-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MXlYzdW5pCrY/Kd25oQHj0BpHw+FRojj3lTyeFyTZmz2KVtoeaV5gIKFxnC9N5xv rgE+uQWDA9pumvo1ahcYyQ== 0000006879-99-000001.txt : 19990326 0000006879-99-000001.hdr.sgml : 19990326 ACCESSION NUMBER: 0000006879-99-000001 CONFORMED SUBMISSION TYPE: DEF 14C PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: APPALACHIAN POWER CO CENTRAL INDEX KEY: 0000006879 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 540124790 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: DEF 14C SEC ACT: SEC FILE NUMBER: 001-03457 FILM NUMBER: 99572705 BUSINESS ADDRESS: STREET 1: 40 FRANKLIN RD SW CITY: ROANOKE STATE: VA ZIP: 24011 BUSINESS PHONE: 7039852300 MAIL ADDRESS: STREET 1: 1 RIVERSIDE PLAZA CITY: COLUMBUS STATE: OH ZIP: 43215 DEF 14C 1 SCHEDULE 14C INFORMATION Information Statement Pursuant to Section 14(c) of the Securities Exchange Act of 1934 Check the appropriate box: [ ] Preliminary Information Statement [ ] Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2)) [X] Definitive Information Statement APPALACHIAN POWER COMPANY (Name of Registrant As Specified in Its Charter) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11. 1) Title of each class of securities to which transaction applies:______________________________________________ 2) Aggregate number of securities to which transaction applies:______________________________________________ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ______________________________________________________ 4) Proposed maximum aggregate value of transaction: ______________________________________________________ 5) Total fee paid: ______________________________________________________ [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid:_______________________________ 2) Form, Schedule or Registration Statement No.:_________ 3) Filing Party:_________________________________________ 4) Date Filed:___________________________________________ 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 27, 1999, 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 six 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 8, 1999 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 25, 1999 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 27, 1999 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 8, 1999, the date for determining stockholders entitled to notice of and to vote at the meeting, there were 193,534 shares of Cumulative Preferred Stock and 13,499,500 shares of Common Stock outstanding. Each holder of Cumulative Preferred Stock (except holders of the 5.90%, 5.92% and 6.85% 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 8, 1999 for the election of directors and on any other business which may come before the meeting. Holders of Cumulative Preferred Stock issued by the Company on or after June 1, 1977 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 98.5% 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 Six 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, 1999, 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. 57 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 52 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 59 President and chief operating officer of the Company and executive vice president of the Service Corporation. Joined Ohio Power Company ("Ohio"), a subsidiary of AEP, 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 1990. A director of certain other AEP System companies, Huntington Bancshares Incorporated and State Auto Financial Corporation. JAMES J. MARKOWSKY 54 Vice president of the Company and executive vice president-power generation of the Service Corporation. Joined the Service Corporation in 1971 as a senior engineer, became assistant vice president-mechanical engineering in 1984, senior vice president and chief engineer in 1988, executive vice president-engineering and construction in 1993 and assumed his present position in 1996. Became a director of the Company in 1993 and a vice president of the Company in 1995. A director of certain other AEP System companies. ARMANDO A. PENA 54 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 58 Vice president of the Company and executive vice president-corporate 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, and assumed his present position in 1998. 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. Has been a director since 1985.
Drs. Draper and Markowsky and Messrs. Fayne, Lhota, Pena and Vipperman are directors of Columbus Southern Power Company ("CSPCo"), Indiana Michigan Power Company ("I&M"), Kentucky Power Company ("Kentucky") and Ohio, all of which are subsidiaries of AEP and have one or more classes of publicly held preferred stock or debt securities. Drs. Draper and Markowsky 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 1998, 1997 and 1996 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, 1998.
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. - 1998 780,000 194,376 345,906 104,941 Chairman of the board and 1997 720,000 327,744 951,132 31,620 chief executive officer of 1996 720,000 281,664 675,903 31,990 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 - President, 1998 380,000 82,859 134,266 56,493 chief operating officer and 1997 355,000 141,396 364,436 20,570 director of the Company; 1996 320,000 125,184 263,114 19,690 executive vice president and director of the Service Corporation; president, chief operating officer and director of other AEP System companies James J. Markowsky - Vice 1998 350,000 76,317 127,115 51,859 president and director of the 1997 325,000 129,447 338,382 18,020 Company; executive vice 1996 303,000 118,534 254,535 19,480 president-power generation and director of the Service Corporation; vice president and director of other AEP System companies Joseph H. Vipperman - Vice 1998 310,000 67,595 82,859 58,435 president and director of the Company; executive vice president-corporate services and director of the Service Corporation; vice president and director of other AEP System companies Henry W. Fayne - Vice 1998 290,000 63,234 61,555 34,124 president and director of the Company; executive vice president-financial 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 (and predecessor Management Incentive Compensation Plan). Payments were made in March of the succeeding fiscal year for performance in the year indicated. Amounts for 1998 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 1998" 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, 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 1998 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 $ 3,200 $ 4,800 $ 4,800 $ 4,800 $ 4,800 Supplemental Savings Plan Matching Contributions 20,200 6,600 5,700 4,500 3,900 Split-Dollar Insurance 71,621 35,173 31,439 43,135 17,399 Subsidiaries Directors Fees 9,920 9,920 9,920 6,000 8,025 Total All Other Compensation $104,941 $ 56,493 $ 51,859 $ 58,435 $ 34,124
(3) No 1996 or 1997 compensation information is reported for Messrs. Vipperman and Fayne because they were not executive officers in these years. Long-Term Incentive Plans - Awards In 1998 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 the officer has met the equivalent stock ownership target discussed in the Human Resources Committee Report. 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. 7,730 1998-2000 1,932 7,730 15,460 W. J. Lhota 2,636 1998-2000 659 2,636 5,272 J. J. Markowsky 2,428 1998-2000 607 2,428 4,856 J. H. Vipperman 2,150 1998-2000 537 2,150 4,300 H. W. Fayne 2,012 1998-2000 503 2,012 4,024
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 (and predecessor Management 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, 1998, the number of full years of service applicable for retirement benefit calculation purposes for such officers were as follows: Dr. Draper, six years; Mr. Fayne, 23 years; Mr. Lhota, 34 years; Dr. Markowsky, 27 years; and Mr. Vipperman, 35 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. Ten 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 1999 of the executive officers named in the Summary Compensation Table, none of the executive officers 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, within two years after the merger is completed, the officer's employment is terminated by AEP without "cause" or 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. 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 $19 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: * Pay for performance, motivating both short- and long-term performance. Compensation for short- and long-term performance focuses on meeting specified corporate performance goals and the long-term interests of shareholders, respectively. * Require a significant amount of compensation for senior executives to be "at risk," variable incentive compensation versus fixed or base pay - with much of this risk similar to the risk experienced by other AEP shareholders. * Enhance AEP's ability to attract, retain, reward, motivate and encourage the development of exceptionally knowledgeable, highly qualified and experienced executives through compensation opportunities. * Target compensation levels at rates that are reflective of current market practices to maintain a stable, successful management team. In carrying out its responsibilities, the Committee utilizes independent compensation consultants to obtain information and recommendations relating to changing industry compensation practices and programs. The Committee also considers management's responses to the impact of increased competition and other significant changes in the rapidly evolving electric utility industry. It is the Committee's opinion that, in this ever-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 a national energy trading organization and the merger agreement with Central and South West Corporation. Two specific significant 1998 initiatives were the acquisition of Citipower, an Australian electricity distribution and retail sales company, and the acquisition of midstream natural gas assets in Louisiana and Texas. The success of these efforts and their benefits to AEP cannot be precisely measured in advance, but the Committee believes they are vital to AEP's long-term success. Stock Ownership Guidelines. The AEP 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 target for the CEO and the other four officers named in the Summary Compensation Table is 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, 1999, Dr. Draper has met his ownership requirements and 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 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 salaries to the salaries of other AEP managers and employees. For compensation comparison purposes, the Human Resources Committee uses the electric utility companies in the S&P Electric Utility Index. In recognition of AEP's relatively large size and operational complexity, executive officer salary levels are targeted to the second highest quartile (between the 50th and 75th percentiles) of the range of compensation paid by the other electric utilities in this compensation peer group. Base salary levels in 1998 for the CEO and next four most highly compensated executive officers of AEP named in the Summary Compensation Table were within this second highest quartile. In establishing base salary levels against 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 the outside directors of the Board. After full discussion, these directors then act on the Committee's recommendation. 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 the Company's financial 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 1998, the target awards for Dr. Draper and the other executive officers named in the compensation table were 40% and 35%, respectively. Actual awards can vary from 0-150% of the target award - based on performance. For 1998, SOIP awards were based on the following preestablished AEP corporate performance criteria, each weighted 25%: (i) total investor return, which reflects stock price and dividends paid, measured relative to the performance of utilities in the S&P Electric Utility Index, (ii) return on stockholder equity, measured relative to the performance of utilities in the S&P Electric Utility Index and on absolute performance, (iii) average price of power sold to AEP's retail customers compared with other utilities in the states which AEP serves and, (iv) safety. For 1998, AEP corporate performance merited an award of 62.3%. This percentage is an estimate but should not change significantly. 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 1998, 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 S&P peer utilities, again targeting the second highest quartile of competitive practice. However, the awards which will ultimately be paid to participants under the PSIP for a perfor- mance 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 1998. AEP's total shareholder return for 1996-1998 ranked fourteenth relative to the S&P peer utilities and, as a result, 85% of the performance share unit targets originally established (and dividend credits) were earned. The associated awards are listed in the Summary Compensation Table. Similar to the SOIP awards which are deferred, payments of earned awards under the PSIP are also 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 Plan 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 the Company's chief executive officer or any of its four other most highly compensated executive officers. It is the Committee's policy, consistent with sound executive compensation principles and the needs of AEP, to qualify all 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 1998 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 1998 in excess of the deduction limit. The Committee intends to continue to evaluate the impact of this Code provision. Human Resources Committee Members Morris Tanenbaum, Chairman John P. DesBarres Lester A. Hudson, Jr. 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, 1999 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. . . 7,934(b)(d) 77,612 85,546 H. W. Fayne . . . . . 4,649(b) 10,135 14,784 W. J. Lhota . . . . . 16,042(b)(c)(d) 14,902 30,944 J. J. Markowsky . . . 3,942(b)(e) 13,062 17,004 J. H. Vipperman . . . 10,734(b)(c)(d) 4,718 15,452 A. A. Pena . . . . . 4,886(b) 5,213 10,099 All directors and executive officers as a group (6 persons) . 133,418(f) 125,642 259,060
__________ (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, 3,033; Mr. Fayne, 4,144; Mr. Lhota, 13,862; Dr. Markowsky, 3,888; Mr. Pena, 3,464; Mr. Vipperman, 10,002; and all executive officers, 38,393. (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, 4,901; Mr. Lhota, 2,180; and Mr. Vipperman, 67. (e) Includes the following numbers of shares held by family members over which beneficial ownership is disclaimed: Dr. Markowsky, 20. (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 1998, 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 1999. 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 25, 1999 -----END PRIVACY-ENHANCED MESSAGE-----