
executive vice president-corporate
services of the Service Corporation.
Joined Appalachian Power Company
("Appalachian"), a subsidiary of AEP, 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, and
assumed his present position in 1998.
Transferred to Appalachian as executive
vice president in 1989, was president
from 1990 until 1995 and became a vice
president and a director in 1996.
Dr. Draper and Messrs. Fayne, Lhota, Pena and Vipperman are directors
of Appalachian, Columbus Southern Power Company ("CSPCo"), Indiana Michigan
Power Company ("I&M") and Kentucky Power Company ("Kentucky"), all of which
are subsidiaries of AEP and have one or more classes of publicly held
preferred stock or debt securities. Dr. Draper and Messrs. Fayne, Lhota and
Pena 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 1999, 1998 and 1997 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, 1999.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Payouts All Other
Salary Bonus Compensation
Name and Principal Position Year ($) ($)(1) LTIP Payouts($)(1) ($)(2)
E. Linn Draper, Jr. - Chairman of the 1999 820,000 208,280 -0- 103,218
board and chief executive officer 1998 780,000 194,376 345,906 104,941
of the Company; chairman of the 1997 720,000 327,744 951,132 31,620
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 - President, chief 1999 400,000 71,120 -0- 55,690
operating officer and director of 1998 380,000 82,859 134,266 56,493
the Company; executive vice 1997 355,000 141,396 364,436 20,570
president and director of the
Service Corporation; president,
chief operating officer and
director of other AEP System
companies
James J. Markowsky - Vice president 1999 370,000 65,786 -0- 51,047
and director of the Company; 1998 350,000 76,317 127,115 51,859
executive vice president-power 1997 325,000 129,447 338,382 18,020
generation and director of the
Service Corporation; vice president
and director of other AEP System
companies(3)
Joseph H. Vipperman - Vice president 1999 330,000 58,674 -0- 63,006
and director of the Company; 1998 310,000 67,595 82,859 58,435
executive vice president-corporate
services and director of the
Service Corporation; vice president
and director of other AEP System
companies(4)
Henry W. Fayne - Vice president and 1999 315,000 56,007 -0- 34,885
director of the Company; executive 1998 290,000 63,234 61,555 34,124
vice president-financial services
and director of the Service
Corporation; vice president and
director of other AEP System
companies(4)
- -----------
(1) Amounts in the "Bonus" column reflect awards under the Senior Officer
Annual Incentive Compensation Plan. Payments were made in March of the
succeeding fiscal year for performance in the year indicated. Amounts
for 1999 are estimates but should not change significantly.
Amounts in the "Long-Term Compensation" column reflect performance share
unit targets earned under the Performance Share Incentive Plan for
three-year performance periods.
See below under "Long-Term Incentive Plans - Awards in 1999" 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, and (ii) subsidiary companies director fees. For
1998 and 1999, the amounts also include 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 1999 amounts in the "All Other Compensation" column is
shown below.
Item Dr. Draper Mr. Lhota Dr. Markowsky Mr. Vipperman Mr. Fayne
Savings Plan Matching Contributions $ 3,462 $ 4,800 $ 3,381 $ 3,762 $ 4,800
Supplemental Savings Plan Matching
Contributions 21,138 7,200 7,719 6,138 4,650
Split-Dollar Insurance 68,638 33,710 29,967 47,106 17,105
Subsidiaries Directors Fees 9,980 9,980 9,980 6,000 8,330
Total "All Other Compensation" $103,218 $ 55,690 $ 51,047 $ 63,006 $ 34,885
(3)Dr. Markowsky resigned effective February 1, 2000.
(4)No 1997 compensation information is reported for Messrs. Vipperman and Fayne
because they were not executive officers in that year.
Long-Term Incentive Plans - Awards In 1999
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 Performance Share 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. Notwithstanding AEP's TSR ranking, no performance share
unit targets are earned unless AEP shareholders realize a positive TSR over the
relevant three-year performance period. The 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 25%, 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 restricted 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. 8,728 1999-2001 2,182 8,728 17,456
W. J. Lhota 2,980 1999-2001 745 2,980 5,960
J. J. Markowsky 2,794 1999-2001 698 2,794 5,588
J. H. Vipperman 2,459 1999-2001 615 2,459 4,918
H. W. Fayne 2,347 1999-2001 587 2,347 4,694
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), including the executive officers of the
Company. The Retirement Plan is a noncontributory defined benefit plan.
The following table shows the approximate annual annuities under the
Retirement Plan that would be payable to employees in certain higher salary
classifications, 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
$ 300,000 $ 69,525 $ 92,700 $115,875 $139,050 $162,225 $182,175
400,000 93,525 124,700 155,875 187,050 218,225 244,825
500,000 117,525 156,700 195,875 235,050 274,225 307,475
700,000 165,525 220,700 275,875 331,050 386,225 432,775
900,000 213,525 284,700 355,875 427,050 498,225 588,075
1,200,000 285,525 380,700 475,875 571,050 666,225 746,025
The amounts shown in the table are the straight life annuities payable
under the Retirement Plan 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.
AEP maintains a supplemental retirement plan which provides for the
payment of benefits that are not payable under the Retirement Plan due primarily
to limitations imposed by Federal tax law on benefits paid by qualified plans.
The table includes supplemental retirement benefits.
Compensation upon which retirement benefits 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. As of December 31, 1999, the number
of full years of service applicable for retirement benefit calculation purposes
for such officers were as follows: Dr. Draper, seven years; Mr. Fayne, 24 years;
Mr. Lhota, 34 years; Dr. Markowsky, 28 years; and Mr. Vipperman, 37 years.
Dr. Draper has a contract with AEP and the Service Corporation which
provides him with a supplemental retirement annuity that credits him with 24
years of service in addition to his years of service credited under the
Retirement Plan less his actual pension entitlement under the Retirement Plan
and any pension entitlement from the Gulf States Utilities Company Trusteed
Retirement Plan, a plan sponsored by his prior employer.
Eight AEP System employees (including Messrs. Fayne, Lhota, Vipperman and
Dr. Markowsky) 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
2000 of the executive officers named in the Summary Compensation Table
(including Dr. Markowsky, who resigned effective February 1, 2000), 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 Amount of
Annual Supplemental Annual Supplemental
Amount Retirement Amount Retirement
Deferred Payment Deferred Payment
(4-Year (15-Year (4-Year (15-Year
Name Period) Period) Period) 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 a proposed merger with Central and South West
Corporation, AEP's Board of Directors adopted a severance plan on February 24,
1999, effective March 1, 1999, that includes Dr. Markowsky and Messrs. Lhota,
Vipperman and Fayne. The severance plan provides for payments and other benefits
if, at any time before the second anniversary of the merger consummation date
(or, if the merger has not occurred, before the expiration of the severance plan
which will occur upon the termination of the merger agreement), 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:
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.
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.
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.
Dr. Markowsky resigned effective February 1, 2000 and has received a
lump sum payment in accordance with the terms of the severance plan.
Change-in-Control Agreements
AEP has change-in-control agreements with Dr. Draper and Messrs. Lhota,
Vipperman and Fayne. 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:
Three years of service credited for purposes of determining non-qualified
retirement benefits.
Transfer to the employee of title to AEP's automobile then assigned to
the employee.
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:
The acquisition by any person of the beneficial ownership of securities
representing 25% or more of AEP's voting stock.
A change in the composition of a majority of the Board of Directors under
certain circumstances within any two-year period.
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 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 $20 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:
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.
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.
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.
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 consultant has assisted the Committee in the development of the
AEP 2000 Long-Term Incentive Plan which has been approved by the Committee and
the Board and which is being recommended to AEP shareholders for their approval
at the AEP annual meeting. 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.
The Committee also considers management's responses 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 agreement with Central and South West Corporation. 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 in the Performance Share Incentive Plan. 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 Performance Share Incentive Plan,
described below, are included in determining compliance with the ownership
targets. As of January 1, 2000, Dr. Draper has met his ownership requirement and
all of the other officers named in the Summary Compensation Table have either
met, or are on target to meet, their respective targets within the specified
time period. See the table on page 11 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. 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 their position in the comparative group. Base salary
levels in 1999 for the CEO and next four most highly compensated executive
officers of AEP named in the Summary Compensation Table approximated the median
of the comparative group consistent with our 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, 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, through short term (one-year) incentives and
rewards, to maximize shareholder value by maximizing AEP's performance.
The Senior Officer Annual Incentive Compensation Plan (SOIP) provides a
variable, performance based portion of the executive officers' total
compensation and this 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 annual salary. For 1999, the target awards
for Dr. Draper and the other executive officers named in the compensation table
were 50% and 35%, respectively. Actual awards will vary from 0-200% of the
target award based on performance.
SOIP awards are based on the following preestablished performance
criteria, each weighted at 25%:
Total investor return, which reflects stock price and dividends paid,
measured relative to the performance of utilities in the S&P Electric
Utility Index.
Return on stockholder equity, measured relative to the performance of
utilities in the S&P Electric Utility Index and on absolute performance.
Average price of power sold to AEP's retail customers compared with other
utilities in the states which AEP serves.
Safety measured relative to that of other large utilities.
For 1999, AEP performance merited an award of 50.8%. This percentage is an
estimate but should not change significantly. Final awards will be determined
when audited results are available for AEP and the comparative companies.
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.
The Performance Share Incentive Plan (PSIP) annually establishes
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 1999, the Committee established targets for Dr. Draper and
the other executive officers named in the Summary Compensation Table equivalent
to 50% and 35%, respectively, of their then base salaries. The target number of
performance share units has been determined after an evaluation of long term
incentive opportunities provided by the electric utility companies in AEP's
comparative group. However, the awards which will ultimately be paid to
participants under the PSIP for a performance period are not determinable in
advance and can range from 0-200% of the target.
The PSIP ended a three-year performance period at year-end 1999. AEP's
total shareholder return for 1997-1999 ranked twenty-fifth 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. The
associated awards for 1998 and 1997 are listed in the Summary Compensation
Table.
Payments of earned awards under the PSIP are deferred in the form of
restricted stock units (equivalent to shares of AEP Common Stock). Such PSIP
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 PSIP awards in cash and/or Common Stock. When awards are
deferred, dividend equivalents are credited as though reinvested in additional
restricted stock units.
Tax Policy
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. It is
the Committee's policy, when consistent with sound executive compensation
principles and the needs of AEP, to qualify compensation for deductibility where
practicable.
Award payments under the PSIP 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 1999 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 for 1999 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, Chairman Lester A. Hudson, Jr.
John P. DesBarres 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, 2000 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 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................ 8,670(b)(d) 89,257 97,927
H. W. Fayne..................... 5,091(b) 10,424 15,515
W. J. Lhota..................... 17,364(b)(c)(d) 15,174 32,538
J. J. Markowsky................. 2,871(b)(e) 13,923 16,794
J. H. Vipperman................. 11,569(b)(c)(d) 4,549 16,118
A. A. Pena...................... 5,307(b) 5,239 10,546
All directors and
executive officers
as a group (6 persons)......... 136,103(f) 138,566 189,438
- -----------
(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
Employees Savings Plan over which such persons have sole voting power, but
the investment/disposition power is subject to the terms of the Savings
Plan: Dr. Draper, 3,449; Mr. Fayne, 4,553; Mr. Lhota, 15,184; Dr.
Markowsky, 3,888; Mr. Pena, 3,792; Mr. Vipperman, 10,790; and all
executive officers, 41,656.
(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, 5,221; 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: Dr. Markowsky, 21.
(f) 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 1999, the Board held twelve regular meetings.
Directors of the Company receive a fee of $100 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 2000.
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.
JOHN F. DI LORENZO, JR.,
Secretary
March 23, 2000