OGE Energy Corp.
Proxy Statement
and
Notice of Annual Meeting
May 22, 2003
OG+E
[LOGO]
Contents
Page
Chairman's Letter 1 Notice of Annual Meeting
of Shareowners
Notice of Annual Meeting 2 and Proxy Statement
Proxy Statement 3
Thursday, May 22, 2003, at 10:00 a.m.
Proposal No. 1 - Election of Directors 4
National Cowboy and Western Heritage Museum
Report of Audit Committee 9 1700 Northeast 63rd Street
Oklahoma City, Oklahoma
Executive Officers' Compensation 10
Report of Compensation 10
Committee on Executive
Compensation
Summary Compensation Table 14
Pension Plan Table 16
Employment Agreements and 17
Change of Control Arrangements
Company Stock Performance 18
Security Ownership 19
Equity Compensation Plan Information 19
Section 16(a) Beneficial 20
Ownership Reporting Compliance
Proposal No. 2 - Approval of 20
OGE Energy Corp. 2003
Stock Incentive Plan
Proposal No. 3 - Approval of 25
OGE Energy Corp. 2003 Annual
Incentive Compensation Plan
Change of Independent 28
Public Accountants
Shareowner Proposals 28
Map 29
Annex A - 2003 Stock Incentive Plan A-1
Annex B - 2003 Annual Incentive B-1
Compensation Plan
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OGE ENERGY CORP.
April 4, 2003
Dear Shareowner:
You are cordially invited to attend the annual meeting of OGE Energy Corp. at 10:00 a.m. on Thursday, May 22, 2003, at the National Cowboy and Western Heritage Museum, 1700 Northeast 63rd Street, Oklahoma City, Oklahoma.
The matters to be voted on at the meeting are described in the Notice of Annual Meeting of Shareowners and Proxy Statement on the following pages.
Even though you may own only a few shares, your proxy is important in making up the total number of shares necessary to hold the meeting. Whether or not you plan to attend the meeting, please vote your shares as soon as possible. A return envelope for your proxy card is enclosed for your convenience. Again this year, in addition to telephone voting, you also have the option of voting by the Internet. Instructions are included on the proxy card. Your vote will be appreciated.
If you arrive before the meeting, you will have the opportunity to visit informally with the management of your Company. In addition to the business portion of the meeting, there will be reports on our current operations and outlook.
Your continued interest in the Company is most encouraging and, on behalf of the Board of Directors and employees, I want to express our gratitude for your confidence and support.
Very truly yours,
/s/Steven E. Moore
Steven E. Moore
Chairman of the Board, President
and Chief Executive Officer
Notice of Annual Meeting
of Shareowners
The Annual Meeting of Shareowners of OGE Energy Corp. will be held on Thursday, May 22, 2003, at 10:00 a.m. at the National Cowboy and Western Heritage Museum, 1700 Northeast 63rd Street, Oklahoma City, Oklahoma, for the following purposes:
(1) To elect three directors to serve for a three-year term;
(2) To approve the OGE Energy Corp. 2003 Stock Incentive Plan;
(3) To approve the OGE Energy Corp. 2003 Annual Incentive Compensation Plan; and
(4) To transact such other business as may properly come before the meeting.
The map on page 29 will assist you in locating the National Cowboy and Western Heritage Museum.
Shareowners who owned stock on March 24, 2003, are entitled to notice of and to vote at this meeting or any adjournment of the meeting. A list of such shareowners will be available, as required by law, at our principal offices at 321 N. Harvey, Oklahoma City, Oklahoma 73102.
/s/ Carla D. Brockman
Carla D. Brockman
Secretary
Dated: April 4, 2003
IMPORTANT — YOUR PROXY CARD IS ENCLOSED IN THIS ENVELOPE
To assure your representation at the meeting, please vote your shares by the Internet, by telephone or by signing, dating and returning the proxy card promptly in the enclosed envelope. No postage is required for mailing in the United States. If your shares are held in the name of a broker, trust, bank or other nominee and you plan to attend the meeting and vote your shares in person, you should bring with you a proxy or letter from the broker, trustee, bank or nominee confirming your beneficial ownership of the shares.
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Proxy Statement
April 4, 2002
Introduction
The Annual Meeting of Shareowners of OGE Energy Corp. (the “Company”) will be held at the National Cowboy and Western Heritage Museum, 1700 Northeast 63rd Street, Oklahoma City, Oklahoma, on May 22, 2003, at 10:00 a.m. For the convenience of those shareowners who may attend the meeting, a map is printed on page 29 that gives directions to the National Cowboy and Western Heritage Museum. At the meeting, it is intended that the first three items in the accompanying notice will be presented for action by the owners of the Company’s Common Stock. The Board of Directors does not now know of any other matters to be presented at the meeting, but, if any other matters are properly presented to the meeting for action, the persons named in the accompanying proxy will vote upon them in accordance with their best judgment.
Your Board of Directors is sending you this proxy statement in connection with the solicitation of your proxy for use at the Annual Meeting. When you vote by Internet, by telephone or by mail, you appoint Steven E. Moore, Herbert H. Champlin, and Martha W. Griffin as your representatives at the Annual Meeting. Mr. Moore, Mr. Champlin, and Mrs. Griffin will vote your shares, as you have instructed them, at the Annual Meeting. This way, your shares will be voted whether or not you attend the Annual Meeting. Even if you plan to attend the meeting, it is a good idea to vote your shares in advance of the meeting, just in case your plans change.
If an issue comes up for vote at the meeting that is not on the proxy card, Mr. Moore, Mr. Champlin and Mrs. Griffin will vote your shares, under your proxy, in accordance with their best judgment.
Voting Procedures; Revocation of Proxy
You may vote by mail, by telephone, by Internet, or in person. To vote by mail, simply complete and sign the proxy card and mail it in the enclosed, prepaid and preaddressed envelope. If you mark your voting instructions on the proxy card, your shares will be voted as you instruct. If you return a signed card but do not provide voting instructions, your shares will be voted FOR the three named nominees for director and IN FAVOR OF the proposals to approve the OGE Energy Corp. 2003 Stock Incentive Plan and the OGE Energy Corp. 2003 Annual Incentive Compensation Plan.
Shareowners of record also may vote by the Internet or by using the toll-free number listed on the proxy card. Telephone and Internet voting also is available to shareowners who hold their shares in the Dividend Reinvestment and Stock Purchase Plan and the OGE Energy Corp. Employees’ Stock Ownership and Retirement Savings Plan (the “Retirement Savings Plan”). The telephone voting and Internet voting procedure is designed to verify shareowners through use of a Control Number that is provided on each proxy card. This procedure allows you to vote your shares and to confirm that your instructions have been properly recorded. If you vote by telephone or by the Internet, you do not have to mail in your proxy card. Please see your proxy card for specific instructions.
If you wish to vote in person, we will pass out written ballots at the meeting. If you hold your shares in street name (i.e., they are held by your broker in an account for you), you must request a legal proxy from your broker in order to vote at the meeting.
If you change your mind after voting your proxy, you can revoke your proxy and change your vote at any time before the polls close at the meeting. You can revoke your proxy by either signing another proxy with a later date, by voting by Internet, by telephone or by voting at the meeting. Alternatively, you may provide a written statement to the Company (attention Carla D. Brockman, Corporate Secretary) of your intention to revoke your proxy.
Record Date; Number of Votes
If you owned shares of our Common Stock at the close of business on March 24, 2003, you are entitled to one vote per share upon each matter presented at the meeting.
On March 1, 2003, there were 78,720,459 shares of Common Stock outstanding. The Company does not have any other outstanding class of voting stock. No person holds of record or, to our knowledge, beneficially owns more than 5% of our Common Stock.
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Expenses of Proxy Solicitation
We will pay all costs associated with preparing,
assembling and mailing the proxy cards and proxy statements. We also will
reimburse brokers, nominees, fiduciaries and other custodians for their expenses
in forwarding proxy materials to shareowners. Officers and other employees of
the Company may solicit proxies by mail, personal interview, telephone and/or
telegraph. In addition, we have retained Mellon Investor Services to assist in
the solicitation of proxies, at a fee of approximately $7,500 plus associated
costs and expenses. Our employees will not receive any additional compensation
for soliciting proxies.
Mailing of Proxy Statement and Annual Report
This proxy statement and the enclosed proxy
were mailed on or about April 4, 2003. Appendix A to this proxy statement has
our audited financial statements and management’s discussion and analysis
of results of operations and financial condition. This Appendix A, and our
Summary Annual Report which contains Mr. Moore’s letter to shareowners,
condensed financial statements and a summary discussion of results of operations
were mailed with this proxy statement on or about March 31, 2003, to all of our
shareowners who owned stock on March 24, 2003.
Voting Under Plans
If you are a participant in our Dividend Reinvestment and Stock
Purchase Plan (DRIP), your proxy will represent the shares held on your behalf
under the DRIP and such shares will be voted in accordance with the instructions
on your proxy. If you do not vote your proxy, your shares in the DRIP will not
be voted.
If you are a participant in our Retirement Savings Plan, you will receive a voting directive for shares allocated to your account. The trustee will vote these shares as instructed by you in your voting directive. If you do not return your voting directive, the trustee will vote your allocated shares in the same proportion that all plan shares are voted.
Voting of Shares Held in Street Name by
Your Broker
Brokerage firms have authority under New York Stock Exchange Rules to vote
customers' unvoted shares on certain “routine” matters, including the
election of directors. If you do not vote your proxy, your brokerage firm may
either vote your shares on routine matters or leave your shares unvoted. We
encourage you to provide instructions to your brokerage firm by voting your
proxy. This ensures your shares will be voted at the meeting. When a brokerage
firm votes its customers’ unvoted shares on routine matters, these shares
are counted for purposes of establishing a quorum to conduct business at the
meeting. A brokerage firm, however, cannot vote customers’ shares on non-
routine matters, such as the proposals to approve the OGE Energy Corp. 2003
Stock Incentive Plan and the OGE Energy Corp. 2003 Annual Incentive Compensation
Plan. Accordingly, these shares (sometimes referred to as broker non-votes) are
considered not entitled to vote on non-routine matters, rather than as a vote
against the matter.
ELECTION OF DIRECTORS
The Board of Directors of the Company presently consists of nine members. The directors are classified into three groups. One class of directors is elected at each year’s Annual Meeting for a three-year term and to continue in office until their successors are elected and qualified. The following three persons are the nominees of the Board to be elected for such three-year term at the Annual Meeting to be held on May 22, 2003: Mr. William E. Durrett, Mr. John D. Groendyke, and Mr. Steven E. Moore. Each of these individuals is currently a director of the Company whose term as a director is scheduled to expire at the Annual Meeting. For Mr. Durrett, who is 72, the Board of Directors has waived the Company’s retirement policy for directors. Under this retirement policy, directors are to retire upon completion of their term after reaching age 70. Mr. Durrett has agreed to serve until a successor is found.
Mr. Hugh Hembree, III will retire from the Board effective at the Annual Meeting. Mr. Hembree served as a director of the Company’s principal subsidiary, Oklahoma Gas and Electric Company (“OG&E”), since 1985 and as a director of OGE Energy since its inception in 1996. The Board of Directors would like to express its sincere appreciation to Mr. Hembree for his many years of contribution and dedicated service.
The enclosed proxy, unless otherwise specified, will be voted in favor of the election as directors of the previously listed three nominees. The Board of Directors does not know of any nominee who will be unable to serve, but if any of them should be unable to serve, the proxy holder may vote for a substitute nominee. No nominee or director owns more than .64% of any class of voting securities of the Company.
For the nominees described herein to be elected as directors, they must receive a majority of the votes of shares of Common Stock present in person or by proxy and entitled to vote. Withholding authority is treated as a vote against.
Each director of the Company during 2002 was also a director of OG&E. The Company became the parent company of OG&E pursuant to a corporate reorganization, effective December 31, 1996.
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The following contains certain information as of March 1, 2003, concerning the three nominees for directors, as well as the directors whose terms of office extend beyond the Annual Meeting on May 22, 2003.
Nominees For Election For Term Expiring at 2006 Annual Meeting of Shareowners
WILLIAM E. DURRETT, 72, is Senior Chairman of the Board of
American Fidelity Corporation, an insurance holding company and
Chairman of North American Insurance Agency, Inc. From May 1998
to October 1999, he served as President and Chief Executive
Officer of North American Insurance Agency, Inc. From 1978 to
1998, Mr. Durrett served as President and Chief Executive Officer
of American Fidelity Corporation. He also served as Chairman of
American Fidelity Corporation from 1989 to 1998. He also serves [PHOTO]
as a member of the Boards and holds various executive positions
in numerous other subsidiaries of American Fidelity Corporation.
He also serves as a director of BOK Financial Corporation and of
INTEGRIS Health. Mr. Durrett has been a director of the Company
since December 31, 1996, and of OG&E since March 1991, and is
a member of the audit and nominating committees of the Board.
JOHN D. GROENDYKE, 58, is Chairman of the Board and Chief
Executive Officer of Groendyke Transport Incorporated, a bulk
truck transportation company in Enid, Oklahoma. Mr. Groendyke has
worked at Groendyke Transport, Inc. since 1965. Mr. Groendyke is
also Chairman of the Board and President of Bell Transport, Inc.; [PHOTO]
Oringderrf Tank Line, Inc.; Transport Company, Inc.; and Triple
"A" Transport and is Chairman of the Board of GTI Insurance Co.
Inc. and of James, Inc. Mr. Groendyke also serves as Director of
Central Service Corp. and Central National Bank. Mr. Groendyke
has been a director of the Company since January 2003.
STEVEN E. MOORE, 56, is Chairman, President and Chief
Executive Officer of the Company and of OG&E, having been
appointed to such positions with the Company effective December
31, 1996. Mr. Moore was appointed President of OG&E in August
1995, and as Chief Executive Officer and Chairman of OG&E in
May 1996. Mr. Moore has been employed by OG&E for more than [PHOTO]
28 years, having previously served as Senior Vice President of
Law and Public Affairs. He also serves as a director of BOK
Financial Corporation, INTEGRIS Health, and has served on many
industry-wide committees in the electric utility industry. Mr.
Moore has been a director of the Company since 1996 and of
OG&E since October 1995.
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Directors Whose Terms Expire at 2005 Annual Meeting of Shareowners
HERBERT H. CHAMPLIN, 65, is President of Champlin
Exploration, Inc., an independent oil producer, and Chairman of
Enid Data Systems, computer marketers, both located in Enid,
Oklahoma. Mr. Champlin has been a director of the Company since
December 31, 1996, and of OG&E since 1982, and is a member of [PHOTO]
the audit and compensation committees of the Board. Mr. Champlin
also was engaged separately during 2002 as a part of his
principal business occupation in the petroleum industry and had
interests in oil and gas wells.
MARTHA W. GRIFFIN, 68, owner of Martha Griffin White
Enterprises, is presently engaged in the management of her
personal investments, the operation of a ranch and various civic
activities. Prior to September 30, 1994, she served as Chairman
of the Board of Griffin Television, Inc., located in Oklahoma [PHOTO]
City, Oklahoma, and Chairman of the Board of Griffin Food Company
(a subsidiary of Griffin Television, Inc.). Mrs. Griffin has been
a director of the Company since December 31, 1996, and of OG&E
since 1987, and is a member of the nominating committee and the
compensation committee of the Board.
RONALD H. WHITE, M.D., 66, is a practicing cardiologist
and is President and Chief Executive Officer of Cardiology, Inc.
in Oklahoma City. He serves as President, Partner and Director of
Oklahoma Cardiovascular Associates, and a member of the Board of
Managers of Oklahoma Heart Hospital. He was a member of the Board [PHOTO]
of Regents of the University of Oklahoma for 14 years. Dr. White
has been a director of the Company since December 31, 1996, and
of OG&E since 1989, and is a member of the compensation and
nominating committees of the Board.
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Directors Whose Terms Expire at 2004 Annual Meeting of Shareowners
LUKE R. CORBETT, 56, is Chairman and Chief Executive
Officer of Kerr-McGee Corporation, which is engaged in oil and
gas exploration and production and chemical operations. He has
been employed by Kerr-McGee Corporation for more than 17 years,
having served as Chairman and Chief Executive Officer since 1997;
President and Chief Operating Officer from 1995 to 1997; and
Group Vice President from 1992 to 1995. Mr. Corbett also serves [PHOTO]
as a member of the Board of Directors of BOK Financial
Corporation, and Noble Drilling Corporation. Mr. Corbett has been
a director of the Company since December 31, 1996, and of
OG&E since December 1, 1996, and is chairman of the
compensation committee and is a member of the audit committee of
the Board.
ROBERT KELLEY, 57, is President of Kellco Investments
Inc., a private investment company. Prior to May 1, 2001, he
served as Chairman of the Board of Noble Affiliates, Inc., an
independent energy company with exploration and production
operations in the United States and international operations in
China, Equador, Equatorial Guinea and the U.K. sector of the
North Sea. Prior to October 2, 2000 he also served as President
and Chief Executive Officer of Noble Affiliates, Inc. and of its [PHOTO]
three subsidiaries: Samedan Oil Corporation, Noble Gas Marketing
Inc., and Noble Trading, Inc. Mr. Kelley also serves as a member
of the Board of Directors of Lone Star Technologies, Inc. Mr.
Kelley has been a director of the Company since December 31,
1996, and of OG&E since January 17, 1996, and is chairman of
the audit committee and a member of the compensation committee of
the Board.
J. D. WILLIAMS, 65, is founder and a former member of
Williams & Jenson, P.C., a law firm in Washington, D. C. During
2002, the Company retained Williams & Jenson to perform various
legal services on its behalf and expects to retain Williams &
Jenson to provide similar services in 2003. He continues to [PHOTO]
practice law and is involved in various civic and related
matters. Mr. Williams has been a director of the Company since
January 2001, and is chairman of the nominating committee and is
a member of the audit committee of the Board.
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Each member of our Board of Directors was also a director of OG&E during 2002 other than Mr. Groendyke who did not become a director of the Company and OG&E until 2003. The Board of Directors of the Company met on 6 occasions during 2002 and the Board of Directors of OG&E met on 6 occasions during 2002. Each director attended at least 88% of the total number of meetings of the Boards of Directors and the committees of the Boards on which he or she served, except Mr. Hembree who attended 67%.
Committees. The committees of the Company's Board of Directors include a compensation committee, an audit committee and a nominating and corporate governance committee. The Directors who are members of the various committees of the Company serve in the same capacity for purposes of the OG&E Board.
The members of the committees during 2002, and the duties and responsibilities of the committees are described below.
Name of Committee Functions of the Number of
and Members Committee Meetings in 2002
Compensation Committee: Oversees 5
Herbert H. Champlin o compensation of principal
Luke R. Corbett* officers
Martha W. Griffin o salary policy
H. L. Hembree, III o benefit programs
Robert Kelley o compensation for outside
Ronald H. White directors
o future compensation objectives
and goals of the Company
Audit Committee: Oversees financial reporting process 6
Herbert H. Champlin o evaluate performance of independent
Luke R. Corbett auditors
William E. Durrett o review and recommend selection of
Robert Kelley* independent auditors
J.D. Williams o discuss with internal and independent
auditors scope and plans for audits,
adequacy and effectiveness of
accounting and financial controls, and
results of their examinations
o review interim financial statements and
annual financial statements to be
included in Form 10-K
Nominating and Corporate
Governance Committee: Reviews and recommends 1
William E. Durrett o nominees for election as directors
Martha W. Griffin o membership of director committees
H.L. Hembree, III o succession plans
Ronald H. White o corporate governance guidelines
J.D. Williams* o evaluation of incumbent directors
* Chairperson
Shareowner Nominations for Directors. It is expected that the nominating committee will consider nominees recommended by shareowners in accordance with our By-laws. Our By-laws provide that, if you intend to nominate director candidates for election at an Annual Meeting of Shareowners, you must deliver written notice to the Corporate Secretary not later than 90 days in advance of the meeting. The notice must set forth certain information concerning you and the nominee(s), including each nominee’s name and address, a representation that you are entitled to vote at such meeting and intend to appear in person or by proxy at the meeting to nominate the person or persons specified in your notice, a description of all arrangements or understandings between you and each nominee and any other person pursuant to which the nomination or nominations are to be made by you, such other information as would be required to be included in a proxy statement soliciting proxies for the election of the nominee(s) and the consent of each nominee to serve as a director if so elected. The chairman of the Annual Meeting may refuse to acknowledge the nomination of any person not made in compliance with the foregoing procedure.
Director Compensation. Compensation of nonofficer directors of the Company during 2002 consisted of an annual retainer fee of $59,000, of which $2,000 was payable monthly in cash (the same amount that has been
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paid monthly since August 1994) and $35,000 was deposited in the director’s account under the Directors’ Deferred Compensation Plan and converted to 2,126.367 common stock units based on the closing price of the Company’s Common Stock on December 2, 2002. Each non-officer director also received a grant during the first quarter of 2002 of stock options to purchase 4,100 shares of the Company’s common stock at an exercise price equal to the fair market value at the date of the grant. The options were granted at the same time and on the same terms as the grant to executive officers. The options have a 10 year term and vest over three years, with one-third of the options becoming exercisable at the end of each year. No stock option grants were made to directors in the first quarter of 2003. In addition, all non-officer directors received $1,000 for each Board meeting and $1,000 for each committee meeting attended. These amounts represent the total fees paid to directors in their capacities as directors of the Company and OG&E.
Under the Directors’ Deferred Compensation Plan, nonofficer directors may defer payment of all or part of their attendance fees and the cash portion of their annual retainer fee, which deferred amounts are credited to their account on the date the deferred amounts otherwise would have been paid.
Amounts credited to the accounts are assumed to be invested in one or more of the investment options permitted under the Plan. During 2002, those investment options included a Company Common Stock fund, whose value was determined based on the stock price of the Company’s Common Stock, a money market fund, a bond fund and several stock funds.
When an individual ceases to be a director of the Company, all amounts credited under the Plan are paid in cash in a lump sum or installments. As an alternative to these investment options, prior to January 1, 2000, a non-officer director could elect to have all or any deferred portion of the attendance fees and the cash portion of the annual retainer fee applied to purchase life insurance for the director. Any deferred attendance or retainer fees used to purchase life insurance may not be transferred to other investment options.
Historically, for those directors who retired from the Board of Directors after 10 years or more of service, the Company and OG&E continued to pay their annual cash retainer until their death. In November 1997, the Board eliminated this retirement policy for directors. Directors who retired prior to November 1997, however, will continue to receive benefits under the former policy.
REPORT OF AUDIT COMMITTEE
The Audit Committee of the Board of Directors of the Company (the “Audit Committee”) oversees the Company’s financial reporting process on behalf of the Board of Directors. Management, however, has the primary responsibility for the financial statements and the reporting process including the systems of internal controls.
The Audit Committee has five members, none of whom has any relationship to the Company that interferes with the exercise of his or her independence from management and the Company, and each of whom qualifies as independent under the standards used by the New York Stock Exchange, where the Company’s shares are listed. The Audit Committee operates under a written charter that has been approved by the Board of Directors. The Audit Committee annually reviews and reasseses the adequacy of its charter. Among other things, the charter specifies the scope of the Audit Committee’s responsibilities and how it carries out those responsibilities, including structure, processes and membership requirements.
In fulfilling its oversight responsibilities regarding the 2002 financial statements, the Audit Committee reviewed with Company management the audited financial statements contained in our Annual Report. The Audit Committee’s review included a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.
The Audit Committee also reviewed the 2002 financial statements with the Company’s independent auditors. The Company’s independent auditors are responsible for expressing an opinion on the conformity of our audited financial statements with generally accepted accounting principles. Our review with the independent auditors included a discussion of the auditors’ judgments as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee under Statement on Auditing Standards No. 61. In addition, the Audit Committee discussed with the independent auditors the auditors’ independence from management and the Company, including the matters in the written disclosures received by the Audit Committee in accordance with the requirements of the Independence Standards Board.
The Audit Committee also discussed with the Company’s internal and independent auditors the overall scope and plans for their respective audits for 2003. The Audit Committee meets with the internal and independent auditors, with and without management present, to discuss the results of their examinations, their evaluations of the Company’s internal controls, and the overall quality of the Company’s financial reporting. The Audit Committee held six meetings during 2002 and the Chairman of the Audit Committee met with the auditors by telephone on a quarterly basis to discuss the Company’s quarterly financial statements.
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Fees For Independent Auditors
As discussed further under the caption “Change of Independent Public Accountants” on page 28, on May 16, 2002, the Company, on the advice of the Audit Committee, dismissed Arthur Andersen LLP as its independent public accountants and engaged Ernst & Young LLP as its independent public accountants for fiscal year 2002. During 2002, Arthur Andersen rendered professional services to the Company in connection with, among other things, the review of the unaudited financial statements included in the Company’s Quarterly Report of Form 10-Q filed with the Securities and Exchange Commission on May 15, 2002. Also during 2002, Ernst & Young rendered professional services to the Company in connection with, among other things the audit of the Company’s annual financial statements for the fiscal years ended December 31, 2000, December 31, 2001 and December 31, 2002 and the reviews of the unaudited financial statements included in the Company’s Quarterly Reports of Form 10-Q filed with the SEC on August 14, 2002 and November 14, 2002.
During 2002, Arthur Andersen provided services to the Company in the following categories and amounts:
Audit Fees $ 14,666 Financial Information Systems Design and Implementation Fees $ 0 All Other Fees 1 $ 283,434
During 2002, Ernst & Young provided services to the Company in the following categories and amounts:
Audit Fees $ 1,122,104 Financial Information Systems Design and Implementation Fees $ 0 All Other Fees 1 $ 892,580
The Audit Committee has considered whether the provision of non-audit services by the Company’s principal independent public accountants is compatible with maintaining auditor independence.
In reliance on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors, and the Board has approved, that the Company’s audited financial statements be included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2002, for filing with the Securities and Exchange Commission. The Audit Committee and the Board selected in March 2003 Ernst & Young as the Company’s independent auditors for 2003. The Board of Directors and the Audit Committee in their discretion may change the selection of the independent auditors at any time during the year if they determine that such change would be in the best interest of the Company and its shareholders.
Audit Committee Robert Kelley, Chairman Herbert H. Champlin, member Luke R. Corbett, member William E. Durrett, member J.D. Williams, member
1 Other Fees include, among other things, tax consulting and compliance, accounting work related to financings, and benefit plan audits.
EXECUTIVE OFFICERS’ COMPENSATION
The Compensation Committee of the Board of Directors of the Company (the “Committee”) administers our executive compensation program. The Committee’s report on compensation paid to executive officers during 2002 is set forth below.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATIONGeneral. The primary goals of the Committee in setting executive compensation in 2002 were: (i) to provide a competitive compensation package that would enable us to attract and retain key executives and (ii) to align the interests of our executives with those of our shareowners and also with our performance.
Compensation to our executive officers in 2002 was comprised primarily of salary, annual awards under our Annual Incentive Compensation Plan and long-term awards under our Stock Incentive Plan. In an effort to ensure the continued competitiveness of our executive compensation policies, the Committee in setting base salaries and making annual and long-term incentive awards considered the compensation paid at the 50th percentile to executives with similar duties within the following three groups: (i) the 2001 Energy Services Industry Executive Compensation Database (the “Energy Services Survey Group”), consisting of approximately 92 electric services organizations, (ii) the 2001 General Industry Executive Compensation Database (the “General Industry Survey Group”), consisting of more than 1200 companies in general industries and (iii) the average of the Energy Services Survey Group
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and the General Industry Survey Group (the “Blended Industry Survey Group”).1 All compensation data from these surveys was size-adjusted so that it would compare to the Company’s or a subsidiary’s revenues, as appropriate, and was updated using a 4.5 percent update factor to reflect anticipated 2002 compensation levels.
The Committee’s intent in setting salaries is to pay competitive rates. The annual and long-term incentive portions of an executive’s compensation are intended to achieve the Committee’s goal of aligning an executive’s interests with our shareowners’ and with our performance. These portions of an executive’s compensation are placed at risk and are linked to the accomplishment of specific results that are designed to benefit our shareowners and the Company, both in the long and short term. As a result, during years of excellent performance, executives are provided the opportunity to earn a highly competitive level of compensation and, conversely, in years of below-average performance, their compensation may be below competitive levels. Generally, higher level executive officers have a greater level of their compensation placed at risk.
A Federal tax law currently limits our ability to deduct an executive’s compensation in excess of $1,000,000 unless such compensation qualifies as “performance based compensation” or certain other exceptions are met. This law did not impact us in 2002. The Committee has continued to analyze the structure of its salary and various compensation programs in light of this law. The Committee’s present intent is to take appropriate steps to ensure the continued deductibility of its executive compensation. For this reason, the Committee and the Board of Directors recommended, and the shareowners approved, the Stock Incentive Plan and a new Annual Incentive Plan at the 1998 Annual Meeting so that certain compensation payable thereunder would qualify for the “performance based compensation” exception to the $1,000,000 deduction limit and thereby continue to be deductible by the Company.
Base Salary. The base salaries for our executive officers in 2002 were designed to be competitive with the Blended Industry Survey Group and generally approximated the salary at the 50th percentile of the range for executives with similar duties in such survey group. Actual base salaries were determined based on individual performance and experience. The salaries of executive officers for 2002 were determined in November 2001, with an effective date of January 1, 2002, other than the salary of Mr. Delaney, which was set immediately prior to his commencement of employment on April 1, 2002. Salaries were subject to adjustment during the year if an individual’s duties and responsibilities changed. The 2002 base salary amounts for the most highly compensated executive officers are shown in the salary column of the Summary Compensation Table on page 14.
Annual Incentive Compensation Plan. Awards with respect to 2002 performance were made under the Annual Incentive Compensation Plan to 65 employees, including all executive officers. The Plan was designed to provide key management personnel with annual incentive awards, the payment of which is tied to the achievement of specified Company objectives. Payouts of the award were in cash and were dependent entirely on the achievement of the corporate goals that were established by the Committee in January and March 2002.
For Messrs. Moore and Strecker, the two most senior executive officers of the Company, the corporate goals were based: (i) 50% on a Company consolidated earnings per share target established by the Committee (the “Earnings Target”), (ii) 25% on a combined operating and maintenance expense and capital expenditure target for the Company and its subsidiaries (other than Enogex and its subsidiaries) established by the Committee (the “O&M/Capital Target”), and (iii) 25% on a combined return on invested capital target established by the Committee for OG&E’s power supply business unit, Enogex and Enogex’s subsidiaries (the “ROIC Target”). For Mr. Delaney, who joined the Company on April 1, 2002, the corporate goals were based: (i) 30% on the Earnings Target, (ii) 25% on the ROIC Target, (iii) 25% on an earnings before interest target established by the Committee for Enogex and its subsidiaries (the “EBIT Target”), and (iv) 20% on specific process improvement goals established by the Committee for Enogex and its subsidiaries. For other executive officers, such as Mr. Hatfield, who do not direct a specific business operating unit, the corporate goals were based: (i) 45% on the Earnings Target, (ii) 22.5% on the O&M/Capital Target, (iii) 22.5% on the ROIC Target, and (iv) 10% on the performance of all other corporate goals established by the Committee for participants in the Plan. For executive officers who did direct a specific business operating unit, the corporate goals were based: (i) 45% on the Earnings Target described above, (ii) either 30% on the O&M/Capital Target, or 45% on the ROIC Target; (iii) either 25% or 10% on specific corporate goals established by the Committee for the business unit (including, such items as safety, customer satisfaction, process improvements and power plant availability).
1 The companies in the Energy Services Survey Group, General Industry Survey Group and Blended
Industry Survey Group are not the same as the companies in the Dow Jones U.S. Electric Utilities
Index utilized in the Stock Performance Graph on page 18. The survey groups were selected by
Towers Perrin, the Company’s compensation consultants, and, in the judgment of the Committee,
are appropriate peer groups to consider for compensation purposes.
11
The amount of the award for each executive officer was expressed as a percentage of base salary (the “targeted amount”), with the officer having the ability, depending upon achievement of the corporate goals, to receive from 0% to 150% of such targeted amount. For 2002, the targeted amount ranged from 25% to 75% of base salary and approximated the 50th percentile of the level of such awards granted to comparable executives in the Blended Industry Survey Group.
The percentage of the targeted amount that an officer ultimately received based on corporate performance was subject to being decreased, but not increased, at the discretion of the Committee. For 2002, corporate performance of the Earnings Target, the EBIT Target and the ROIC Target did not meet the minimum level of performance established by the Committee for a payout. Corporate performance of the O&M/Capital Target and certain of the remaining specific corporate goals for business units exceeded the minimum levels of achievement established by the Committee and resulted in total payouts under the Annual Incentive Plan to executive officers ranging from 3.5% to 19.7% of their base salaries and from 8.7% to 65.7% of their targeted amounts. Payouts under the Annual Incentive Plan are reflected in the bonus column of the Summary Compensation Table on page 14.
Long-Term Awards. Another significant component of executive compensation in 2002 was long-term awards under our Company’s Stock Incentive Plan, which, as noted above, also was approved by the shareowners at the 1998 Annual Meeting. The Plan provides for the grant of any or all of the following types of awards: stock options, stock appreciation rights, restricted stock and performance units. In 2002, the Committee made awards of stock options. In making awards of stock options, the Committee considered numerous factors as discussed below and reviewed the expected value of long-term compensation payable to executives in the 50th percentile of the Energy Services Survey Group and the 50th percentile of the Blended Industry Survey Group. The expected value of long-term compensation payable to the most senior level executives in the 50th percentile of the Blended Industry Survey Group was substantially higher than the expected value of long-term compensation payable to comparable executives in the 50th percentile of the Energy Services Survey Group and substantially higher than the expected value of long-term compensation awarded by the Committee in the past to comparable executive officers at the Company. While the Committee intends to continue to consider the long-term compensation payable to comparable executives in the 50th percentile of the Blended Industry Survey Group in awarding long-term compensation to the Company’s executive officers, the Committee’s intent generally in 2002 was to provide executive officers with an aggregate value of long-term compensation equal to the expected value of long-term incentives payable to comparable executives in the 50th percentile of the Energy Services Survey Group.
Historically, the Committee has awarded long-term compensation in the forms of stock options, which are typically awarded during the first quarter of a calendar year, and restricted stock, which are typically awarded during the fourth quarter of a calendar year. At the time of making the grant of stock options in the first quarter of 2002, the Committee anticipated that 75% of an executive’s long-term compensation award would be made in stock options and 25% would be made in restricted stock in the fourth quarter of 2002. At its meeting in the fourth quarter of 2002, the Committee chose to discontinue awarding restricted stock and, instead, to make awards of stock options and performance units commencing in 2003. The result of this decision was that executives generally received long-term compensation awards in 2002 consisting of stock options with an anticipated value of 75% of the expected value of long-term incentives to executives with comparable positions in the 50th percentile of Energy Services Survey Group.
The stock options were granted to executive officers during the first quarter of 2002 (other than the grant to Mr. Delaney, which was made on his commencement of employment on April 1, 2002) at an exercise price equal to the fair market value at the date of the grant. The options have a 10 year term and vest over 3 years, with one-third of the options becoming exercisable at the end of each year. Since options were granted with an exercise price equal to the market value of our Common Stock at the time of grant, they provide no value unless our stock price increases after the options are granted. These awards are thus tied to stock price appreciation in excess of the stock’s value at time of grant, rewarding executives as if they shared in the ownership of the Company. The number of shares subject to options for each executive officer was determined by taking the expected value to be provided in options, as determined above, and dividing that amount by the estimated current value of an option for our stock using a variation of the Black-Scholes Option Pricing methodology provided by an outside compensation consultant. This resulted in executive officers receiving stock options with an estimated value of approximately 18.75% to 108.75% of their 2002 base salaries.
CEO Compensation. The 2002 compensation for Mr. Moore consisted of the same components as the compensation for other executive officers. Mr. Moore’s 2002 salary was increased from $650,000 to $710,000, effective January 1, 2002, and his 2002 targeted award under the Annual Incentive Plan was set at 75% of this base salary, which the Compensation Committee be-
12
lieved were appropriate levels based on his performance and his prior experience. As a result of 2002 corporate performance described above, he received a payout of $149,885, representing approximately 21.1% of his base salary and less than 29% of his targeted award. The award of stock options made to Mr. Moore was based on his prior performance and a comparison of his award to 75% of the long-term compensation of other chief executive officers in the 50th percentile of the Energy Services Company Survey Group. Consideration also was given to Mr. Moore’s prior experience with the Company and OG&E, his demonstrated leadership skills and his positive reputation within the community and utility industry. Based on these factors, the Committee determined to grant Mr. Moore stock options having an expected value of approximately 108.75% of his 2002 base salary.
Other Actions. In March 2002, the Committee approved the hiring of Mr. Delaney as Executive Vice President and Chief Executive Officer - Unregulated and a three year employment agreement for Mr. Delaney. The terms of Mr. Delaney’s agreement are described below under “Employment Agreements and Change of Control Agreements.” In July 2002, the Committee approved a severance agreement for Mr. Farrell. Under the agreement, Mr. Farrell continued as President and CEO of Enogex until November 30, 2002, at which time he was succeeded by Mr. Delaney. The terms of Mr. Farrell’s severance agreement are described in footnote 5 of the Summary Compensation Table on page 14.
Other Benefits. Virtually all of our employees, including executive officers, are eligible to participate in the Retirement Savings Plan and pension plan. Both the Retirement Savings Plan and pension plan have supplemental restoration plans that enable executive officers to receive the same benefits that they would have received in the absence of limitations imposed by the federal tax laws on contributions or payouts. In addition, a Supplemental Executive Retirement Plan (the “SERP”), which was adopted in 1993, offers attractive pension benefits to lateral hires. No officer, other than Mr. Delaney, participated in the SERP during 2002. The SERP is not expected to benefit other existing executive officers generally who remain employed by the Company or OG&E until age 65. In reviewing the benefits under the SERP, Retirement Savings Plan, pension plan and related restoration plans, the Committee sought in 2002 to provide participants with benefits at least commensurate with those offered by other utilities of comparable size. The restoration plans for the Retirement Savings Plan and pension plan contain provisions requiring their immediate funding in the event of certain mergers, consolidations or tender offers involving the Company.
Conclusion. The Committee believes that our Company's executive compensation system serves the interests of the Company and our shareowners effectively. The Committee takes very seriously its responsibilities with respect to our executive compensation system. To this end, the Committee will continue to monitor and revise the compensation policies as necessary to ensure that our compensation system continues to meet the needs of the Company and our shareowners.
Compensation Committee
Luke R. Corbett, Chairman
Herbert H. Champlin, member
Martha W. Griffin, member
Hugh L. Hembree, III, member
Robert Kelley, member
Dr. Ronald H. White, member
13
The following table provides information regarding compensation paid or to be paid by us or any of our subsidiaries to the Chief Executive Officer and four other most highly compensated executive officers for the past three years, plus one additional officer who resigned during the year. To the extent the table shows zeros for other annual compensation or payouts under long-term incentive plans for a particular year, no amounts were required to be reported in such year or, in the case of other annual compensation, the amounts were below the threshold required for disclosure under the SEC’s rules.
Long Term Compensation
------------------------------
Annual Compensation Awards Payouts
------------------------------ ---------------------- -------
Other Restricted Securities All Other
Annual Stock Underlying LTIP Compensation
Name and Principal Salary Bonus(1) Compensation Awards(2) Options/ Payouts (3)
Position Year ($) ($) ($) ($) SAR(#) ($) ($)
- ------------------ ---- ------ -------- ------------- ---------- ----------- ------- ------------
S.E. Moore, Chairman, 2002 710,000 149,885 0 0 218,500 0 35,361
President and 2001 650,000 0 0 297,478 104,700 0 55,215
Chief Executive Officer 2000 575,000 245,154 0 296,629 77,800 0 40,762
A.M. Strecker 2002 460,000 84,161 0 0 97,600 0 26,186
Executive Vice President 2001 420,000 0 0 132,918 43,300 0 34,112
and Chief Operating 2000 370,000 131,459 0 122,661 35,000 0 28,427
Officer
P.B. Delaney (4) 2002 300,000 24,192 0 0 84,900 0 156,577
E.V.P. Finance and
Strategic Planning and
CEO - Enogex Inc.
J.R. Hatfield 2002 310,000 52,205 0 0 55,900 0 16,921
Sr. Vice President and 2001 275,000 7,035 0 76,141 21,300 0 21,560
Chief Financial Officer 2000 240,000 76,744 0 60,217 17,900 0 15,738
J.T. Coffman 2002 255,000 8,883 0 0 32,500 0 20,036
Sr. Vice President 2001 235,000 4,379 0 44,198 18,200 0 22,580
Power Supply 2000 225,000 68,144 0 51,455 16,700 0 20,625
R.A. Farrell (5) 2002 297,917 3,604 0 0 58,600 0 19,332(5)
Former President and 2001 325,000 2,971 0 79,811 25,100 0 23,757
Chief Executive Officer 2000 280,000 81,138 0 71,181 20,800 0 14,263
Enogex Inc.
(1) As explained on page 12, amounts in this column reflect payouts under
the Annual Incentive Compensation Plan.
(2) Amounts in this column reflect the market value of the shares of
Restricted Stock awarded under the existing Stock Incentive Plan,
based on the closing price of the Company's Common Stock on the date
the award was made. No shares were awarded in 2002. The number of
shares awarded in 2001 and 2000, was as follows: (i) Mr. Moore, 12,889
shares and 11,985 shares, respectively; (ii) Mr. Strecker, 5,759
shares and 4,956 shares, respectively; (iii) Mr. Hatfield, 3,299
shares and 2,433 shares, respectively; (iv) Mr. Coffman, 1,917 shares
and 2,079 shares, respectively, and (v) Mr. Farrell, 3,458 shares and
2,876 shares, respectively. In the absence of death, disability or
normal retirement, the shares awarded to these individuals are subject
to forfeiture for three years with the amount the recipient ultimately
receives dependent on Company performance. The total number of shares
and market value of Restricted Stock held by each of the named
individuals as of December 31, 2002, were as follows: Mr. Moore,
35,959 shares, $632,878; Mr. Strecker, 15,708 shares, $276,461; Mr.
Delaney, 0 shares, $0; Mr. Hatfield, 8,276 shares, $145,658; and Mr.
Coffman, 6,379 shares, $112,270. Dividends are paid to these
individuals on the shares of Restricted Stock owned by them.
(3) Amounts in this column for 2002 reflect: (i) for Mr. Moore, $31,950
(Retirement Savings Plan and Deferred Compensation Plan) and $3,411
(insurance premiums); (ii) for Mr. Strecker, $20,700 (Retirement
Savings Plan and Deferred Compensation Plan) and $5,486 (insurance
premiums); (iii) Mr. Delaney, $0 (Retirement Savings Plan and Deferred
Compensation Plan), $3,330 (insurance premiums) and $153,247 for
temporary housing, moving and similar expenses for relocating from his
prior residence to Oklahoma City; (iv) for Mr. Hatfield, $6,000
(Retirement Savings Plan and Deferred Compensation Plan) and $10,921
(insurance premiums); (v) for Mr. Coffman, $11,561 (Retirement Savings
Plan and Deferred Compensation Plan) and $8,475 (insurance premiums),
and (vi) for Mr. Farrell, $9,027 (Retirement Savings Plan and Deferred
Compensation Plan) and $10,305 (insurance premiums). A significant
portion of the insurance premiums reported for each of these
individuals is for life insurance policies and such premiums are
recovered by the Company from the proceeds of the policies.
(4) Mr. Delaney joined the Company effective April 1, 2002.
(5) Mr. Farrell resigned effective December 1, 2002. Pursuant to an
agreement, dated as of August 1, 2002, entered into in connection with
his resignation, Mr. Farrell is entitled to receive: (i) outplacement
services not to exceed $35,000, (ii) continued payment until August 1,
2003 of an amount equal to his base salary, (iii) if he has not been
employed by a new employer by August 1, 2003, continued payment until
the earlier of January 31, 2004 or the date he is employed by a new
employer, of the amount equal to his base salary; and (iv) continued
medical and dental benefits until January 31, 2004.
14
The following table indicates for each of the named executives (i) the extent to which the Company used stock options and SARs for executive compensation purposes in 2002 and (ii) the potential value of such options and SARs as determined pursuant to the SEC rules.
Options and SARs Granted in 2002
Potential Realizable Value
at Assumed Annual Rates
of Stock Price
Individual Grants Appreciation for Option Term
----------------------- ----------------------------
(a) (b) (c) (d) (e) (f) (g)
% of Total Options
and SARs Granted to Exercise or
Options/SARs Employees Base Price Expiration
Name Granted(1)# in 2002 ($/Share) Date 5%($)(2) 10%($)(2)
---- ------------ ------------------- ----------- ---------- -------- ----------
S.E. Moore 218,500 22.87 $22.23 1/16/12 $3,054,702 $7,741,214
A.M. Strecker 97,600 10.21 $22.23 1/16/12 1,364,480 3,457,860
P.B. Delaney 84,900 8.89 $22.70 3/15/12 1,212,025 3,071,508
J.R. Hatfield 55,900 5.85 $22.23 1/16/12 781,500 1,980,475
J.T. Coffman 32,500 3.40 $22.23 1/16/12 454,361 1,151,439
R.A. Farrell 58,600 6.13 $22.23 1/16/12 819,247 2,076,133
(1) Options were granted on January 16, 2002 (other than the grant to Mr.
Delaney, which was made on his commencement of employment on April 1,
2002) and become exercisable in one-third annual installments
beginning one year from the date of grant. No SARs were awarded for
2002.
(2) The hypothetical potential appreciation shown in columns (f) and (g)
for the named executives is required by the SEC rules. The amounts in
these columns do not represent either the historical or anticipated
future level of appreciation of our Common Stock.
The following table indicates for each of the named executives the number and value of exercisable and unexercisable options and SARs as of December 31, 2002.
Aggregated Option and SAR Exercises in 2002and FY-End Option/SAR Value
(a) (b) (c) (d) (e)
Number of Unexercised Value of Unexercised In-the-
Options and SARs at 12/31/02 Money Options and SARs at
Shares Acquired on Realized (#) - Exercisable (ex)/ 12/31/02 ($)-Exercisable(ex)/
Name Exercise (#) Value ($) Unexercisable (unex) Unexercisable (unex) *
---- ------------ --------- ---------------------------- -----------------------------
S.E. Moore N/A N/A 263,566 (ex) $0 (ex)
314,234 (unex) 0 (unex)
A.M. Strecker N/A N/A 122,366 (ex) 0 (ex)
138,134 (unex) 0 (unex)
P.B. Delaney N/A N/A 0 (ex) 0 (ex)
84,900 (unex) 0 (unex)
J.R. Hatfield N/A N/A 47,733 (ex) 0 (ex)
76,067 (unex) 0 (unex)
J.T. Coffman N/A N/A 45,899 (ex) 0 (ex)
50,201 (unex) 0 (unex)
R.A. Farrell N/A N/A 72,432 (ex) 0 (ex)
0 (unex) 0 (unex)
* Share price on December 31, 2002 was $17.60. Options vest over 3 years with one-third becoming
exercisable at the end of each year. Unexercisable options were granted on January 19, 2000
at a price of $18.25, January 17, 2001 at a price of $22.50, and January 16, 2002 at a price of
$22.23. No SARs were granted in 2002.
15
The Company and OG&E maintain a qualified non-contributory pension plan (the “Retirement Plan”) covering all employees who have completed one year’s service. Subject to limitations imposed by the Employee Retirement Income Security Act of 1974 (“ERISA”), benefits payable under the Retirement Plan are based upon (i) the average of the five highest consecutive years of cash compensation (which for the executives named in the Summary Compensation Table prior to 1993 consisted solely of salaries and for subsequent years consists of salary and bonus) during an employee’s last ten years prior to retirement and (ii) length of service. Social Security benefits are deducted in determining benefits payable under the Retirement Plan. Compensation covered by the Retirement Plan includes salaries, bonuses and overtime pay. Previously, benefits were reduced for each year prior to age 62 that an employee retired and were significantly reduced for retirement prior to age 55. The changes adopted in 2000 included: (i) elimination of the significant reduction for employees electing to retire before age 55, (ii) the addition of an alternative method of computing the reduction in benefits for an employee retiring prior to age 62, which alternative method is based on years of service and age with an employee whose age and years of service total or exceed 80 at the time of retirement receiving no reduction in the benefits payable under the plan, and (iii) the ability of an employee at time of retirement to receive, in lieu of an annuity, a lump-sum payment equal to the present value of the annuity. Also, for employees hired after January 31, 2000, the pension plan will be a cash balance plan, under which the Company annually will contribute to the employee’s account an amount equal to 5% of the employee’s annual compensation plus accrued interest. Employees hired prior to February 1, 2000 receive the greater of the cash balance formula or final average compensation formula. Retirement benefits are payable to participants upon normal retirement (at or after age 65) or early retirement (at or after attaining age 55 and completing five or more years of service), to former employees after reaching retirement age who have completed five or more years of service before terminating their employment and to participants after reaching retirement age upon total and permanent disability. As indicated above, the benefits payable under the Plan are subject to maximum limitations under ERISA. Should benefits for a participant at the time of retirement exceed the then permissible limits of ERISA, the Retirement Restoration Plan will provide benefits through a lump-sum distribution actuarially equivalent to the amounts that would have been payable to such participant annually under the Retirement Plan but for the ERISA limits. The Company and OG&E fund the estimated benefits payable under the Retirement Restoration Plan through contributions to a trust for the benefit of those employees who will be entitled to receive payments under the Retirement Restoration Plan.
The following table sets forth the estimated annual benefits payable upon normal retirement under the Retirement Plan and Retirement Restoration Plan to persons in the compensation classification specified.
Average Years of Service at Retirement Compensation -------------------------------------------------------------------------------- 5 Highest Years 10 15 20 25 30 35 40 45 =============================================================================================== $ 100,000 $ 12,935 $ 19,402 $ 25,870 $ 32,337 $ 38,804 $ 45,272 $ 51,739 $ 58,207 125,000 16,685 25,027 33,370 41,712 50,054 58,397 66,739 75,082 150,000 20,435 30,652 40,870 51,087 61,304 71,522 81,739 91,957 175,000 24,185 36,277 48,370 60,462 72,554 84,647 96,739 108,832 200,000 27,935 41,902 55,870 69,837 83,804 97,772 111,739 125,707 225,000 31,685 47,527 63,370 79,212 95,054 110,897 126,739 142,582 250,000 35,435 53,152 70,870 88,587 106,304 124,022 141,739 159,457 300,000 42,935 64,402 85,870 107,337 128,804 150,272 171,739 193,207 350,000 50,435 75,652 100,870 126,087 151,304 176,522 201,739 226,957 400,000 57,935 86,902 115,870 144,837 173,804 202,772 231,739 260,707 450,000 65,435 98,152 130,870 163,587 196,304 229,022 261,739 294,457 500,000 72,935 109,402 145,870 182,337 218,804 255,272 291,739 328,207 550,000 80,435 120,652 160,870 201,087 241,304 281,522 321,739 361,957 600,000 87,935 131,902 175,870 219,837 263,804 307,772 351,739 395,707 650,000 95,435 143,152 190,870 238,587 286,304 334,022 381,739 429,457 700,000 102,935 154,402 205,870 257,337 308,804 360,272 411,739 463,207 750,000 110,435 165,652 220,870 276,087 331,304 386,522 441,739 496,957 800,000 117,935 176,902 235,870 294,837 353,804 412,772 471,739 530,707 850,000 125,435 188,152 250,870 313,587 376,304 439,022 501,739 564,457 900,000 132,935 199,402 265,870 332,337 398,804 465,272 531,739 598,207 950,000 140,435 210,652 280,870 351,087 421,304 491,522 561,739 631,957 1,000,000 147,935 221,902 295,870 369,837 443,804 517,772 591,739 665,707
As of December 31, 2002, the credited years of service for the individuals listed in the Summary Compensation Table on page 14 are as follows: S. E. Moore - 28 years; A. M. Strecker - 31 years; P.B. Delaney - less than 1 year; J. R. Hatfield - 8 years; J. T. Coffman - 32 years and R.A. Farrell - 13 years.
16
In 1993, OG&E adopted a Supplemental Executive Retirement Plan (the “SERP”). The SERP is an unfunded supplemental plan that is not subject to the benefits limit imposed by ERISA. The plan generally provides for an annual retirement benefit at age 65 equal to 65% of the participant’s average cash compensation during his or her final 36 months of employment, reduced by Social Security benefits, by amounts payable under the Retirement and Restoration Plans described above and by amounts received under pension plans from other employers. For a participant in the SERP who retires before age 65, the 65% benefit is reduced, with the reduction being 1% per year for ages 62 through 64, an additional 2% per year for ages 60 through 61, an additional 4% per year for ages 58 through 59 and an additional 6% per year for ages 55 through 57, so that a participant retiring at age 55 would receive 32% of his average cash compensation during his final 36 months, reduced by the deductions set forth above. Other than Mr. Delaney, no employee participated in the SERP during 2002. If selected to participate, none of the other individuals listed in the Summary Compensation Table on page 14 is expected to receive benefits under the SERP at normal retirement as the benefits payable to such individuals under the Retirement and Restoration Plans are expected to exceed the benefits payable under the SERP.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTSEffective April 1, 2002, Mr. Peter Delaney entered into an employment agreement with the Company. The agreement extends through March 31, 2005. Under the terms of the agreement, Mr. Delaney will serve as an Executive Vice President of the Company and as the Chief Executive Officer of the Company's unregulated businesses. Mr. Delaney will be entitled to an annual base salary of not less than $400,000, subject to annual review and possible increase by the Board of Directors or the Compensation Committee. Mr. Delaney also will be entitled to participate in the Company's annual incentive plan and long-term stock incentive plan. Under the terms of the agreement, Mr. Delaney's annual target award under the annual incentive plan will be at least $240,000 (60% of his initial base salary) and Mr. Delaney's annual target award under the stock incentive plan will be at least $400,000 (100% of his initial base salary). In addition, Mr. Delaney will be entitled to (i) participate in all employee benefit plans and fringe benefits of the Company or an affiliate provided generally to executives of the Company, (ii) relocation expenses, and (iii) participate in the Company's Supplemental Executive Retirement Plan (which is described above on this page 17).
Under the agreement, if Mr. Delaney's employment is terminated prior to March 31, 2005, due to death, disability or cause, he will be entitled to (i) his unpaid base salary through the date of termination, and (ii) accrued and unused vacation days, to the extent, and in the amount, if any, provided under the Company's usual policies and arrangements. These amounts are in addition to any benefits that Mr. Delaney at the time of his termination would be entitled to receive under the terms of any existing life insurance or disability policy or bonus, stock or other plan of the Company. If the Company terminates Mr. Delaney's employment prior to March 31, 2005 for any reason other than death, disability or cause, Mr. Delaney will be entitled to: (i) unpaid base salary through the date of termination, (ii) accrued and unused vacation days, to the extent, and in the amount, if any, provided under the Company's usual policies and arrangements, (iii) continued payment of base salary to March 31, 2005, and (iv) payment, within 15 days of termination, of annual and long-term incentive compensation, in amounts equal to the sum of the minimum annual target payouts, for the remainder of the term of the agreement. These payments are to be in lieu of any severance payouts to which Mr. Delaney may be entitled under any severance pay plan of the Company. If Mr. Delaney is entitled to benefits under this employment agreement and the change-of-control agreement described below, any payments or benefits to be paid under the employment agreement will be reduced by the amount of any comparable payments or benefits to which Mr. Delaney is or becomes entitled to under the terms of the change of control agreement. Mr. Delaney has agreed that he will not, without the prior written consent of the Board, compete with the Company during the term of the agreement and for one year following his termination.
The Company and OG&E also have entered into employment agreements with each officer of the Company and OG&E. Under the agreements, the officer is to remain an employee for a three-year period following a change of control of the Company (the "Employment Period"). During the Employment Period, the officer is entitled to (i) an annual base salary in an amount at least equal to his or her base salary prior to the change of control, (ii) an annual bonus in an amount at least equal to his or her highest bonus in the three years prior to the change of control, and (iii) continued participation in the incentive, savings, retirement and welfare benefit plans. The officer also is entitled to payment of expenses and provision of fringe benefits to the extent paid or provided to (a) such officer prior to the change of control or (b) other peer executives of the Company.
If, during the Employment Period, the officer's employment is terminated by the employer for reasons other than cause or disability or by such officer due to a change in employment responsibilities, the officer is entitled to the following payments: (i) all accrued and unpaid compensation and (ii) a severance payment equal to 2.99 times the sum of such
17
officer's (a) annual base salary and (b) highest recent annual bonus. The officer also is entitled to continued welfare benefits for three years and outplacement services. If the payment of the foregoing benefits, when taken together with any other payments to the officer, would result in the imposition of the excise tax on excess parachute payments under Section 4999 of the Internal Revenue Code of 1986, as amended, then the severance benefits will be reduced if such reduction results in a greater after-tax payment to the officer. The officer is entitled to receive such amounts in a lump-sum payment within 30 days of termination. A change of control encompasses certain mergers and acquisitions, changes in Board membership and acquisition of securities of the Company.
The Company entered into an agreement with Mr. Roger Farrell in connection with his resignation. The terms of this agreement are summarized in footnote 5 on page 14.
COMPANY STOCK PERFORMANCE
The following graph shows a five-year comparison of cumulative total returns for the Company's Common Stock, the Dow Jones US Total Market Index and the Dow Jones US Electric Index. The graph assumes that the value of the investment in the Company's Common Stock and each index was 100 at December 31, 1997, and that all dividends were reinvested. As of March 1, 2003, the closing price of the Company's common stock on the New York Stock Exchange was $17.37.
[Graph]
OGE Dow Jones Dow Jones
Measurement Period Energy US Electric US Total
(Fiscal Year Covered) Corp. Utilities Index Market Index
- --------------------- ------ --------------- ------------
1997 100 100 100
1998 113 115 125
1999 78 98 153
2000 107 155 139
2001 108 123 122
2002 87 95 95
18
The following table shows the number of shares of the Company's Common Stock beneficially owned on March 1, 2003, by each Director, by each of the Executive Officers named in the compensation table on page 14, and by all Executive Officers and Directors as a group:
Number of Common Number of Common
Shares(1)(2)(3) Shares (1)(2)(3)
Herbert H. Champlin 36,278 S.E. Moore 507,902
Luke R. Corbett 19,609 A.M. Strecker 251,429
William E. Durrett 20,389 P.B. Delaney 29,800
Martha W. Griffin 20,531 J.R. Hatfield 107,700
John D. Groendyke 20,000 J.T. Coffman 92,222
Hugh C. Hembree III 61,516
Robert Kelley 20,744 All Executive Officers and 1,430,332
Ronald H. White 26,092 Directors as a group
J.D. Williams 16,993 (21 persons)
(1) Ownership by each executive officer is less than .65% of the class, by each
director other than Mr. Moore is less than .08% of the class and, for all
executive officers and directors as a group, is less than 1.82% of the
class. Amounts shown include shares for which, in certain instances, an
individual has disclaimed beneficial interest. Amounts shown for executive
officers include 1,281,379 shares of Common Stock representing their
interest in shares held under the Company's Retirement Savings Plan,
Officer's Deferred Compensation Plan, and Stock Incentive Plan for which in
certain instances they have voting power but not investment power.
(2) Amounts shown for Messrs. Champlin, Corbett, Durrett, Groendyke, Hembree,
Kelley, White, and Williams and for Mrs. Griffin include, 31,999; 17,273;
13,997; 0; 40,122; 17,712; 22,060; 2,935 and 12,839 common stock units,
respectively, under the Directors' Deferred Compensation Plan.
(3) Includes shares subject to stock options granted under the Company's Stock
Incentive Plan, exercisable within 60 days following March 1, 2003, as
follows: each non-officer director except Mr. Groendyke, 2,032 shares; Mr.
Moore, 397,233 shares; Mr. Strecker, 180,999 shares; Mr. Delaney, 28,300
shares; Mr. Hatfield, 79,433 shares; and Mr. Coffman, 68,366 shares.
The information on share ownership is based on information furnished to us by the individuals listed above and all shares listed are beneficially owned by the individuals or by members of their immediate family unless otherwise indicated.
EQUITY COMPENSATION PLAN INFORMATIONThe following table provides certain information as of December 31, 2002 with respect to the shares of the Company's Common Stock that may be issued under the existing equity compensation plans:
A B C
---------------- -------------- ----------------------
Number of Securities
Number of Remaining Available
Securities to be for future issuances
Issued upon Weighted under equity
Exercise of Average Price compensation plans
Plan Category Outstanding of Outstanding (excluding securities
Options Options reflected in Column A)
---------------- -------------- ----------------------
Equity Compensation Plans
Approved by
Shareowners (1) 2,419,360 $23.44 1,299,118(2)
Equity Compensation Plans
Not Approved by
Shareowners 0 N/A N/A
(1) Consists of the OGE Energy Corp. Stock Incentive Plan, which was approved
by shareowners at the 1998 annual meeting.
(2) Awards under the Stock Incentive Plan can take the form of stock options,
stock appreciation rights, restricted stock or performance units.
19
REPORTING COMPLIANCE
Under federal securities laws, our directors and executive officers are required to report, within specified monthly and annual due dates, their initial ownership in the Company's common stock and subsequent acquisitions, dispositions or other transfers of interest in such securities. We are required to disclose whether we have knowledge that any person required to file such a report may have failed to do so in a timely manner. Except as described in the immediately succeeding two sentences, to our knowledge, all of our directors and officers subject to such reporting obligations have satisfied their reporting obligations in full for 2002. Messrs. Champlin, Corbett, Durrett, Hembree, Kelley, White, Williams, Bowen, Coffman, Davis, Gerdes, Kurtz, Moore, Rowlett, Strecker, Weekes, and Ms. Griffin each failed to timely file two reports on Form 4 regarding the accrual of phantom stock units under the Company's deferred compensation plan. Each such person filed the required Form 4 approximately two months late. Mr. Groendyke failed to timely file one report on Form 4 regarding an acquisition of Company common stock in February 2003. He filed the report approximately one week late.
PROPOSAL NO. 2 - APPROVAL OF
OGE ENERGY CORP. 2003 STOCK INCENTIVE PLAN
The Board of Directors has approved and recommended the adoption of the OGE Energy Corp. 2003 Stock Incentive Plan (the "Stock Incentive Plan"), subject to approval by the Company's shareowners. The Stock Incentive Plan is intended to replace the OGE Energy Corp. Stock Incentive Plan, which was approved by shareowners at the 1998 annual meeting (the "current stock incentive plan"). It is anticipated that no further awards will be granted under the current stock incentive plan.
The purpose of the Stock Incentive Plan is to enable the Company and its subsidiaries and other Affiliates (as defined in the Stock Incentive Plan) to attract, retain and motivate non-employee directors, officers and employees and to provide the Company and its Affiliates with the ability to provide incentives more directly linked to the profitability of the Company's businesses and increases in shareowner value and the enhancement of performance relating to customers.
The Stock Incentive Plan has been designed to comply with limits imposed by the tax laws on the ability of a public company to claim tax deductions for compensation paid to certain highly compensated executives. Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), generally denies a corporate tax deduction for annual compensation exceeding $1,000,000 paid to the chief executive officer and the four other most highly compensated officers of a public company ("Covered Employees"). Certain types of compensation, including performance-based compensation, are generally excluded from this deduction limit. In an effort to ensure that stock awards under the Stock Incentive Plan will qualify as performance-based compensation, which is generally deductible, the Stock Incentive Plan is being submitted to shareowners for approval at the Annual Meeting. While the Company believes compensation payable pursuant to the Stock Incentive Plan generally will be deductible for federal income tax purposes, under certain circumstances such as death, disability and change of control (all as defined in the Stock Incentive Plan), compensation not qualified under Section 162(m) of the Code may be payable. By approving the Stock Incentive Plan, the shareowners will be approving, among other things, the performance measures, eligibility requirements and limits on various stock awards contained therein.
Set forth below is a summary of certain important features of the Stock Incentive Plan. This summary is qualified in its entirety by reference to the actual plan attached hereto as Annex A.
Administration.
The Stock
Incentive Plan will be administered by the Compensation Committee of the Board
of Directors of the Company or such other committee of the Board as the Board
may from time to time designate, which will be composed solely of not less than
two "disinterested persons" for purposes of Rule 16b-3 under the Securities
Exchange Act of 1934 who also qualify as "outside directors" for purposes of
Section 162(m) of the Code. Among other things, the Compensation Committee will
have the authority, subject to the terms of the Stock Incentive Plan, to select
non-employee directors, officers and employees to whom awards may be granted, to
determine the type of award as well as the number of shares of Common Stock to
be covered by each award, and to determine the terms and conditions of any such
awards. The Compensation Committee also will have the authority to adopt, alter
and repeal such administrative rules, guidelines and practices governing the
Stock Incentive Plan as it deems advisable, to construe and interpret the terms
and provisions of the Stock Incentive Plan and any awards issued thereunder and
to otherwise supervise the administration of the Stock Incentive Plan. All
decisions made by the Compensation Committee pursuant to the Stock Incentive
Plan will be final and binding.
20
Eligibility.
Officers and
employees of the Company and its Affiliates designated by the Compensation
Committee who are responsible for or contribute to the management, growth and
profitability of the Company and nonemployee directors of the Company are
eligible to be granted awards under the Stock Incentive Plan.
Plan Features.
The Stock Incentive
Plan authorizes the issuance of up to 2,700,000 shares of Common Stock pursuant
to the grant or exercise of incentive stock options ("ISOs"), nonqualified stock
options, stock appreciation rights ("SARs"), restricted stock and performance
units, but not more than 500,000 shares may be issued as restricted stock. All
2,700,000 shares will be available for issuance upon exercise of ISOs. No single
participant may be granted awards pursuant to the Stock Incentive Plan covering
in excess of 500,000 shares (5,000 shares for non-employee directors) of Common
Stock in any one calendar year and all such awards may be granted as stock
options or SARs, if any. No participant may be granted performance units in any
one calendar year payable in cash in an amount that would exceed $1,000,000
($15,000 for non-employee directors). Subject to the foregoing limits, the
shares available under the Stock Incentive Plan can be divided among the various
types of awards and among the participants as the Compensation Committee sees
fit. The shares subject to grant under the Stock Incentive Plan are to be made
available from authorized but unissued shares or from treasury shares as
determined from time to time by the Board. Awards may be granted for such terms
as the Compensation Committee may determine, except that the term of an ISO may
not exceed ten years from its date of grant. Awards will not be transferable,
except by will and the laws of descent and distribution and, in the case of
nonqualified stock options and any related SARs, as a gift to an optionee's
children. The Compensation Committee will have broad authority to fix the terms
and conditions of individual agreements with participants.
Description of Awards.
As indicated above,
several types of stock-related grants can be made under the Stock Incentive
Plan. The Compensation Committee will have the authority to determine the
non-employee directors, officers and employees to whom and the time or times at
which awards may be granted. A summary of these grants is set forth
below:
Stock Options. The Stock Incentive Plan authorizes the Compensation Committee to grant options to purchase Common Stock at an exercise price (the "option price") which cannot be less than 100% of the fair market value of such stock on the date of grant. The Stock Incentive Plan permits optionees, with the approval of the Compensation Committee, to pay the exercise price of options in cash, stock (valued at its fair market value on the date of exercise) or a combination thereof. As noted above, options may be granted either as ISOs or nonqualified options. The principal difference between ISOs and nonqualified options is their tax treatment. See "--Federal Income Tax Consequences."
SARs. The Stock Incentive Plan authorizes the Compensation Committee to grant SARs in conjunction with all or part of any stock option granted under the Stock Incentive Plan. An SAR entitles the holder to receive upon exercise the excess of the fair market value of a specified number of shares of Common Stock at the time of exercise over generally the option price for such shares specified in the related stock option. Such amount will be paid to the holder in shares of Common Stock (valued at its fair market value on the date of exercise), cash or a combination thereof, as the Compensation Committee may determine. An SAR may be granted in conjunction with a contemporaneously granted ISO or a previously or contemporaneously granted nonqualified option. Since the exercise of an SAR is an alternative to the exercise of an option, the option will be canceled to the extent that the SAR is exercised and the SAR will be canceled to the extent the option is exercised.
Restricted Stock. The Stock Incentive Plan authorizes the Compensation Committee to grant restricted stock to individuals with such restriction periods as the Compensation Committee may designate. The Compensation Committee shall, prior to granting shares of restricted stock, designate certain participants as "Covered Employees" upon determining that such participants are or are expected to be "covered employees" within the meaning of Section 162(m)(3) of the Code, and will provide that restricted stock awards to these Covered Employees cannot vest unless applicable performance goals established by the Compensation Committee within the time period prescribed by Section 162(m) of the Code are satisfied. These performance goals must be based on the attainment by the Company, one or more Affiliates or one or more businesses or functional units thereof of specified levels of total shareholder return, return on capital, earnings per share, market share, stock price, sales, costs, net operating income, net income, return on assets, earnings before income taxes, depreciation and amortization, return on total assets employed, capital expenditures, earnings before income taxes, economic value added, cash flow, retained earnings, return on equity, results of customer satisfaction surveys, aggregate product price and other product price measures, safety record, service reliability, demand-side management (including conservation and load management), operating and/or maintenance costs management (including operation and maintenance expenses per Kwh) and energy production availability. At the time of establishing a performance goal, the Compensation Committee shall specify the manner in which the performance goal shall be calculated. In so doing, the Compensation
21
Committee may exclude the impact of certain specified events from the calculation of the performance goal. Such performance goals also may be based on the attainment of specified levels of performance of the Company, one or more Affiliates or one or more businesses or functional units thereof under one or more of the measures described above relative to the performance of other corporations or indices. Performance goals based on the foregoing factors are hereinafter referred to as "Performance Goals." With respect to Covered Employees, all Performance Goals must be objective performance goals satisfying the requirements for "performance- based compensation" within the meaning of Section 162(m)(4) of the Code. The Compensation Committee also may condition the vesting of restricted stock awards to participants who are not Covered Employees upon the satisfaction of these or other applicable performance goals. The provisions of restricted stock awards (including any applicable Performance Goals) need not be the same with respect to each participant. During the restriction period, the Compensation Committee may require that the stock certificates evidencing restricted shares be held by the Company. Restricted stock may not be sold, assigned, transferred, pledged or otherwise encumbered. Other than these restrictions on transfer and any other restrictions the Compensation Committee may impose, the participant will have all the rights of a holder of stock holding the class or series of stock that is the subject of the restricted stock award.
Performance Units. The Stock Incentive Plan authorizes the Compensation Committee to grant performance units. Performance units may be denominated in shares of Common Stock or cash, or may represent the right to receive dividend equivalents with respect to shares of Common Stock, as determined by the Compensation Committee. Performance units will be payable in cash or shares of Common Stock if applicable Performance Goals (based on one or more of the measures described in the section entitled "-- Restricted Stock" above) determined by such committee are achieved during an award cycle. An award cycle will consist of a period of consecutive fiscal years or portions thereof designated by the Compensation Committee over which performance units are to be earned. At the conclusion of a particular award cycle, the Compensation Committee will determine the number of performance units granted to a participant which have been earned in view of actual performance against applicable Performance Goals and shall deliver to such participant cash and/or the number of shares of Common Stock equal to the value of performance units determined by the Compensation Committee to have been earned. The Compensation Committee may, in its discretion, permit participants to defer the receipt of performance units payable on terms and conditions established by the Compensation Committee.
The Compensation Committee will have the authority to determine the non-employee directors, officers and employees to whom and the time or times at which performance units will be awarded, the form and number of performance units to be awarded to any participant, the duration of the award cycle and any other terms and conditions of an award. In the event that a participant's employment is terminated due to death, disability or retirement, the Compensation Committee will have the discretion to pay a prorated award, based on the participant's number of months of service during the award cycle and achievement of performance goals over the entire award cycle.
Duration, Amendment And Discontinuance. The Stock Incentive Plan will terminate on June 30, 2013. Awards outstanding as of such date will not be affected or impaired by the termination of the Stock Incentive Plan. The Stock Incentive Plan may be amended, altered or discontinued by the Board, but no amendment, alteration or discontinuance may be made which would (i) impair the rights of an optionee under an option or a recipient of an SAR, restricted stock award or performance unit award previously granted without the optionee's or recipient's consent, except such an amendment made to qualify the Stock Incentive Plan for the exemption provided by Rule 16b-3 or (ii) disqualify the Stock Incentive Plan from the exemption provided by Rule 16b-3. Except as expressly provided in the Stock Incentive Plan, the Stock Incentive Plan may not be amended without shareowner approval to the extent such approval is required by law or agreement. The Compensation Committee also may amend the terms of any option or other award previously granted, except that (i) no such amendment shall impair the rights of any holder without the holder's consent except such an amendment made to cause the Plan or award to qualify for the exemption provided by Rule 16b-3 and (ii) no such amendment shall lower the option exercise price of an option other than in certain specified instances involving a change in capitalization or similar transaction.
Changes In Capitalization; Change Of Control. The Stock Incentive Plan provides that, in the event of any change in corporate capitalization, such as a stock split, or dividend or a corporate transaction, such as any merger, consolidation, share exchange, separation, spin-off or other distribution of stock or property of the Company, or any reorganization or partial or complete liquidation of the Company, the Compensation Committee or the Board may make such substitutions or adjustments in the number and kind of shares reserved for issuance under the Stock Incentive Plan, in the aggregate or to any participant, in the number, kind and option price of shares subject to outstanding stock options and SARs, and in the number and kind of shares subject to other outstanding awards granted under the Stock Incentive Plan as may be determined to be appropriate by the Compensation Committee or the Board, in its sole discretion. The Stock Incentive Plan also pro-
22
vides that in the event of a change of control (as defined in the Stock Incentive Plan which is attached hereto as Annex A) of the Company (i) any SARs and stock options outstanding as of the date of the change of control which are not then exercisable and vested will become fully exercisable and vested, (ii) the restrictions applicable to restricted stock will lapse and such restricted stock shall become free of all restrictions and fully vested and (iii) all performance units will be considered to be earned and payable in full in an amount that will be equal to the number of performance units that would have been payable had the performance goals been met at a level that would have resulted in 100% payout of the performance units awarded, and any other restrictions will lapse and such performance units will be settled in cash as promptly as practicable. The holders of options, unless the Compensation Committee shall determine otherwise at grant, will have the right, for a period of 60 days after the date of the change of control, to surrender all or part of such options in exchange for a cash payment based on the excess of the change of control price (as defined in the Stock Incentive Plan).
Federal Income Tax Consequences.
The following
discussion is intended only as a brief summary of the federal income tax rules
relevant to stock options, SARs, restricted stock and performance units. The
laws governing the tax aspects of awards are highly technical and such laws are
subject to change.
o Nonqualified Options And SARs. Upon the grant of a nonqualified option
(with or without an SAR), the optionee will not recognize any taxable
income and the Company will not be entitled to a deduction. Upon the
exercise of such an option or an SAR, the excess of the fair market value
of the shares acquired on the exercise of the option over the option price
(the "spread"), or the consideration paid to the optionee upon exercise of
the SAR, will constitute compensation taxable to the optionee as ordinary
income. In determining the amount of the spread or the amount of
consideration paid to the optionee, the fair market value of the stock on
the date of exercise is used. The Company, in computing its federal income
tax, will generally be entitled to a deduction in an amount equal to the
compensation taxable to the optionee.
o ISOs. An optionee will not recognize taxable income on the grant or
exercise of an ISO. However, the spread at exercise will constitute an item
includible in alternative minimum taxable income, and thereby may subject
the optionee to the alternative minimum tax. Such alternative minimum tax
may be payable even though the optionee receives no cash upon the exercise
of his ISO with which to pay such tax. An ISO will generally be
disqualified from receiving ISO tax treatment under the Code if it is
exercised more than three months following termination of employment. If,
however, the optionee is disabled, such tax treatment is available for
exercises occurring within one year following termination and if the
optionee dies while employed, this statutory time requirement for receiving
ISO tax treatment is waved altogether.
o Upon the disposition of shares of stock acquired pursuant to the exercise
of an ISO after the later of (i) two years from the date of grant of the
ISO or (ii) one year after the transfer of the shares to the optionee upon
exercise (the "ISO Holding Period"), the optionee will recognize long-term
capital gain or loss, as the case may be, measured by the difference
between the stock's selling price and the exercise price. The Company is
not entitled to any tax deduction by reason of the grant or exercise of an
ISO, or by reason of a disposition of stock received upon exercise of an
ISO if the ISO Holding Period is satisfied. Different rules apply if the
optionee disposes of the shares of stock acquired pursuant to the exercise
of an ISO before the expiration of the ISO Holding Period.
o Restricted Stock. A participant who is granted restricted stock may make an
election (a "Section 83(b) election") to have the grant taxed as
compensation income at the date of receipt, with the result that any future
appreciation (or depreciation) in the value of the shares of stock granted
shall be taxed as capital gain (or loss) upon a subsequent sale of the
shares. Any such Section 83(b) election must be made and filed with the IRS
within 30 days of receipt in accordance with the regulations under Section
83(b) of the Code. If the participant does not make a Section 83(b)
election, then the grant will be taxed as compensation income at the full
fair market value on the date that the restrictions imposed on the shares
expire. Unless a participant makes a Section 83(b) election, any dividends
paid on stock subject to the restrictions are compensation income to the
participant and compensation expense to the Company. The Company is
generally entitled to an income tax deduction for any compensation income
taxed to the participant, subject to the provisions of Section 162(m) of
the Code.
o Performance Units. A participant who has been granted a performance unit
award will not realize taxable income until the applicable award cycle
expires and the participant is in receipt of the stock and/or cash
distributed in payment of the award, at which time such participant will
realize ordi-
23
nary income equal to the full fair market value of the shares delivered
and/or the amount of cash paid. At that time, the Company generally will be
allowed a corresponding tax deduction equal to the compensation taxable to
the award recipient, subject to the provisions of Section 162(m) of the
Code.
New Plan Benefits.
Although the
Compensation Committee has granted nonqualified stock options to certain
individuals under the current stock incentive plan (see 2003 Awards below), it
cannot be determined at this time what benefits 24 or amounts, if any, will be
allocated to or received by any persons or group of persons under the Stock
Incentive Plan if the Stock Incentive Plan is adopted. Such determinations as to
allocations are subject to the discretion of the Compensation Committee and as
to receipt of payouts is dependent on future performance.
2003 Awards.
The Compensation
Committee in January 2003 granted nonqualified stock options to purchase the
following number of shares of Common Stock and performance units denominated in
the following number of shares of Common Stock to the individuals and groups
described below under the current Stock incentive plan:
OGE ENERGY CORP. STOCK INCENTIVE PLAN
Name and Position Dollar Value ($) Number of Units
S.E. Moore, Chairman, $514,750 31,063 Performance Units
President and Chief $514,750 202,300 Options
Executive Officer
A.M. Strecker, Executive Vice $230,000 13,879 Performance Units
President and Chief $230,000 90,400 Options
Operating Officer
P.B. Delaney $250,000 15,086 Performance Units
E.V.P. Finance $250,000 98,200 Options
and Strategic Planning
and CEO - Enogex Inc.
J.R. Hatfield, Sr. Vice $131,750 7,950 Performance Units
President and Chief $131,750 51,800 Options
Financial Officer
J.T. Coffman, Sr. Vice $76,500 4,616 Performance Units
President Power Supply $76,500 30,100 Options
R.A. Farrell, Former President and $0 0 Performance Units
Chief Executive Officer $0 0 Options
Enogex Inc.
Executive Group (5 persons) $149,125 8,997 Performance Units
$149,125 58,500 Options
Non-Executive Director $0 0 Performance Units
Group (8 persons) $0 0 Options
Non-Executive Officer $750,428 45,256 Performance Units
Employee Group (66 persons) $750,428 295,000 Options
The nonqualified stock options will become exercisable in one-third annual installments beginning one year from the date of grant at a purchase price of $16.685 per share (which was the fair market value of the Common Stock on the date the options were granted) and will expire ten years from the date of grant. Awards of performance units were denominated in shares of Common Stock and will be payable one-third in cash and two-thirds in shares of Common Stock if applicable Performance Goals set by such committee are achieved during an award cycle commencing on January 1, 2003 and ending on December 31, 2005.
24
Vote Required.
The affirmative vote
of a majority of the votes entitled to be cast by the holders of the shares of
the Company's Common Stock represented at the Annual Meeting and entitled to
vote thereon is required to approve the Stock Incentive Plan with respect to
Section 162(m) of the Code. Absentions from voting on this matter will be
treated as votes against, while broker non-votes, if any, will be treated as
shares not voted. Such vote will also satisfy the shareowner approval
requirements of the New York Stock Exchange and Section 422 of the Code with
respect to the grant of ISOs.
PROPOSAL NO. 3 - APPROVAL OF OGE ENERGY CORP. 2003 ANNUAL
INCENTIVE COMPENSATION PLAN
The Board of Directors has approved and recommended the adoption of an annual incentive compensation plan subject to approval by shareowners. The OGE Energy Corp. 2003 Annual Incentive Compensation Plan (the "Annual Plan") is intended to replace the OGE Energy Corp. Annual Incentive Compensation Plan, which was approved by shareowners at the 1998 annual meeting (the "current annual plan"). As discussed below, the Annual Plan is designed to comply with Section 162(m) of the Code and the Annual Plan will not become effective unless the shareowner approval described below is obtained.
The purpose of the Annual Plan is to maximize the efficiency and effectiveness of the operations of the Company and its subsidiaries by providing incentive compensation opportunities to certain key executives and managers responsible for operational effectiveness and to link further the financial interests and objectives of employees with those of the Company and its shareowners. The Annual Plan provides for the payment of annual cash bonuses based on Company performance and individual performance.
The Annual Plan is designed to take into account Section 162(m) of the Code, which, as explained above regarding Proposal No. 2, generally denies a corporate tax deduction for annual compensation exceeding $1,000,000 paid to the chief executive officer and the four other most highly compensated officers of a public company ("Covered Employees"). Certain types of compensation, including performance-based compensation, are excluded from this deduction limit. In an effort to ensure that certain compensation payable under the Annual Plan to certain executives will qualify as performance-based compensation that is generally tax-deductible, the Annual Plan is being submitted to shareowners of the Company for approval at the Annual Meeting. By approving the Annual Plan, the shareowners will be approving, among other things, the performance measures, eligibility requirements and annual incentive award limits contained therein. The Annual Plan provides for the establishment and payment of Target Company Awards and Target Individual Awards. Target Individual Awards payable under the Annual Plan will not qualify as "performance-based compensation" under Section 162(m) of the Code and, thus, will count toward the annual $1,000,000 deduction limit. For this reason, the Annual Plan precludes the granting or payment of Target Individual Awards to participants who are or may be a Covered Employee. If the shareowners approve the Stock Incentive Plan and the Annual Plan, the Compensation Committee believes that all compensation paid to executives will continue to be deductible by the Company in the foreseeable future.
Set forth below is a summary of certain important features of the Annual Plan. This summary is qualified in its entirety by reference to the actual plan attached hereto as Annex B.
Administration.
The Annual Plan will
be administered by the Compensation Committee, or such other committee of the
Board as the Board may from time to time designate, which, to the extent Target
Company Awards are intended to be exempt from Section 162(m) of the Code, will
be composed solely of not less than two persons who qualify as "outside
directors" for purposes of Section 162(m) of the Code. The Compensation
Committee will have sole authority to make rules and regulations relating to the
administration of the Annual Plan, and any interpretations and decisions of the
Compensation Committee with respect to the Annual Plan will be final and
binding.
Eligibility.
Officers, executives
or other key employees of the Company and its subsidiaries who, in the opinion
of the Chief Executive Officer, can contribute significantly to the growth and
profitability of the Company and its subsidiaries are eligible to be selected by
the Compensation Committee to be granted awards under the Annual Plan. Specific
criteria for participation shall be established by the Compensation Committee
prior to the beginning of each incentive period (generally a calendar year), and
selected employees will be notified in writing of their selection, and of their
performance goals and related Target Company Awards and Target Individual
Awards, as soon as practicable. Under certain circumstances, individuals who
become eligible after
25
an incentive period has commenced may participate in the Annual Plan. The Compensation Committee may withdraw its approval for participation in the plan with respect to an incentive period at any time during such period (except after a change of control occurrs during an incentive period), and the employee will not be entitled to the payment of any Award for such incentive period. No participant or other employee shall have the right to participate in the Annual Plan for any incentive period, despite having been selected in a previous incentive period. No right or interest of any participant in the Annual Plan may be assigned, transferred, pledged or encumbered.
Description Of Awards.
Target Company
Awards. The Annual Plan permits the award of Target Company
Awards (expressed as a percentage of base salary), which are established
independent of the Target Individual Awards discussed below. On or before the
90th day of each incentive period and in any event before 25% or more of the
incentive period has elapsed, the Compensation Committee will establish for each
participant, who is to be granted a Target Company Award, the Target Company
Award and specific objective performance goals for the incentive period, which
will be based on one or more of the following relating to the Company, one or
more of its subsidaries, or one or more businesses or functional units thereof:
total shareholder return, return on equity, return on capital, earnings per
share, market share, stock price, sales, costs, net operating income, net
income, return on assets, earnings before income taxes, depreciation and
amortization, return on total assets employed, capital expenditures, earnings
before income taxes, economic value added, cash flow, retained earnings, results
of customer satisfaction surveys, aggregate product price and other product
price measures, safety record, service reliability, demand-side management
(including conservation and load management), operating and/or maintenance cost
management (including operation and maintenance expenses per Kwh), and energy
production availability performance measures ("Company Performance Goals"). At
the time Target Company Awards are established, the Compensation Committee will
specify the manner in which the Company Performance Goal(s) will be calculated.
In so doing, the Compensation Committee may exclude the impact of certain
specified events from the calculation of the Company Performance Goal(s). For
example, if a Company Performance Goal were earnings per share, the Compensation
Committee could, at the time the Company Performance Goals are established,
specify that earnings per share are to be calculated without regard to any
subsequent change in accounting standards required by the Financial Accounting
Standards Board. Company Performance Goals may also be based on the attainment
of specified performance levels of the Company, any of its subsidiaries and/or
one or more businesses or functional units thereof under one or more of the
measures described above related to the performance of other corporations or
indices. Upon establishing the Target Company Awards, the Compensation Committee
will establish a minimum level of achievement of the Company Performance Goals
that must be met in order to receive any portion of such award.
The level of achievement of the Company Performance Goals at the end of the incentive period will determine the amount of each participant's Target Company Award that such participant will receive (the "Earned Company Award"), which may exceed 100% of the participant's Target Company Award. If the minimum level of achievement of Company Performance Goals for any incentive period is not met, no payment of an Earned Company Award will be made to the particular participant for that incentive period. To the extent that one or more minimum achievement levels are met or surpassed, and upon certification by the Compensation Committee that the Company Performance Goals have been satisfied and that any other material terms and conditions of the Company Performance Awards are met, payment of an Earned Company Award will be made to the participant for that incentive period. The payment of all Earned Company Awards is subject to reduction or elimination by the Compensation Committee, in its sole discretion, until a change of control occurs. Except as set forth above, the Compensation Committee will have no additional discretion to modify the terms of Company Performance Awards. The maximum amount payable to a participant for an Earned Company Award for any incentive period will not exceed $2,000,000.
Individual Performance Awards. The Annual Plan permits the award of Target Individual Awards (expressed as a percentage of base salary), which are established independent of the Target Company Awards discussed above. At the beginning of each incentive period, the Chief Executive Officer will recommend individual performance goals for each plan participant, other than any Covered Employee who is granted a Target Individual Award. The Compensation Committee will consider and approve or modify the recommendations as appropriate. The Chief Executive Officer may adjust individual performance goals if he determines external changes or other unanticipated conditions have materially affected the fairness of the goals. The level of achievement of the individual performance goals at the end of the incentive period will determine the amount of each participant's Target Individual Award that such participant will receive (the "Earned Individual Award"), which may range from 0% to 175% of the participant's Target Individual Award and cannot exceed $250,000. The payment of all Earned Individual Awards is subject to approval by the Compensation Committee, and will in no way be contingent upon the attainment of, or the failure to attain, the Company Performance Goals for
26
the Target Company Awards granted to participants.
Because the individual performance goals described above are not objective in nature, the award of Target Individual Awards and the payout of Earned Individual Awards do not qualify as "performance-based compensation" as defined in Section 162(m) of the Code. In order to ensure compliance with Section 162(m), the Annual Plan precludes the granting of Target Individual Awards or payout of Earned Individual Awards to participants who are or may be Covered Employees. However, the Compensation Committee desires to retain the ability to evaluate other key employees on a subjective basis through Target Individual Awards.
Termination of Employment.
In the event of
termination due to death, total and permanent disability or retirement, and such
termination does not occur within 24 months after a change of control, any
Earned Awards (Earned Individual Awards and/or Earned Company Awards) for the
incentive period in which the termination occurs will be prorated to reflect
participation prior to termination. In the event of termination for any other
reason, and such termination does not occur within 24 months after a change of
control, all of a participant's rights to an Earned Award for the incentive
period then in progress will be forfeited; provided that, except in the event of
termination for cause, the Compensation Committee may, in its discretion, pay a
prorated award for the portion of the incentive period that the participant was
employed.
Change of Control.
If any participant
is terminated voluntarily or involuntarily for any reason other than for cause
within 24 months after a change of control (as defined in the Annual Plan which
is attached as Annex B), all awards previously deferred (with earnings) will be
paid to the participant; along with the Target Company Award and the Target
Individual Award established for the participant for the incentive period in
progress at the time of termination, which is prorated for the portion of the
incentive period the participant is employed.
Amendment and Discontinuance.
Subject to the
provisions of the Plan, the Board of Directors of the Company has absolute
discretion to amend, modify, suspend or terminate the Annual Plan at any
time.
New Plan Benefits.
Although the
Compensation Committee has awarded target company awards to certain individuals
under the current annual plan (see 2003 Awards, below), it cannot be determined
at this time what benefits or amounts, if any, will be allocated to or received
by any persons or group of persons under the Annual Plan if the plan is adopted.
Such determinations as to allocations are at the discretion of the Compensation
Committee and as to receipt of payouts is dependent upon future performance.
However, the benefits and amounts payable under the current annual plan for 2002
and prior years are set forth in the bonus column of the Summary Compensation
Table on page 14 of this proxy statement.
2003 Awards.
The Compensation
Committee in November 2002 awarded target company awards under the current
annual plan to the following individuals and groups described below:
OGE ENERGY CORP. ANNUAL INCENTIVE COMPENSATION PLAN
Name and Position Dollar Value of Target Awards ($)
S.E. Moore
Chairman, President and Chief Executive Officer............................. $ 532,500
A.M. Strecker
Executive Vice President and Chief Operating Officer........................ $ 299,000
P.B. Delaney
E.V.P. Finance and Strategic Planning and CEO - Enogex Inc.................. $ 240,000
J.R. Hatfield
Sr. Vice President and Chief Financial Officer............................. $ 155,000
J.T. Coffman
Sr. Vice President Power Supply............................................ $ 102,000
R.A. Farrell
Former President and Chief Executive Officer Enogex Inc.................... $ 0
Executive Group (5 persons) ............................................... $ 240,250
Non-Executive Director Group (8 persons)................................... $ 0
Non-Executive Officer Employee Group (66 persons).......................... $1,888,083
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The awards were granted for the incentive period commencing January 1, 2003 and ending December 31, 2003, and their payout is dependent upon individual and Company performance. Depending on such performance, the payout may exeed 100% of the Target Awards. In the event that the Annual Plan is not approved by the shareowners at the Annual Meeting, these awards will not be affected. Yet, the Board of Directors will consider what other actions, if any, will be necessary to effectuate the Company's executive compensation program.
Vote Required.
The affirmative vote
of a majority of the shares of Common Stock entitled to vote and present in
person or by proxy at the Annual Meeting is required for the approval of the
adoption of the Annual Plan with respect to Section 162 (m) of the Code.
Abstentions from voting on this matter are treated as votes against, while
broker nonvotes are treated as shares not voted.
OF THE ANNUAL INCENTIVE PLAN.
CHANGE OF INDEPENDENT
PUBLIC ACCOUNTANTS
On May 16, 2002 the Board of Directors of the Company, upon recommendation of the Audit Committee, dismissed Arthur Andersen LLP as independent public accountants of the Company and Oklahoma Gas and Electric Company and engaged Ernst & Young LLP as independent public accountants of the Company and OG&E for fiscal year 2002. Ernst & Young will continue to serve as the Company's and OG&E's independent public accountants for fiscal year 2003. The Board of Directors and the Audit Committee in their discretion may change the appointment at any time during the year if they determine that such change would be in the best interest of the Company and its shareholders. Representatives of Ernst & Young will be present at the Annual Meeting of Shareowners and will have the opportunity to make a statement if they so desire. Such representatives will be available to respond to appropriate questions from shareowners at the meeting.
Arthur Andersen's reports on the Company's financial statements for the fiscal years ended December 31, 2000, and December 31, 2001, did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal years of the Company ended December 31, 2000, and December 31, 2001, and subsequent interim period through May 16, 2002, there were no disagreements between the Company and Arthur Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Arthur Andersen's satisfaction, would have caused Arthur Andersen to make reference to the subject matter of the disagreement in connection with its reports.
None of the reportable events described under Item 304(a)(1)(v) of Regulation S-K occurred within the fiscal years of the Company ended December 31, 2000, and December 31, 2001, or within the interim period through May 16, 2002.
The Company provided Arthur Andersen with a copy of the foregoing disclosures. By copy of a letter dated May 21, 2002, Arthur Andersen stated its agreement with such statements.
During the fiscal years of the Company ended December 31, 2000, and December 31, 2001, and the subsequent interim period through May 16, 2002, the Company did not consult with Ernst & Young regarding any of the matters or events set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
SHAREOWNER PROPOSALS
Any shareowner proposal intended to be included in the proxy statement for the Annual Meeting in 2004 must be received by the Company on or before December 12, 2003. Proposals received by that date, deemed to be proper for consideration at the Annual Meeting and otherwise conforming to the rules of the Securities and Exchange Commission, will be included in the 2004 proxy statement.
If you intend to submit a shareowner proposal for consideration at the Annual Meeting, but do not want it included in the proxy statement, you must follow the procedures established by our By-laws. These procedures require that you notify us in writing of your proposal. Your notice must be received by the Secretary at least 90 days prior to the meeting and must contain the following information:
o a brief description of the business you desire to bring before the Annual
Meeting and your reasons for conducting such business at the Annual
Meeting,
o your name and address,
o the number of shares of Common Stock which you beneficially own, and
o any material interest you may have in the business being proposed.
28
East Bound or West Bound I-44 Exit to Martin L. King Ave., continuing northerly approximately .2 miles. Proceed west on Northeast 63rd Street .5 miles to National Cowboy and Western Heritage Museum.
[MAP]
29
OGE ENERGY CORP. 2003 STOCK INCENTIVE PLAN
Section 1. Purposes/Definitions.
The purpose of the
Plan is to give the Company and its Affiliates a competitive advantage in
attracting, retaining and motivating non-employee directors, officers and
employees and to provide the Company and its Affiliates with the ability to
provide incentives more directly linked to the profitability of the Company's
businesses, increases in shareowner value and enhancement of performance
relative to customers.
For purposes of the Plan, the following terms are defined as set forth below:
a. "Affiliate" means (i) a corporation at least 50 percent of the common stock
or voting power of which is owned, directly or indirectly by the Company,
and (ii) any other corporation or other entity controlled by the Company
and designated by the Committee from time to time.
b. "Award" means a Stock Appreciation Right, Stock Option, Restricted Stock or
Performance Unit.
c. "Award Cycle" shall mean a period of consecutive fiscal years or portions
thereof designated by the Committee over which Performance Units are to be
earned.
d. "Board" means the Board of Directors of the Company.
e. "Change of Control" and "Change of Control Price" have the meanings set
forth in Section 9(b) and (c); respectively.
f. "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor thereto.
g. "Commission" means the Securities and Exchange Commission or any successor
agency.
h. "Committee" means the Committee referred to in Section 2.
i. "Common Stock" means common stock, par value $.01 per share, of the Company.
j. "Company" means OGE Energy Corp., an Oklahoma corporation.
k. "Covered Employee" shall mean a participant designated prior to the grant
of shares of Restricted Stock or Performance Units by the Committee who is
or may be a "covered employee" within the meaning of Section 162(m)(3) of
the Code in the year in which Restricted Stock or Performance Units are
taxable to such participant.
l. "Disability" means permanent and total disability as determined under
procedures established by the Committee for purposes of the Plan.
m. "Disinterested Person" means a member of the Board who qualifies as a
non-employee director as defined in Rule 16b-3, as promulgated by the
Commission under the Exchange Act, or any successor definition adopted by
the Commission, and as an "outside director" for purposes of Section
162(m).
n. "Early Retirement" of an employee means Termination of Employment at a time
when the employee is entitled to early retirement benefits pursuant to the
early retirement provisions of the applicable pension plan of such
employer.
o. "Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and any successor thereto.
p. "Fair Market Value" means, as of any given date, the mean between the
highest and lowest reported sales prices of the Common Stock on such date
on the New York Stock Exchange Composite Tape (or, if not listed on such
exchange, on any other national securities exchange on which the Common
Stock is listed or on NASDAQ) or, if there are no
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sales on such date, on the next preceding trading day during which a sale
occurred. If there is no regular public trading market for such Common
Stock, the Fair Market Value of the Common Stock will be determined by the
Committee in good faith.
q. "Incentive Stock Option" means any Stock Option designated as, and
qualified as, an "incentive stock option" within the meaning of Section 422
of the Code.
r. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
s. "Normal Retirement" means (i) with respect to an employee, Termination of
Employment at a time when the employee is entitled to normal retirement
benefits pursuant to the applicable pension plan of such employer and (ii)
with respect to a non-employee director, retirement from the Board pursuant
to the applicable rules for the Board.
t. "Performance Goals" means the performance goals established by the
Committee in writing prior to the grant of Restricted Stock or Performance
Units that are based on the attainment of goals by the Company, one or more
Affiliates or one or more business or functional units thereof relating to
one or more of the following: total shareholder return, return on capital,
earnings per share, market share, stock price, sales, costs, net operating
income, net income, return on assets, earnings before income taxes,
depreciation and amortization, return on total assets employed, capital
expenditures, earnings before income taxes, economic value added, cash
flow, retained earnings, return on equity, results of customer satisfaction
surveys, aggregate product price and other product price measures, safety
record, service reliability, demand-side management (including conservation
and load management), operating and/or maintenance costs management
(including operation and maintenance expenses per Kwh), and energy
production availability. At the time of establishing a Performance Goal,
the Committee shall specify the manner in which the Performance Goal shall
be calculated. In so doing, the Committee may exclude the impact of certain
specified events from the calculation of the Performance Goal. Such
Performance Goals also may be based upon the attainment of specified levels
of performance of the Company, one or more Affiliates or one or more
business or functional units thereof under one or more of the measures
described above relative to the performance of other corporations or
indices. With respect to Covered Employees, all Performance Goals shall be
objective performance goals satisfying the requirements for
"performance-based compensation" within the meaning of Section 162(m)(4) of
the Code, and shall be set by the Committee within the time period
prescribed by Section 162(m) and related regulations.
u. "Performance Units" means an award made pursuant to Section 8.
v. "Plan" means the OGE Energy Corp. 2003 Stock Incentive Plan, as set forth
herein and as hereinafter amended from time to time.
w. "Restricted Stock" means an award granted under Section 7.
x. "Retirement" means Normal or Early Retirement.
y. "Rule 16b-3" means Rule 16b-3, as promulgated by the Commission under
Section 16(b) of the Exchange Act, as amended from time to time.
z. "Section 162(m)" means Section 162(m) of the Code, as amended from time to
time.
aa. "Stock Appreciation Right" means a right granted under Section 6.
bb. "Stock Option" means an option granted under Section 5.
cc. "Termination of Employment" means (i) with respect to an employee, the
termination of participant's employment with the Company and any Affiliate
and (ii) with respect to a non-employee director, termination of service on
the Board. A participant employed by an Affiliate shall also be deemed to
incur a Termination of Employment if the Affiliate
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ceases to be an Affiliate and the participant does not immediately
thereafter become or remain an employee of the Company or another
Affiliate.
In addition, certain other terms that are defined herein shall have the definitions so ascribed to them.
Section 2. Administration.The Plan shall be administered by the Compensation Committee of the Board or such other committee of the Board as the Board may from time to time determine, which committee, to the extent required to comply with Rule 16-3 and Section 162(m), shall be composed solely of not less than two Disinterested Persons, each of whom shall be appointed by and serve at the pleasure of the Board. The Committee shall have plenary authority to grant Awards pursuant to the terms of the Plan to non-employee directors of the Company and officers and employees of the Company and its Affiliates. Among other things, the Committee shall have the authority, subject to the terms of the Plan:
(a) to select the non-employee directors, officers and employees to
whom Awards may from time to time be granted;
(b) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights,
Restricted Stock and Performance Units or any combination thereof
are to be granted hereunder;
(c) to determine the number of shares of Common Stock to be covered
by each Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder, including, but not limited to, the option price
(subject to Section 5(a)), any vesting condition, restriction or
limitation (which may be related to the performance of the
participant, the Company, any Affiliate or one or more business
or functional units thereof) and any vesting acceleration or
forfeiture waiver regarding any Award and the shares of Common
Stock relating thereto, based on such factors as the Committee
shall determine;
(e) to modify, amend or adjust the terms and conditions of any Award,
at any time or from time to time, including but not limited to
Performance Goals; provided, however, that the Committee may not
adjust upwards the amount payable to a designated Covered
Employee with respect to a particular Award upon the satisfaction
of applicable Performance Goals or take any other such action to
the extent such action or the Committee's ability to take such
action would cause any Award under the Plan to any Covered
Employee to fail to qualify as "performance based compensation"
within the meaning of Section 162(m) and the regulations issued
thereunder;
(f) to determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to an Award shall be
deferred; and
(g) to determine under what circumstances an Award may be settled in
cash or Common Stock under Section 8(b)(i).
The Committee shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable, to construe and interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreement relating thereto) and to otherwise supervise the administration of the Plan.
The Committee may act only by a majority of its members then in office, except that the members thereof may (i) delegate to an officer of the Company the authority to make decisions pursuant to paragraphs (c), (f), (g), (h) and (i) of Section 5 (provided that no such delegation may be made that would
A-3
cause Awards or other transactions under the Plan to cease to be exempt from Section 16(b) of the Exchange Act) and (ii) authorize any one or more of their number or any officer of the Company to execute and deliver documents on behalf of the Committee.
Any determination made by the Committee or pursuant to delegated authority pursuant to the provisions of the Plan with respect to any Award shall be made in the sole discretion of the Committee or such delegate at the time of the grant of the Award or, unless in contravention of any express term of the Plan, at any time thereafter. All decisions made by the Committee or any appropriately delegated officer pursuant to the provisions of the Plan shall be final and binding on all persons, including the Company and its Affiliates and Plan participants.
Section 3. Common Stock Subject to Plan; Other Limitations.The total number of shares of Common Stock reserved and available for issuance under the Plan shall be 2,700,000; provided, that not more than 500,000 of such shares shall be issued as Restricted Stock; and provided further that all of such shares may be available for issuance upon exercise of Incentive Stock Options. No participant may be granted Awards covering in excess of 500,000 shares of Common Stock in any one calendar year, and all such Awards may be granted as Stock Options or Stock Appreciation Rights (if any). No participant who is a non-employee director of the Company may be granted, in any one calendar year, Awards covering in excess of 5,000 shares of Common Stock. Shares subject to an Award under the Plan may be authorized and unissued shares or may be treasury shares. No participant may be granted Performance Units in any one calendar year payable in cash in an amount that would exceed $1,000,000 and no participant who is a non-employee director of the Company may be granted Performance Units in any one calendar year payable in cash in an amount that would exceed $15,000.
Subject to Section 7(c)(iv), if any shares of Restricted Stock are forfeited for which the participant did not receive any benefits of ownership (as such phrase is construed by the Commission or its staff), or if any Stock Option (and related Stock Appreciation Right, if any) terminates without being exercised, or if any Stock Appreciation Right is exercised for cash, shares subject to such Awards shall again be available for distribution in connection with Awards under the Plan. In the event that (a) any participant delivers shares of Common Stock (i) to pay the exercise price of a Stock Option or any other Award, or (ii) in satisfaction of any tax withholding requirement, or (b) any other payment made or benefit realized under the Plan is satisfied by the transfer or relinquishment of shares of Common Stock, the number of shares of Common Stock available for Awards under the Plan shall be increased by the number of shares of Common Stock so surrendered, paid or relinquished.
In the event of any change in corporate capitalization, such as a stock split or dividend, or a corporate transaction, such as any merger, consolidation, share exchange, separation, including a spinoff, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code) or any partial or complete liquidation of the Company, the Committee or Board may make such substitution or adjustments in the number and kind of shares reserved for issuance under the Plan in the aggregate or to any participant, in the number, kind and option price of shares subject to outstanding Stock Options and Stock Appreciation Rights, in the number and kind of shares subject to other outstanding Awards granted under the Plan and/or such other equitable substitution or adjustments as it may determine to be appropriate in its sole discretion; provided, however, that the number of shares subject to any Award shall always be a whole number. Such adjusted option price shall also be used to determine the amount payable by the Company upon the exercise of any Stock Appreciation Right associated with any Stock Option.
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Officers and employees of the Company and its Affiliates who are responsible for or contribute to the management, growth and profitability of the business of the Company and its Affiliates and non-employee directors of the Company are eligible to be granted Awards under the Plan.
Section 5. Stock Options.The Committee shall determine the non-employee directors, officers and employees to whom and the time or times at which Stock Options shall be granted under the Plan. Stock Options may be granted alone or in addition to other Awards granted under the Plan and may be of two types: Incentive Stock Options and Nonqualified Stock Options. Any Stock Option granted under the Plan shall be in such form as the Committee may from time to time approve.
The Committee shall have the authority to grant any optionee Incentive Stock Options, Nonqualified Stock Options or both types of Stock Options (in each case with or without Stock Appreciation Rights); provided, however, that grants hereunder are subject to the aggregate limits on grants to individual participants set forth in Section 3. Incentive Stock Options may be granted only to employees of the Company and its subsidiaries (within the meaning of Section 424(f) of the Code). To the extent that any Stock Option is not designated as an Incentive Stock Option or, even if so designated, does not qualify as an Incentive Stock Option, it shall constitute a Nonqualified Stock Option.
Stock Options shall be evidenced by option agreements, the terms and provisions of which may differ. An option agreement shall indicate on its face whether it is intended to be an agreement for an Incentive Stock Option or a Nonqualified Stock Option. The grant of a Stock Option shall occur on the date the Committee by resolution selects an individual to be a participant in any grant of a Stock Option, determines the number of shares of Common Stock to be subject to such Stock Option to be granted to such individual and specifies the terms and provisions of the Stock Option. The Company shall notify a participant of any grant of a Stock Option, and a written option agreement or agreements shall be duly executed and delivered by the Company to the participant. Such agreement or agreements shall become effective upon execution by the Company and the participant.
Anything in the Plan to the contrary notwithstanding, no term of the Plan relating to Incentive Stock Options shall be interpreted, amended or altered nor shall any discretion or authority granted under the Plan be exercised so as to disqualify the Plan under Section 422 of the Code or, without the consent of the optionee affected, to disqualify any Incentive Stock Option under such Section 422.
Stock Options granted under the Plan shall be subject to the following terms and conditions and shall contain such additional terms and conditions as the Committee shall deem desirable:
(a) Option Price. The option exercise price per share of Common Stock
purchasable under a Stock Option shall be determined by the
Committee and set forth in the option agreement, and shall not be
less than the Fair Market Value of the Common Stock subject to
the Stock Option on the date of grant.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable
more than 10 years after the date the Stock Option is granted.
(c) Exercisability. Except as otherwise provided herein, Stock
Options shall be exercisable at such time or times and subject to
such terms and conditions as shall be determined by the
Committee. If the Committee provides that any Stock Option is
exercisable only in installments, the Committee may at any time
waive such
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installment exercise provisions, in whole or in part, based on
such factors as the Committee may determine. In addition, the
Committee may at any time accelerate the exercisability of any
Stock Option.
(d) Method of Exercise. Subject to the provisions of this Section 5,
Stock Options may be exercised, in whole or in part, at any time
during the option term by giving written notice of exercise to
the Secretary of the Company at the Company's principal executive
office, specifying the number of shares of Common Stock subject
to the Stock Option to be purchased.
Such notice shall be accompanied by payment in full of the purchase price by certified or bank check or such other instrument as the Company may accept, or in such other manner as the Committee approves. If approved by the Committee, payment in full or in part may also be made in the form of unrestricted Common Stock already owned by the optionee of the same class as the Common Stock subject to the Stock Option and, in the case of the exercise of a Nonqualified Stock Option, Restricted Stock subject to an Award hereunder which is of the same class as the Common Stock subject to the Stock Option (based, in each case, on the Fair Market Value of the Common Stock on the date the Stock Option is exercised); provided, however, that, in the case of an Incentive Stock Option, the right to make a payment in the form of already owned shares of Common Stock of the same class as the Common Stock subject to the Stock Option may be authorized only at the time the Stock Option is granted.
If payment of the option exercise price of a Nonqualified Stock Option is made in whole or in part in the form of Restricted Stock, the number of shares of Common Stock to be received upon such exercise equal to the number of shares of Restricted Stock used for payment of the option exercise price shall be subject to the same forfeiture restrictions to which such Restricted Stock was subject, unless otherwise determined by the Committee.
In the discretion of the Committee, and to the extent not prohibited by applicable law, payment for any shares subject to a Stock Option may also be made by delivering a properly executed exercise notice to the Company, together with a copy of irrevocable instructions to a broker to deliver promptly to the Company the amount of sale or loan proceeds to pay the purchase price, and, if requested by the Company, the amount of any federal, state, local or foreign withholding taxes. To facilitate the foregoing, the Company may enter into agreements for coordinated procedures with one or more brokerage firms.
No shares of Common Stock shall be issued until full payment therefor has been made. Subject to any forfeiture restrictions that may apply if a Stock Option is exercised using Restricted Stock, an optionee shall have all of the rights of a shareholder of the Company holding the class or series of Common Stock that is subject to such Stock Option (including, if applicable, the right to vote the shares and the right to receive dividends), when the optionee has given written notice of exercise, has paid in full for such shares and, if requested, has given the representation described in Section 13(a).
(e) Nontransferability of Stock Options. No Stock Option shall be
transferable by the optionee other than (i) by will or by the laws of
descent and distribution or (ii) in the case of a Nonqualified Stock
Option, pursuant to a gift to such optionee's children, whether
directly or indirectly or by means of a trust or partnership or
otherwise, if expressly permitted under the applicable option
agreement. All Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee or by the guardian or legal
representative of the optionee, it being understood that the terms
"holder" and "optionee" include the guardian and legal representative
of the optionee named in the option agreement and any person to whom
an option is
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transferred by will or the laws of descent and distribution or, in the
case of a Nonqualified Stock Option, a gift permitted under the
applicable option agreement.
(f) Termination of Employment By Death. Unless otherwise determined by the
Committee, if an optionee incurs a Termination of Employment by reason
of death, any Stock Option held by such optionee shall immediately
become exercisable and may thereafter be exercised by the holder for a
period of three years (or such shorter period as the Committee may
specify in the option agreement) from the date of such death or until
the expiration of the stated term of such Stock Option, whichever
period is the shorter.
(g) Termination of Employment By Reason of Disability. Unless otherwise
determined by the Committee, if an optionee incurs a Termination of
Employment by reason of Disability, any Stock Option held by such
optionee shall immediately become exercisable and may thereafter be
exercised by the optionee for a period of three years (or such shorter
period as the Committee may specify in the option agreement) from the
date of such Termination of Employment or until the expiration of the
stated term of such Stock Option, whichever period is the shorter;
provided, however, that if the optionee dies within such three-year
period (or such shorter period), any unexercised Stock Option held by
such optionee shall, notwithstanding the expiration of such three-year
(or such shorter) period, continue to be exercisable for a period of
12 months from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter. In
the event of Termination of Employment by reason of Disability, if an
Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code,
such Stock Option will thereafter be treated as a Nonqualified Stock
Option.
(h) Termination of Employment By Reason of Retirement. Unless otherwise
determined by the Committee, if an optionee incurs a Termination of
Employment by reason of Retirement, any Stock Option held by such
optionee shall immediately become exercisable and may thereafter be
exercised by the optionee for a period of three years (or such shorter
period as the Committee may specify in the option agreement) from the
date of such Termination of Employment or until the expiration of the
stated term of such Stock Option, whichever period is the shorter;
provided, however, that if the optionee dies within such three-year
(or such shorter) period any unexercised Stock Option held by such
optionee shall, notwithstanding the expiration of such three-year (or
such shorter) period, continue to be exercisable for a period of 12
months from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is the shorter. In
the event of Termination of Employment by reason of Retirement, if an
Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code,
such Stock Option will thereafter be treated as a Nonqualified Stock
Option.
(i) Other Termination of Employment. Unless otherwise determined by the
Committee, if an optionee incurs a Termination of Employment for any
reason other than death, Disability or Retirement, any Stock Option
held by such optionee shall thereupon terminate, except that such
Stock Option, to the extent then exercisable, or on such accelerated
basis as the Committee may determine, may be exercised for the lesser
of three months from the date of such Termination of Employment
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or the balance of such Stock Option's stated term if such Termination
of Employment of the optionee is involuntary; provided, however, that
if the optionee dies within such three-month period, any unexercised
Stock Option then held by such optionee shall, notwithstanding the
expiration of such three-month period, continue to be exercisable to
the extent to which it was exercisable at the time of death for a
period of 12 months from the date of such death or until the
expiration of the stated term of such Stock Option, whichever period
is the shorter. Notwithstanding the foregoing, if an optionee incurs a
Termination of Employment at or after a Change of Control (as defined
in Section 9(b)), other than by reason of death, Disability or
Retirement, any Stock Option held by such optionee shall be
exercisable for the lesser of (1) six months and one day from the date
of such Termination of Employment, or (2) the balance of such Stock
Option's stated term. In the event of Termination of Employment, if an
Incentive Stock Option is exercised after the expiration of the
exercise periods that apply for purposes of Section 422 of the Code,
such Stock Option will thereafter be treated as a Nonqualified Stock
Option.
(j) Change of Control Cash-Out. Notwithstanding any other provision of the
Plan, during the 60-day period from and after a Change of Control (the
"Exercise Period"), unless the Committee shall determine otherwise at
the time of grant, an optionee shall have the right, whether or not
the Stock Option is fully exercisable and in lieu of the payment of
the exercise price for the shares of Common Stock being purchased
under the Stock Option and by giving notice to the Company, to elect
(within the Exercise Period) to surrender all or part of the Stock
Option to the Company and to receive cash, within 30 days of such
notice, in an amount equal to the amount by which the Change of
Control Price per share of Common Stock on the date of such election
shall exceed the exercise price per share of Common Stock under the
Stock Option (the "Spread") multiplied by the number of shares of
Common Stock granted under the Stock Option as to which the right
granted under this Section 5(j) shall have been exercised.
Section 6. Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation Rights may be granted by the
Committee in conjunction with all or part of any Stock Option granted
under the Plan. In the case of a Nonqualified Stock Option, such
rights may be granted either at or after the time of grant of such
Stock Option. In the case of an Incentive Stock Option, such rights
may be granted only at the time of grant of such Stock Option.
A Stock Appreciation Right shall terminate and no longer be exercisable upon the termination or exercise of the related Stock Option. A Stock Appreciation Right may be exercised by an optionee in accordance with Section 6(b) by surrendering the applicable portion of the related Stock Option in accordance with procedures established by the Committee. Upon such exercise and surrender, the optionee shall be entitled to receive an amount determined in the manner prescribed in Section 6(b). Stock Options which have been so surrendered shall no longer be exercisable to the extent the related Stock Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be granted
pursuant to a written agreement which shall contain such terms and
conditions as shall be determined by the Committee, including the
following:
(i) Stock Appreciation Rights shall be exercisable only at such time
or times
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and to the extent that the Stock Options to which they relate are
exercisable in accordance with the provisions of Section 5 and
this Section 6.
(ii) Upon the exercise of a Stock Appreciation Right, an optionee
shall be entitled to receive an amount in cash, shares of Common
Stock or both equal in value to the excess of the Fair Market
Value on the date of exercise of one share of Common Stock over
the option price per share specified in the related Stock Option
(or, if the Stock Appreciation Right was granted after the time
of grant of the related Stock Option, over the strike price for
the Stock Appreciation Right as determined by the Committee and
set forth in the Stock Appreciation Right agreement, which strike
price per share shall not be less than the Fair Market Value per
share of Common Stock on the date of grant of the Stock
Appreciation Right) multiplied by the number of shares in respect
of which the Stock Appreciation Right shall have been exercised,
with the Committee having the right to determine the form of
payment.
(iii) Stock Appreciation Rights shall be transferable only to permitted
transferees of the underlying Stock Option in accordance with
Section 5(e).
(iv) Upon the exercise of a Stock Appreciation Right, the Stock Option
or part thereof to which such Stock Appreciation Right is related
shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 on the number of shares of
Common Stock to be issued under the Plan, but only to the extent
of the number of shares as to which the Stock Appreciation Right
is exercised at the time of exercise.
Section 7. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be awarded either alone
or in addition to other Awards granted under the Plan. The Committee
shall determine the non-employee directors, officers and employees to
whom and the time or times at which grants of Restricted Stock will be
awarded, the number of shares to be awarded to any participant
(subject to the aggregate limits on grants to individual participants
set forth in Section 3), the conditions for vesting, the time or times
within which such Awards may be subject to forfeiture and any other
terms and conditions of the Awards, in addition to those contained in
Section 7(c).
The Committee shall in the case of Covered Employees, and may in the case of other participants, condition the vesting of Restricted Stock upon the attainment of Performance Goals established before or at the time of grant and, in each instance, may establish the various levels of achievement of Performance Goals at which a portion or all of such Restricted Stock vests. In the case of Covered Employees, prior to the vesting of any Restricted Stock, the Committee shall certify in writing that the applicable Performance Goals and any other material terms have been satisfied. The Committee may, in addition to requiring satisfaction of any applicable Performance Goals, also condition vesting upon the continued service of the participant. The provisions of Restricted Stock Awards (including the applicable Performance Goals) need not be the same with respect to each recipient.
(b) Awards and Certificates. Shares of Restricted Stock shall be evidenced
in such manner as the Committee may deem appropriate, including
book-entry registration or issuance of one or more stock certificates.
Any certificate issued in respect of shares of Restricted Stock shall
be registered in the name of such participant and shall bear an
appropriate legend referring to the terms, conditions, and
restrictions applicable to such Award, substantially in the following
form:
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"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the OGE Energy Corp. Stock Incentive Plan and a
Restricted Stock Agreement. Copies of such Plan and Agreement are on
file at the offices of OGE Energy Corp. at 321 North Harvey, Oklahoma
City, Oklahoma 73101-0321."
The Committee may require that the certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed and that, as a condition of any Award of Restricted Stock, the participant shall have delivered a stock power, endorsed in blank, relating to the Common Stock covered by such Award.
(c) Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:
(i) Subject to the provisions of the Plan (including Section 5(d))
and the Restricted Stock Agreement referred to in Section
7(c)(vi), during the period, if any, set by the Committee,
commencing with the date of such Award for which such
participant's continued service is required (the "Restriction
Period"), and until the later of (i) the expiration of the
Restriction Period and (ii) the date the applicable Performance
Goals (if any) are satisfied, the participant shall not be
permitted to sell, assign, transfer, pledge or otherwise encumber
shares of Restricted Stock. Within these limits, the Committee
may provide for the lapse of restrictions based upon period of
service in installments or otherwise and may accelerate or waive,
in whole or in part, restrictions based upon period of service or
upon performance; provided, however, that in the case of
Restricted Stock with respect to which a participant is a Covered
Employee, any applicable Performance Goals have been satisfied.
(ii) Except as provided in this paragraph (ii) and Section 7(c)(i) and
the Restricted Stock Agreement, the participant shall have, with
respect to the shares of Restricted Stock, all of the rights of a
shareholder of the Company holding the class or series of Common
Stock that is the subject of the Restricted Stock, including, if
applicable, the right to vote the shares and the right to receive
any cash dividends. If so determined by the Committee in the
applicable Restricted Stock Agreement and subject to Section
13(f) of the Plan (1) cash dividends on the class or series of
Common Stock that is the subject of the Restricted Stock Award
shall be automatically deferred and reinvested in additional
Restricted Stock, held subject to the vesting of the underlying
Restricted Stock, or held subject to meeting Performance Goals
applicable only to dividends, and (2) dividends payable in Common
Stock shall be paid in the form of Restricted Stock of the same
class as the Common Stock with which such dividend was paid, held
subject to the vesting of the underlying Restricted Stock, or
held subject to meeting Performance Goals applicable only to
dividends.
(iii) Except to the extent otherwise provided in the applicable
Restricted Stock Agreement, any applicable employment agreement
and Sections 7(c)(i), 7(c)(iv) and 9(a)(ii), upon a participant's
Termination of Employment for any reason during the Restriction
Period or before the applicable Performance Goals are satisfied,
all shares still subject to restriction shall be
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forfeited by the participant.
(iv) Except to the extent otherwise provided in Section 9(a)(ii), in
the event that a participant incurs a Termination of Employment
due to Retirement or involuntary termination, the Committee shall
have the discretion to waive in whole or in part any or all
remaining restrictions (other than, in the case of Restricted
Stock with respect to which a participant is a Covered Employee,
satisfaction of the applicable Performance Goals unless the
participant's Termination of Employment is due to death or
Disability) with respect to any or all of such participant's
shares of Restricted Stock.
(v) If and when the applicable Performance Goals are satisfied for
any shares of Restricted Stock and the Restriction Period expires
without a prior forfeiture of such shares of Restricted Stock,
unlegended certificates for such shares shall be delivered to the
participant upon surrender of the legended certificates.
(vi) Each Award shall be confirmed by, and be subject to the terms of,
a written Restricted Stock Agreement.
Section 8. Performance Units.
(a) Administration. Performance Units may be awarded either alone or in
addition to other Awards granted under the Plan. Performance Units may
be denominated in shares of Common Stock or cash, or may represent the
right to receive dividend equivalents with respect to shares of Common
Stock, as the Committee shall determine. The Committee shall determine
the non-employee directors, officers and employees to whom and the
time or times at which Performance Units shall be awarded, the form
and number of Performance Units to be awarded to any participant
(subject to the aggregate limits on grants to individual participants
set forth in Section 3), the duration of the Award Cycle and any other
terms and conditions of the Award, in addition to those contained in
Section 8(b).
The Committee shall condition the settlement of Performance Units upon the attainment of Performance Goals, which shall be established before or at the time of grant. The provisions of such Awards (including the applicable Performance Goals) need not be the same with respect to each recipient.
(b) Terms and Conditions. Performance Units Awards shall be subject to the
following terms and conditions:
(i) Subject to the provisions of the Plan and the Performance Unit
Agreement referred to in Section 8(b)(vi), Performance Units may
not be sold, assigned, transferred, pledged or otherwise
encumbered during the Award Cycle. At the expiration of the Award
Cycle, the Committee shall evaluate actual performance in light
of the Performance Goals for such Award, shall certify in writing
the extent to which such Performance Goals and other material
terms have been satisfied and shall determine the number of
Performance Units granted to the participant which have been
earned and the Committee may then elect to deliver cash, shares
of Common Stock, or a combination thereof, in settlement of the
earned Performance Units, in accordance with the terms thereof.
(ii) Except to the extent otherwise provided in the applicable
Performance Unit Agreement and Sections 8(b)(iii) and 9(a)(iii),
upon a participant's Termination of Employment for any reason
during the Award Cycle or before the applicable Performance Goals
are satisfied, the rights to the
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shares or cash still covered by the Performance Units Award shall
be forfeited by the participant.
(iii) Except to the extent otherwise provided in the applicable
Performance Unit Agreement and Section 9(a)(iii), in the event
that a participant incurs a Termination of Employment due to
death, Disability or Retirement, such participant shall receive a
prorated payment based on such participant's number of full
months of service during the Award Cycle, further adjusted based
on the achievement of the Performance Goals during the entire
Award Cycle, as certified by the Committee. Payment shall be made
at the time payments are made to participants who did not
terminate service during the Award Cycle.
(iv) A participant may elect to further defer receipt of the
Performance Units payable under an Award (or an installment of an
Award) for a specified period or until a specified event, subject
in each case to the Committee's approval and to such terms as are
determined by the Committee (the "Elective Deferral Period").
Subject to any exceptions adopted by the Committee, such election
must generally be made prior to commencement of the Award Cycle
for the Award (or for such installment of an Award).
(v) If and when the applicable Performance Goals are satisfied and
the Elective Deferral Period expires without a prior forfeiture
of the Performance Units, payment in accordance with Section
8(b)(i) hereof shall be made to the participant.
(vi) Each Award shall be confirmed by, and be subject to the terms of,
a written Performance Unit Agreement.
Section 9. Change of Control Provisions.
(a) Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, in the event of a Change of Control:
(i) Any Stock Options and Stock Appreciation Rights outstanding as of
the date such Change of Control is determined to have occurred
and not then exercisable and vested shall become fully
exercisable and vested to the full extent of the original grant.
(ii) The restrictions applicable to any Restricted Stock shall lapse,
and such Restricted Stock shall become free of all restrictions
and become fully vested and transferable to the full extent of
the original grant.
(iii) All Performance Units shall be considered to be earned and
payable in full in an amount that will be equal to the number of
Performance Units that would have been payable had the
Performance Goals been met at a level that would result in a 100%
payout of the Performance Units awarded, and any deferral or
other restriction shall lapse and such Performance Units shall be
settled in cash as promptly as is practicable.
(b) Definition of Change of Control. For purposes of the Plan, a "Change
of Control" shall mean the happening of any of the following events:
(i) An acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
"Person") of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of
either (1) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common
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Stock") or (2) the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in
the election of directors (the "Outstanding Company Voting
Securities"); excluding, however, the following: (1) any
acquisition directly from the Company, (2) any acquisition by the
Company, (3) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (4) any acquisition by
any corporation pursuant to a transaction which complies with
clauses (1), (2) and (3) of subsection (iii) of this Section
9(b); or
(ii) A change in the composition of the Board such that the
individuals who, as of January 1, 2003, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board: provided, however, for purposes of this
Section 9(b), that any individual who becomes a member of the
Board subsequent to January 1, 2003, whose election, or
nomination for election by the Company's shareowners was approved
by a vote of at least a majority of those individuals then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board; but, provided
further, that any such individual whose initial assumption of
office occurs as a result of either an actual or threatened
election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board
shall not be so considered as a member of the Incumbent Board; or
(iii) Consummation of a reorganization, merger, share exchange or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination"), excluding, however, such a Business Combination
pursuant to which (1) all or substantially all of the individuals
and entities who are the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% of,
respectively, the outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which
as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, (2) no
Person (other than the corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20% or
more of, respectively, the outstanding shares of common stock of
the corporation resulting from such Business Combination or the
combined voting power of the outstanding voting securities of
such corporation except to the extent that such ownership existed
prior to the Business Combination and (3) at least a majority
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of the members of the board of directors of the corporation
resulting from such Business Combination were members of the
Incumbent Board at the time of the execution of the initial
agreement, or the action of the Board, providing for such
Business Combination; or
(iv) The approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(c) Change of Control Price. For purposes of the Plan, "Change of Control
Price" means the higher of (i) the highest reported sales price,
regular way, of a share of Common Stock in any transaction reported on
the New York Stock Exchange Composite Tape or other national exchange
on which such shares are listed or on NASDAQ during the 60-day period
prior to and including the date of a Change of Control or (ii) if the
Change of Control is the result of a tender or exchange offer or a
Business Combination, the highest price per share of Common Stock paid
in such tender or exchange offer or Business Combination; provided,
however, that in the case of Incentive Stock Options and Stock
Appreciation Rights relating to Incentive Stock Options, the Change of
Control Price shall be in all cases the Fair Market Value of the
Common Stock on the date such Incentive Stock Option or Stock
Appreciation Right is exercised. To the extent that the consideration
paid in any such transaction described above consists all or in part
of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the
sole discretion of the Board.
Section 10. Loans.
The Company may make loans to a participant in connection with Awards subject to the following terms and conditions and such other terms and conditions not inconsistent with the Plan as the Committee shall impose from time to time, including without limitation the rate of interest, if any, and whether such loan shall be recourse or nonrecourse.
No loan made under the Plan shall exceed the sum of (i) the aggregate price payable with respect to the Award in relation to which the loan is made, plus (ii) the amount of the reasonably estimated combined amounts of Federal and state income taxes payable by the participant.
No loan shall have an initial term exceeding ten (10) years: provided that the loans under the Plan shall be renewable at the discretion of the Committee; and provided, further, that the indebtedness under each loan shall become due and payable, as the case may be, on a date no later than (i) one year after Termination of Employment due to death, Retirement or Disability, or (ii) the day of Termination of Employment for any reason other than death, Retirement or Disability.
Loans under the Plan may be satisfied by the participant, as determined by the Committee, in cash or, with the consent of the Committee, in whole or in part in the form of unrestricted Common Stock already owned by the participant where such Common Stock shall be valued at Fair Market Value on the date of such payment.
When a loan shall have been made, Common Stock with a Fair Market Value on the date of such loan equivalent to the amount of the loan shall be pledged by the participant to the Company as security for payment of the unpaid balance of the loan. Any portions of such Common Stock may, in the discretion of the Committee, be released from time to time as it deems not to be needed as security.
The making of any loan is subject to satisfying all, and not being prohibited by any, applicable
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laws, as well as any regulations and rules of the Federal Reserve Board and any other governmental agency having jurisdiction.
Section 11. Term, Amendment and Termination.The Plan will terminate 10 years after the effective date of the Plan. Under the Plan, Awards outstanding as of such date shall not be affected or impaired by the termination of the Plan.
The Board may amend, alter, or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would (i) impair the rights of an optionee under a Stock Option or a recipient of a Stock Appreciation Right, Restricted Stock Award or Performance Unit Award theretofore granted without the optionee's or recipient's consent, except such an amendment made to cause the Plan to qualify or continue to qualify for the exemption provided by Rule 16b-3, or (ii) disqualify the Plan from the exemption provided by Rule 16b-3. In addition, no such amendment shall be made without the approval of the Company's shareholders to the extent such approval is required by law or agreement.
The Committee may amend the terms of any Stock Option or other Award theretofore granted, prospectively or retroactively, except that: (i) no such amendment shall impair the rights of any holder without the holder's written consent except such an amendment made to cause the Plan or Award to qualify for the exemption provided by Rule 16b-3 and (ii) no such amendment shall lower the option exercise price of a Stock Option other than as permitted by Section 3 in connection with a change in corporate capitalization or other transaction described in Section 3.
Subject to the above provisions, the Board shall have authority to amend the Plan to take into account changes in law and tax and accounting rules, as well as other developments and to grant Awards which qualify for beneficial treatment under such rules without shareholder approval.
Section 12. Unfunded Status of Plan.It is presently intended that the Plan constitute an "unfunded" plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver Common Stock or make payments; provided, however, that, unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the "unfunded" status of the Plan.
Section 13. General Provisions.
(a) The Committee may require each person purchasing or receiving shares
pursuant to an Award to represent to and agree with the Company in
writing that such person is acquiring the shares without a view to the
distribution thereof. The certificates for such shares may include any
legend which the Committee deems appropriate to reflect any
restrictions on transfer.
Notwithstanding any other provision of the Plan or agreements made pursuant thereto, the Company shall not be required to issue or deliver any certificate or certificates for shares of Common Stock under the Plan prior to fulfillment of all of the following conditions:
(1) The listing or approval for listing upon notice of issuance,
of such shares on the New York Stock Exchange, Inc., or such
other securities exchange as may at the time be the
principal market for the Common Stock;
(2) Any registration or other qualification of such shares of
the Company under any state or Federal law or regulation, or
the maintain-
A-15
ing in effect of any such registration or other
qualification which the Committee shall, in its absolute
discretion upon the advice of counsel, deem necessary or
advisable; and
(3) The obtaining of any other consent, approval, or permit from
any state or Federal governmental agency which the Committee
shall, in its absolute discretion after receiving the advice
of counsel, determine to be necessary or advisable.
(b) Nothing contained in the Plan shall prevent the Company or any
Affiliate from adopting other or additional compensation arrangements
for its employees.
(c) The adoption of the Plan shall not confer upon any employee any right
to continued employment nor shall it interfere in any way with the
right of the Company or any Affiliate to terminate the employment of
any employee at any time.
(d) No later than the date as of which an amount first becomes includible
in the gross income of the participant for Federal income tax purposes
with respect to any Award under the Plan, the participant shall pay to
the Company, or make arrangements satisfactory to the Company
regarding the payment of, any Federal, state, local or foreign taxes
of any kind required by law to be withheld with respect to such
amount. Unless otherwise determined by the Company, withholding
obligations may be settled with Common Stock, including Common Stock
that is part of the Award that gives rise to the withholding
requirement. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the Company and its
Affiliates shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the
participant. The Committee may establish such procedures as it deems
appropriate, including the making of irrevocable elections, for the
settlement of withholding obligations with Common Stock.
(e) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of
Oklahoma, without reference to principles of conflict of laws.
(f) The reinvestment of dividends in additional Restricted Stock at the
time of any dividend payment shall only be permissible if sufficient
shares of Common Stock are available under Section 3 for such
reinvestment (taking into account then outstanding Stock Options and
other Awards).
(g) The Committee shall establish such procedures as it deems appropriate
for a participant to designate a beneficiary to whom any amounts
payable in the event of the participant's death are to be paid or by
whom any rights of the participant, after the participant's death, may
be exercised.
(h) In the case of a grant of an Award to any employee of an Affiliate,
the Company may, if the Committee so directs, issue or transfer the
shares of Common Stock, if any, covered by the Award to the Affiliate,
for such lawful consideration as the Committee may specify, upon the
condition or understanding that the Affiliate will transfer the shares
of Common Stock to the employee in accordance with the terms of the
Award specified by the Committee pursuant to the provisions of the
Plan.
(i) The Company shall require any successor (whether direct or indirect,
by purchase, merger, consolidation, reorganization or otherwise) to
all or substantially all of the business and/or assets of the Company
expressly to assume and agree to perform this Plan in the same manner
and to the same extent the Company would be
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required to perform if no such succession had taken place. This Plan
shall be binding upon and inure to the benefit of the Company and any
successor to the Company, including without limitation any persons
acquiring directly or indirectly all or substantially all of the
business and/or assets of the Company whether by purchase, merger,
consolidation, reorganization or otherwise (and such successor shall
thereafter be deemed to "Company" for the purposes of this Plan), and
the heirs, executors and administrators of each Participant.
Section 14. Effective Date of Plan.
The Plan shall be effective as of June 30, 2003, subject to approval of the Plan by the shareowners of the Company at its 2003 annual meeting by the affirmative vote of a majority of the votes entitled to be cast by the holders of the shares of common stock of the Company represented at the meeting and entitled to vote thereon.
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ANNEX B
OGE ENERGY CORP.
2003 ANNUAL INCENTIVE COMPENSATION PLAN
I. PURPOSE AND EFFECTIVE TIME OF THE PLAN
The purpose of the 2003 Annual Incentive Compensation Plan (the "Plan") is to maximize the efficiency and effectiveness of the operations of OGE Energy Corp. and its subsidiaries by providing incentive compensation opportunities to certain key executives and managers responsible for operational effectiveness. The Plan is intended to encourage and reward the achievement of certain results critical to meeting the Company's operational goals. It is also designed to assist in the attraction and retention of quality employees, to link further the financial interest and objectives of employees with those of the Company and to foster accountability and teamwork throughout the Company.
This Plan is designed to provide incentive compensation opportunities; awards made under this Plan are in addition to base salary adjustments given to maintain market competitive salary levels.
Payments pursuant to Article 6 of the Plan are intended to qualify under the performance-based compensation exemption of Section 162(m)(4)(C) of the Internal Revenue Code of 1986, as amended.
The Plan shall be effective as of June 30, 2003, subject to approval of the Plan by the shareowners of OGE Energy Corp. at its 2003 annual meeting by the affirmative vote of a majority of the shares of common stock of OGE Energy Corp. present in person or represented by proxy at the meeting and entitled to vote.
II. DEFINITIONSWhen used in the Plan, the following words and phrases shall have the following meanings:
2.1. "Base Salary" means the actual annual base salary in effect for the
first full pay period after the beginning of the Plan Year as shown in
the personnel records of the Company, and, for a Participant who is
added to the Plan during a Plan Year pursuant to Section 4.3, his or
her annual base salary in effect at the time he or she becomes a
Participant as shown in the personnel records of the Company.
2.2. "Board" means the Board of Directors of Energy Corp.
2.3. "Change of Control" shall mean the happening of any of the following
events:
(i) An acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of
beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of either (1) the then
outstanding shares of common stock of Energy Corp. (the "Outstanding
Company Common Stock") or (2) the combined voting power of the then
outstanding voting securities of Energy Corp. entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); excluding, however, the following: (1) any
acquisition directly from Energy Corp., (2) any acquisition by Energy
Corp., (3) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Energy Corp. or any corporation
controlled by Energy Corp. or (4) any acquisition by any corporation
pursuant to a transaction which complies with clauses (1), (2) and (3)
of subsection (iii) below; or
(ii) A change in the composition of the Board such that the individuals
who, as of January 1, 2003, constitute the Board (the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual who becomes a member of
the Board
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subsequent to January 1, 2003, whose election, or nomination for
election by Energy Corp.'s shareowners, was approved by a vote of at
least a majority of those individuals then comprising the Incumbent
Board shall be considered as though such individual were a member of
the Incumbent Board; but, provided further, that any such individual
whose initial assumption of office occurs as a result of either an
actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board
shall not be so considered as a member of the Incumbent Board; or
(iii) Consummation of a reorganization, merger, share exchange or
consolidation or sale or other disposition of all or substantially all
of the assets of Energy Corp. (a "Business Combination"), excluding,
however, such a Business Combination pursuant to which (1) all or
substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such Business Combination beneficially own, directly or indirectly,
more than 60% of, respectively, the outstanding shares of common stock
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a
result of such transaction owns Energy Corp. or all or substantially
all of Energy Corp.'s assets either directly or through one or more
subsidiaries) in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be, (2) no Person (other than the
corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of Energy Corp. or such corporation
resulting from such Business Combination) beneficially owns, directly
or indirectly, 20% or more of, respectively, the outstanding shares of
common stock of the corporation resulting from such Business
Combination or the combined voting power of the outstanding voting
securities of such corporation except to the extent that such
ownership existed prior to the Business Combination and (3) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or the
action of the Board, providing for such Business Combination; or
(iv) The approval by the shareowners of Energy Corp. of a complete
liquidation or dissolution of Energy Corp.
2.4. "Code" means the Internal Revenue Code of 1986, as amended.
2.5. "Committee" means the Compensation Committee of the Board or any other
Committee of the Board designated by resolution of the Board to
perform certain administrative functions under the Plan provided that,
to the extent awards under the Plan are intended to be exempt from
Section 162(m) of the Code, such Committee shall be comprised of two
or more persons, each of whom shall qualify as an "outside director"
for purposes of Section 162(m)(4) of the Code.
2.6. "Company" means Energy Corp., its subsidiary, Oklahoma Gas and
Electric Company, and any domestic subsidiary or division of these
entities, as designated by the Committee for participation in the
Plan.
2.7. "Company Performance Goals" shall have the meaning ascribed to it by
Section 6.2 hereof.
2.8. "Covered Employee" means, for any Plan Year, a Participant designated
prior to the grant of a Target Company Award for such Plan Year who is
or may be a "covered employee" within the meaning of Section 162(m)(3)
of the Code for such Plan Year.
2.9. "Earned Award" means the Earned Individual Award, if any, and the
Earned Company Award, if any, for a Participant for the applicable
Plan Year.
2.10. "Earned Company Award" means the actual award earned under a
Participant's Target Company
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Award during a Plan Year as determined by the Committee after the end
of the Plan Year (pursuant to Section 6.3 hereof).
2.11. "Earned Individual Award" means the actual award earned under a
Participant's Target Individual Award during a Plan Year as determined
by the Committee after the end of the Plan Year (pursuant to Section
5.4 hereof).
2.12. "Energy Corp." shall mean OGE Energy Corp. and its successors and
assigns.
2.13. "Participant" means any officer, executive or other key employee of
the Company who has been selected by the Committee to be eligible to
receive an award under the Plan as provided in Article 4. Members of
the Board who are not employed on a full-time basis by the Company are
not eligible to receive awards under the Plan.
2.14. "Performance Matrix" means the chart or charts or other schedules
approved by the Committee that are used to determine the percentage of
each Participant's Target Company Award which the Participant will
actually receive as a result of the attainment of Company Performance
Goals.
2.15. "Plan" means this 2003 Annual Incentive Compensation Plan, as it may
be amended from time to time.
2.16. "Plan Year" means a fiscal year beginning January 1 and ending
December 31.
2.17. "Target Company Award" means an award established pursuant to Article
6 hereof. Such Target Company Award shall be expressed as a percentage
of the Participant's Base Salary.
2.18. "Target Individual Award" means an award established pursuant to
Article 5 hereof. Such Target Individual Award shall be expressed as a
percentage of the Participant's Base Salary.
III. ADMINISTRATION OF THE PLAN
The Plan shall be administered by the Committee to the extent provided herein. Subject to the provisions of the Plan, the Board shall have exclusive authority to amend, modify, suspend or terminate the Plan at any time.
IV. ELIGIBILITY AND PARTICIPATION
4.1. Eligibility. Eligibility for participation in the Plan shall be
limited to those officers, executives or other key employees who are
nominated for participation by the Chief Executive Officer of Energy
Corp. (the "Chief Executive Officer") and then selected by the
Committee to participate in the Plan.
4.2. Participation. Participation in the Plan shall be determined annually
based upon nomination by the Chief Executive Officer and selection by
the Committee. Specific criteria for participation shall be determined
by the Committee prior to the beginning of each Plan Year. Persons
selected for participation shall be notified in writing of their
selection, and of their individual performance goals and Company
Performance Goals and related Target Individual Awards and Target
Company Awards, as soon after approval as is practicable.
4.3. Partial Plan Year Participation. Subject to Article 6 herein, the
Committee may, upon recommendation of the Chief Executive Officer,
allow an individual who becomes eligible after the beginning of a Plan
Year to participate in the Plan for that period. In such case, the
Participant's Earned Award normally shall be prorated based on the
number of full months of participation during such Plan Year. However,
subject to Section 5.1 and Article 6 herein, the Chief Executive
Officer, subject to Committee approval, may authorize an unreduced
Earned Award.
4.4. Termination of Approval. In its sole discretion, the Committee may
withdraw its approval for participation in the Plan with respect to a
Plan Year for a Participant at any time during such Plan Year;
provided, however, that such withdrawal must occur before the end of
such Plan Year and provided further that, in the event a Change of
Control occurs during a Plan Year, the Committee may not thereafter
withdraw its approval for a Participant during such Plan Year. In the
event of
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such withdrawal, the employee concerned shall cease to be a
Participant as of the date designated by the Committee, and the
employee shall not be entitled to any part of an Earned Award for the
Plan Year in which such withdrawal occurs. Such employee shall be
notified of such withdrawal in writing as soon as practicable
following such action.
V. INDIVIDUAL AWARDS
5.1. Award Opportunities. At the beginning of each Plan Year, the Committee
shall establish Target Individual Award levels for each Participant
who is to be granted an opportunity to achieve an Earned Individual
Award. The established levels may vary in relation to the
responsibility level of the Participant. In the event a Participant
changes job levels during the Plan Year, the Target Individual Award
may be adjusted at the discretion of the Committee to reflect the
amount of time at each job level. Notwithstanding any provision in
this Plan to the contrary, for any Plan Year (i) Target Individual
Awards and Earned Individual Awards shall not be granted to Covered
Employees, and (ii) Target Individual Awards shall not be dependent in
any manner on, and shall be established independently of and in
addition to, the establishment of any Target Company Awards or the
payout of any Earned Company Awards pursuant to Article 6 herein.
5.2. Individual Performance Goals. At the beginning of each Plan Year, the
Chief Executive Officer shall recommend individual performance goals
for each Participant who is granted a Target Individual Award. The
Committee shall consider and approve or modify the recommendations as
appropriate. The level of achievement of the individual performance
goals by a Participant at the end of the Plan Year, as determined
pursuant to Section 5.4 below, will determine such Participant's
Earned Individual Award, which may range from 0% to 175% of such
Participant's Target Individual Award.
5.3. Adjustment of Individual Performance Goals. The Chief Executive
Officer shall have the right to adjust the individual performance
goals (either up or down) during the Plan Year if he determines that
external changes or other unanticipated conditions have materially
affected the fairness of the goals and unduly influenced a
Participant's ability to meet them; provided, however, that no such
adjustment to the Chief Executive Officer's individual performance
goals shall be made unless approved by the Committee; and provided
further that no adjustment of such individual performance goals for
any Participant shall be made based upon the failure, or the expected
failure, to attain or exceed the Company Performance Goals for any
Target Company Award granted to such Participant under Article 6
herein and provided further that no adjustment shall be made of such
individual performance goals for a Plan Year in which a Change of
Control occurs.
5.4. Earned Individual Award Determination. At the end of each Plan Year,
the Chief Executive Officer shall review the performance of each
Participant who received a Target Individual Award. Based on the Chief
Executive Officer's determination as to a Participant's level of
achievement of his or her individual performance goals, the Chief
Executive Officer shall make a recommendation to the Committee as to
the Earned Individual Award to be received by such Participant. The
payment of all Earned Individual Awards is subject to approval by the
Committee. The payment of an Earned Individual Award to a Participant
shall not be contingent in any manner upon the attainment of, or
failure to attain, the Company Performance Goals for the Target
Company Awards granted to such Participant under Article 6.
5.5. Maximum Payable/Aggregate Award Cap. The maximum amount payable to a
Participant pursuant to this Article 5 for any Plan Year shall be
$250,000. The Committee also may establish guidelines governing the
maximum Earned Individual Awards that may be earned by all
Participants in the aggregate, in each Plan Year. These guidelines may
be expressed as a percentage of a financial measure, or such other
measure as the Committee shall from time to time determine.
5.6. Deferral of Payment. The Committee may in its sole discretion delay
payment to a Participant
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pursuant to this Article 5, until the Participant is no longer a
"covered employee" under Section 162(m) of the Code, as amended from
time to time, its legislative history, and any regulations promulgated
thereunder.
VI. COMPANY AWARDS
In addition to any Target Individual Awards granted under Article 5, Target Company Awards based solely on performance of Energy Corp., one or more of its subsidiaries or one or more business or functional units thereof may be established under this Article 6 for Participants. Earned Company Awards are intended to satisfy the performance-based compensation exemption under Code Section 162(m)(4)(C) and the related regulations and shall thus be subject to the requirements set forth in this Article 6.
6.1. Award Opportunities. On or before the 90th day of each Plan Year and
in any event before 25% or more of the Plan Year has elapsed, the
Committee shall establish in writing for each Participant for whom a
Target Company Award is to be granted under this Article 6, the Target
Company Award and specific objective performance goals for the Plan
Year, which goals shall meet the requirements of Section 6.2 herein
(such goals are hereinafter referred to as "Company Performance
Goals"). The extent, if any, to which an Earned Company Award will be
payable to a Participant will be based solely upon the degree of
achievement of such preestablished Company Performance Goals over the
specified Plan Year; provided, however, that, unless and until a
Change of Control occurs, the Committee may, in its sole discretion,
reduce or eliminate the amount which would otherwise be payable with
respect to a Plan Year. Payment of an Earned Company Award to a
Participant shall consist of a cash award from the Company to be based
upon a percentage (which may exceed 100%) of the Participant's Target
Company Award.
6.2. Company Performance Goals. The Company Performance Goals established
by the Committee pursuant to Section 6.1 will be based on one or more
of the following relating to Energy Corp., one or more of its
subsidiaries, or one or more business or functional units thereof:
total shareholder return, return on equity, return on capital,
earnings per share, market share, stock price, sales, costs, net
operating income, net income, return on assets, earnings before income
taxes, depreciation and amortization, return on total assets employed,
capital expenditures, earnings before income taxes, economic value
added, cash flow, retained earnings, results of customer satisfaction
surveys, aggregate product price and other product price measures,
safety record, service reliability, demand-side management (including
conservation and load management), operating and/or maintenance cost
management (including operation and maintenance expenses per Kwh) and
energy production availability performance measures. At the time of
establishing a Company Performance Goal, the Committee shall specify
the manner in which the Company Performance Goal shall be calculated.
In so doing, the Committee may exclude the impact of certain specified
events from the calculation of the Company Performance Goal. For
example, if the Company Performance Goal were earnings per share, the
Committee could, at the time this Company Performance Goal was
established, specify that earnings per share are to be calculated
without regard to any subsequent change in accounting standards
required by the Financial Accounting Standards Board. Company
Performance Goals also may be based on the attainment of specified
levels of performance of Energy Corp., and/or any of its subsidiaries
and/or one or more business or functional units thereof under one or
more of the measures described above relative to the performance of
other corporations or indicies. As part of the establishment of
Company Performance Goals for a Plan Year, the Committee shall also
establish a minimum level of achievement of the Company Performance
Goals that must be met for a Participant to receive any portion of his
Target Company Award. All of the provisions of this Section 6.2 are
subject to the requirement that all Company Performance Goals shall be
objective performance goals satisfying the
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requirement for "performance-based compensation" within the meaning of
Section 162(m)(4) of the Code and the related regulations.
6.3. Payment of an Earned Company Award. At the time the Target Company
Award for a Participant is established, the Committee shall prescribe
a formula to determine the percentage (which may exceed 100%) of the
Target Company Award which may be payable to the Participant based
upon the degree of attainment of the Company Performance Goals during
the Plan Year. Such formula may be expressed in terms of a graph or
chart in which the amount that may be payable to a Participant is
dependent upon the combined degree of attainment of more than one
Company Performance Goals. If the minimum level of achievement of
Company Performance Goals established by the Committee for a
Participant for a Plan Year is not met, no payment of an Earned
Company Award will be made to the Participant for that Plan Year. To
the extent that the minimum level of achievement of Company
Performance Goals is satisfied or surpassed for a Participant for a
Plan Year, and upon written certification by the Committee that the
Company Performance Goals have been satisfied to a particular extent
and that any other material terms and conditions of the Company Target
Awards have been satisfied, payment of an Earned Company Award shall
be made to the Participant for that Plan Year in accordance with the
prescribed formula except that, unless and until a Change of Control
occurs, the Committee may determine, in its sole discretion, to reduce
or eliminate the payment to be made.
6.4. Maximum Payable. The maximum amount payable to a Participant pursuant
to this Article 6 for performance for any Plan Year shall be
$2,000,000.
6.5. Committee Discretion. Notwithstanding Articles 3 and 5 herein, the
Committee shall not have discretion to modify the terms of Target
Company Awards or the formula for calculating Earned Company Awards,
except as specifically set forth in this Article 6.
VII. FORM AND TIME OF PAYMENT OF AWARDS
Subject to Article 6 and Article 8 herein, as soon as practicable following the availability of the Company's audited financial statements pertaining to the applicable Plan Year, Earned Award payments, if any, for such Plan Year shall be paid in cash.
VIII. TERMINATION OF EMPLOYMENT
8.1. Termination of Employment Due to Death, Disability, or Retirement. In
the event a Participant's employment is terminated by reason of death,
total and permanent disability (as determined by the Committee) or
retirement (as determined by the Committee) during a Plan Year and
such termination does not occur within twenty-four (24) months after a
Change of Control, the Earned Award, determined in accordance with
Section 5.4 and Section 6.3 herein, for such Plan Year shall be
reduced to reflect participation prior to termination. This reduction
shall be determined by multiplying said Earned Award by a fraction;
the numerator of which is the months of participation through the date
of termination rounded up to whole months and the denominator of which
is 12. The Earned Award thus determined for a Plan Year shall be paid
as soon as practicable following the release of the Company's audited
financial statements pertaining to such Plan Year.
8.2. Termination of Employment for Other Reasons. In the event a
Participant's employment is terminated for any reason other than
death, total and permanent disability (as determined by the Committee)
or retirement (as determined by the Committee) during a Plan Year and
such termination does not occur within twenty-four (24) months after a
Change of Control, all of the Participant's rights to an Earned Award
for the Plan Year then in progress shall be forfeited; provided that,
except in the event of a termination of employment for cause (as
determined in the sole discretion of the Committee and without regard
to Section 10.2 hereof), the Committee, in its sole discretion, may
pay a prorated award for the portion of that Plan Year that the
Participant was employed by Energy Corp. or any of its subsidiaries,
computed as determined by the Committee.
B-6
Each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively and who may include a trustee under a will or living trust) to whom any benefit under the Plan is to be paid in case of his death before he received any or all of such benefit. Each designation will revoke all prior designations by the same Participant, shall be in a form prescribed by the Committee, and will be effective only when filed by the Participant in writing with the Committee during his lifetime. In the absence of any such designation, or if all designated beneficiaries predecease the Participant, benefits remaining unpaid at the Participant's death shall be paid to the Participant's estate.
X. CHANGE OF CONTROL
10.1. Termination Other than for Cause. Notwithstanding any other provisions
of the Plan, in the event a Participant's employment with Energy Corp.
or any of its subsidiaries is terminated voluntarily or involuntarily
for any reason other than for cause (with cause being determined by
the Committee in accordance with Section 10.2 hereof), within
twenty-four (24) months after a Change of Control, all awards, if any,
previously deferred (with earnings) shall be paid to the Participant
within ten (10) business days of the termination, along with the
Target Company Award and Target Individual Award established for the
Participant for the Plan Year in progress at the time of the
employment termination, prorated for the number of days in the Plan
Year in which the Participant was employed by Energy Corp. or any of
its subsidiaries, up to and including the date of termination;
provided, however, any such payment to a Participant pursuant to this
Section 10.1 shall be reduced to the extent the Participant otherwise
received payment of such Target Company Award or Target Individual
Award pursuant to the terms of any employment agreement, plan,
contract or other arrangement involving the Participant and Energy
Corp. or any of its subsidiaries.
10.2. Termination for Cause. In the event a Participant's employment with
Energy Corp. or any of its subsidiaries is terminated for cause (as
determined by the Committee in the manner hereinafter set forth)
within twenty-four (24) months after a Change of Control, no Earned
Award will be paid for the Plan Year in progress at the time of the
employment termination; provided that, following a Change of Control,
a Participant shall be deemed to be terminated for cause only if his
employment was terminated involuntarily at the written direction of
the Committee due solely to: (i) the willful and continued failure of
the Participant to substantially perform his duties (other than any
such failure resulting from physical or mental illness) for a minimum
period of two weeks after receiving a written demand for substantial
performance from the Committee which specifically identifies the
manner in which the Committee or Chief Executive Officer believes that
the Participant has not substantially performed his duties or (ii) the
willful engaging by the Participant in illegal conduct or gross
misconduct that is materially and demonstrably injurious to the
Company.
XI. MISCELLANEOUS
11.1. Nontransferability. No Participant shall have the right to anticipate,
alienate, sell, transfer, assign, pledge or encumber his or her right
to receive any award made under the Plan until such an award becomes
payable to him or her.
11.2. No Right to Company Assets. Any benefits which become payable
hereunder shall be paid from the general assets of Energy Corp. or
applicable subsidiary. No Participant shall have any lien on any
assets of the Company by reason of any award made under the Plan.
11.3. No Implied Rights; Employment. The adoption of the Plan or any
modification or amendment hereof does not imply any commitment to
continue or adopt the same plan, or any modification
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thereof, or any other plan for incentive compensation for any
succeeding year, provided, that no such modification or amendment
shall adversely affect the rights of any person, without his or her
written consent, under any award theretofore granted under the Plan.
Neither the Plan nor any award made under the Plan shall create any
employment contract between the Company and any Participant.
11.4. Participation. No Participant or other employee shall at any time have
a right to be selected for participation in the Plan for any Plan
Year, despite having been selected for participation in a prior Plan
Year. Nothing in this Plan shall interfere with or limit in any way
the right of the Company to terminate any Participant's employment at
any time, nor confer upon any Participant any right to continue in the
employ of the Company.
11.5. All Determinations Final. All determinations of the Committee or the
Board as to any disputed questions arising under the Plan, including
questions of construction and interpretation, shall be final, binding
and conclusive upon all Participants and all other persons and shall
not be reviewable.
11.6. Plan Description. Each Participant shall be provided with a Plan
description and a Plan agreement for each Plan Year which shall
include Target Individual Awards, individual performance goals, Target
Company Awards, Company Performance Goals and a Performance Matrix for
each year. In the event of a conflict between the terms of the Plan
description and the Plan, the terms of the Plan shall control unless
the Committee decides otherwise.
11.7. Successors. This Plan shall be binding on the successors and assigns
of Energy Corp.
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OGE ENERGY CORP.
Annual Meeting of Shareowners
[LOGO] May 22, 2003
P The undersigned hereby appoints Steven E. Moore, Herbert H. Champlin,
and Martha W. Griffin, and each of them severally, with full power of
R substitution and with full power to act with or without the other, as the
proxies of the undersigned to represent and to vote all shares of stock of
O OGE Energy Corp. held of record by the undersigned on March 24, 2003, at
the Company's Annual Meeting of Shareowners to be held on May 22, 2003, and
X at all adjournments thereof, on all matters coming before said meeting.
Y THIS PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS, WILL BE
VOTED AS DIRECTED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
THE ELECTION AS DIRECTORS OF THE NOMINEES NAMED ON THE REVERSE SIDE OF
THIS PROXY CARD AND FOR THE APPROVAL OF THE OGE ENERGY CORP. 2003 STOCK
INCENTIVE PLAN AND THE OGE ENERGY CORP. 2003 ANNUAL INCENTIVE COMPENSATION
PLAN.
PLEASE VOTE BY INTERNET, TELEPHONE, OR MARK, DATE, SIGN AND RETURN THIS
PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. Unless you attend and
vote in person, you MUST vote by Internet, telephone, or sign and return
your proxy in order to have your shares voted at the meeting.
----------------
SEE REVERSE SIDE
----------------
PLEASE DATE AND SIGN EXACTLY AS NAME APPEARS BELOW. EACH JOINT OWNER SHOULD Please mark your votes as
SIGN. ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR OTHERS SIGNING IN A indicated in this example /X/
REPRESENTATIVE CAPACITY SHOULD GIVE THEIR FULL TITLES.
- --------------------------------------------------------------------------------------------------------------
The Board recommends a vote FOR the election as directors of the nominees named below and a vote FOR
approval of the 2003 Stock Incentive Plan.
- --------------------------------------------------------------------------------------------------------------
1. Election of Directors: FOR all WITHHOLD
NOMINEES AUTHORITY
NOMINEES: (list exceptions to vote for
01 William e. Durrett; to the right) all nominees. ________________________________________
02 John D. Groendyke; Instruction: To withhold authority to
and 03 Steven E. Moore ________ _________ vote for any individual nominee, write
that nominee's name on the line above.
FOR AGAINST ABSTAIN 4. In their discretion, the proxies are
2. Approval of the OGE Energy authorized to vote upon such other
Corp. 2003 Stock Incentive business as may properly come before
Plan. ________ _______ _________ the meeting.
3. Approval of the OGE Energy FOR AGAINST ABSTAIN Discontinue mailing I will attend the
Corp. 2003 Annual Incentive of duplicate Annual Annual Meeting.
Compensation Plan. ________ _______ _________ Report _______ _______
- --------------------------------------------------------------------------------------------
X / /2003 X / /2003
- ------------------------------------------------------- -------------------------------------------------
Signature of Shareowner Date Signature of Shareowner Date
Detach here from proxy voting card.
LOGO Admission Ticket
321 North Harvey Avenue RETAIN FOR ADMITTANCE
Oklahoma City, OK 73102
Annual Meeting of
OGE Energy Corp. Shareowners
Thursday, May 22, 2003 10:00 a.m.
National Cowboy and Western Heritage Museum
1700 Northeast 63rd Street
Oklahoma City, Oklahoma
LOCATION OF THE NATIONAL COWBOY AND
WESTERN HERITAGE MUSEUM
East Bound or West Bound I-44
Exit to Martin L. King Ave., continuing northerly
approximately .2 miles. Proceed west on Northeast 63rd
Street .5 miles to National Cowboy and Western Heritage
Museum.
{MAP}
It is important that your shares are represented at this
meeting, whether or not you attend the meeting in person.
To make sure your shares are represented, we urge you to
vote by Internet, telephone, or complete and mail the proxy
card above.
Vote by Internet or Telephone or Mail
24 Hours a Day, 7 Days a Week
Internet and telephone voting is available through 11PM Eastern Time
the day prior to annual meeting day.
Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
Internet Telephone Mail
-------- --------- ----
http://www.eproxy.com/oge 1-800-435-6710
Use the Internet to vote your Use any touch-tone telephone to Mark, sign and date
proxy. Have your proxy card in vote your proxy. Have your your proxy card
hand when you access the web OR proxy card in hand when you OR and
site. You will be prompted to call. You will be prompted to return it in the
enter your control number, enter your control number, enclosed postage-paid
located in the box below, to located in the box below, and envelope.
create and submit an electronic then follow the directions given.
ballot.
If you vote your proxy by Internet or by telephone,
you do NOT need to mail back your proxy card.
You can view the Annual Report and Proxy Statement
on the Internet at: http://www.oge.com
OGE ENERGY CORP. P.O. BOX 321
Oklahoma City, OK 73101-0321
405-553-3000
www.oge.com
OGE ENERGY CORP.
[LOGO]
April 4, 2003
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
On behalf of OGE Energy Corp., enclosed for electronic filing, pursuant to Rule 14a-6(b), is a definitive copy of the proxy solicitation material relating to the Annual Meeting of Shareowners of the Company to be held on May 22, 2003.
Please note that copies of the proxy solicitation material are this day being sent to the New York and Pacific Stock Exchanges in accordance with Rule 14a-6(b).
The Company intends to commence mailing the foregoing material to its shareowners on approximately April 4, 2003, and to complete the same as soon as possible.
Sincerely,
/s/Carla D. Brockman
Carla D. Brockman
Corporate Secretary
Enclosure