8-KMaterial Agreements

AMERICAN ELECTRIC POWER CO INC 8-K Report, Material Agreement (Jan 11, 2005)

Filed January 11, 2005For Securities:AEP

Summary

This Form 8-K filing by AMERICAN ELECTRIC POWER CO INC (AEP) on January 11, 2005, reports the entry into a new Change in Control Agreement with its executive officers, effective January 1, 2005. The primary purpose of these agreements is to ensure the continued focus and dedication of key management personnel by providing financial security in the event of a "Change in Control" of the company. The agreements stipulate that if a Change in Control occurs, and an executive officer experiences a "Qualifying Termination" (e.g., termination without cause or resignation for good reason), the executive will receive a severance payment. This payment is calculated as 2.99 times the executive's annual base salary plus their target annual incentive, a significant benefit designed to protect executives from adverse outcomes during significant corporate transitions.

Key Highlights

  • 1AEP entered into new Change in Control Agreements with its executive officers on January 10, 2005.
  • 2These agreements are designed to retain key management personnel by providing financial protection during a Change in Control.
  • 3Upon a Change in Control, if a "Qualifying Termination" occurs, executives are eligible for a payment equal to 2.99 times their annual base salary plus target annual incentive.
  • 4A "Change in Control" is defined broadly, including acquisitions of 25% or more of voting stock, board composition changes, mergers, or sale of substantially all assets.
  • 5A "Qualifying Termination" includes termination by the company without Cause or by the executive for Good Reason, within a specific timeframe related to a Change in Control.
  • 6The agreement includes provisions for "Good Reason" which details specific circumstances under which an executive can resign and still qualify for benefits, such as adverse changes in duties or salary reductions.
  • 7The agreements aim to incentivize continued executive attention and dedication to the company's best interests during periods of potential corporate transition.

Frequently Asked Questions

The main purpose of the Change in Control Agreement is to retain key executive talent by providing them with financial security and specific benefits in the event that the company undergoes a "Change in Control." This aims to ensure that executives remain focused on the company's best interests during periods of uncertainty, such as potential mergers or acquisitions.

A 'Change in Control' is broadly defined and can occur if: (i) a person or group acquires beneficial ownership of 25% or more of AEP's voting stock; (ii) there is a change in the composition of the Board of Directors over a two-year period; (iii) a merger or consolidation occurs (unless AEP shareholders retain at least 50% of the voting power of the surviving entity); or (iv) shareholders approve a plan of liquidation or the sale of substantially all of AEP's assets.

If a 'Change in Control' occurs and the executive experiences a 'Qualifying Termination' (meaning termination by the company without 'Cause' or resignation by the executive for 'Good Reason'), they are entitled to a lump-sum cash payment. This payment is calculated as 2.99 times the executive's annual base salary plus their target annual incentive. They may also receive other severance benefits and outplacement services.

'Cause' generally refers to the executive's willful failure to perform duties, illegal conduct, gross misconduct, or breach of fiduciary duty. 'Good Reason' is defined more broadly and includes adverse changes in the executive's status, duties, or responsibilities; failure to pay salary or benefits; reduction in salary; substantial diminishment of benefits; failure of a successor to assume the agreement; or relocation of the executive's office without consent. An executive must provide notice and an opportunity to cure for most 'Good Reason' events.