UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
(Rule 14a-101)
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT of 1934)
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Rule 14a-12
THE SOUTHERN COMPANY
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(Name of Registrant as Specified In Its Charter)
(Name of Persons(s) Filing Proxy Statement, if other than the Registrant's)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
SOUTHERN COMPANY LOGO
FOR INFORMATION ONLY
NOTICE OF
ANNUAL MEETING
2004
& PROXY STATEMENT
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PROXY STATEMENT
CONTENTS
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Letter to Stockholders
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Notice of Annual Meeting of Stockholders -- May 26, 2004
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Proxy Statement 1
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General Information 1
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Giving Voting Instructions 1
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Revocation of Proxies 1
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Electronic Delivery of Proxy Materials and Annual Report 1
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Householding Information 1
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Stockholder Proposals for the 2005 proxy materials 1
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Cost of Proxy Solicitation 2
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Corporate Governance 3
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Company Organization 3
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Director Independence 3
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Communicating with the Board 3
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Director Compensation 3
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Meetings of Non-Management Directors 4
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Committees of the Board 4
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Committee Charters 4
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Audit 4
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Compensation and Management Succession 4
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Finance 5
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Governance 5
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Nominees for Election to the Board 5
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Nuclear Oversight 5
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Director Attendance 5
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Stock Ownership Table 6
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Matters to be Voted On 7
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Item No. 1 -- Election of Directors 7
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Item No. 2 -- Ratification of Appointment of Independent
Auditors 11
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Item No. 3 -- Approval of Outside Directors Stock Plan 12
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Information on a Stockholder Proposal 13
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Audit Committee Report 14
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Compensation & Management Succession Committee Report 16
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Committee Report 16
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Committee Interlocks 18
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Five-Year Performance Graph 19
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Other Information 19
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Section 16(a) Beneficial Ownership Reporting Compliance 20
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Legal Proceedings 20
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Certain Relationships and Related Transactions 20
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Executive Compensation 21
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Employment, Change in Control and Separation Agreements 21
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Summary Compensation Table 22
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Stock Options 23
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Option Exercises 24
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Pension Plan Table 25
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Equity Compensation Plan Information 26
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Appendix A -- Audit Committee Charter i
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Appendix B -- Policy on Engagement of the Independent
Auditor For Audit and Non-Audit Services iv
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LETTER TO STOCKHOLDERS
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ALLEN FRANKLIN
Chairman and
Chief Executive Officer
(SOUTHERN COMPANY LOGO)
Dear Fellow Stockholder:
You are invited to attend the 2004 Annual
Meeting of Stockholders at 10:00 a.m.,
ET, on Wednesday, May 26, 2004 at The
Southern Pine at Callaway, Pine Mountain,
Georgia.
At the meeting, I will report on our
business and our plans for the future.
Also, we will elect our Board of
Directors and vote on the other matters
set forth in the accompanying Notice.
Your vote is important. Please review the
proxy material and return your proxy form
as soon as possible.
As you may have heard, I recently
announced my retirement, effective in
July. So this will be my last annual
meeting as chairman and CEO. I am proud
to have been associated with this great
company for 34 years and thankful for
your continued support.
We look forward to seeing you on May
26th.
Sincerely,
-s- Allen Franklin
Allen Franklin
(PHOTO OF ALLEN FRANKLIN)
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS - MAY 26, 2004
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TIME AND DATE
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10:00 a.m., ET, on Wednesday, May 26, 2004
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PLACE
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The Southern Pine at Callaway
Georgia Highway 18
Pine Mountain, Georgia 31822
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DIRECTIONS
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From Atlanta, Georgia -- take I-85 south to I-185 (Exit 21). From I-185 south,
take Exit 34, Georgia Highway 18. Take Georgia Highway 18 east to Callaway.
From Birmingham, Alabama -- take U.S. Highway 280 east to Opelika. Take I-85
north to Georgia Highway 18 (Exit 2). Take Georgia Highway 18 east to Callaway.
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ITEMS OF BUSINESS
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(1) Elect 11 members of the Board of Directors;
(2) Ratify appointment of independent auditors;
(3) Approve Outside Directors Stock Plan; and
(4) Transact other business properly coming before the meeting or any
adjournments thereof.
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RECORD DATE
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Stockholders of record at the close of business on March 29, 2004, are entitled
to attend and vote at the meeting.
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ANNUAL REPORT TO STOCKHOLDERS
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The Southern Company Annual Report to stockholders for 2003 is enclosed but is
not a part of this mailing.
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VOTING
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Even if you plan to attend the meeting in person, please provide your voting
instructions in one of the following ways as soon as possible:
(1) Internet -- use the Internet address on the proxy form
(2) Telephone -- use the toll-free number on the proxy form
(3) Mail -- mark, sign and date the proxy form and return it in the enclosed
postage-paid envelope
By Order of the Board of Directors, Tommy Chisholm, Secretary, April 21, 2004
PROXY STATEMENT
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GENERAL INFORMATION
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Q: HOW DO I GIVE VOTING INSTRUCTIONS?
A: You may attend the meeting and give instructions in person or give
instructions by the Internet, by telephone or by mail. Information for
giving instructions is on the proxy form. The Proxies, named on the
enclosed proxy form, will vote all properly executed proxies that are
delivered pursuant to this solicitation and not subsequently revoked in
accordance with the instructions given by you.
Q: CAN I CHANGE MY VOTE?
A: Yes, you may revoke your proxy by submitting a subsequent proxy or by
written request received by the Company's corporate secretary before the
meeting.
Q: WHO CAN VOTE?
A: All stockholders of record on the record date of March 29, 2004. On that
date, there were 737,637,807 shares of Southern Company common stock
outstanding and entitled to vote.
Q: HOW MUCH DOES EACH SHARE COUNT?
A: Each share counts as one vote, except votes for directors may be
cumulative. Abstentions that are marked on the proxy form are included for
the purpose of determining a quorum, but shares that a broker fails to vote
are not counted toward a quorum. Neither is counted for or against the
matters being considered.
Q: WHAT DOES IT MEAN IF I GET MORE THAN ONE PROXY FORM?
A: You will receive a proxy form for each account that you have. Please vote
proxies for all accounts to ensure that all your shares are voted. If you
wish to consolidate multiple registered accounts, please contact
Stockholder Services at (800) 554-7626.
Q: CAN THE COMPANY'S PROXY STATEMENT AND ANNUAL REPORT BE ACCESSED FROM THE
INTERNET?
A: Yes, in addition, stockholders may view the Proxy Statement and Annual
Report on the Internet instead of receiving them by U.S. mail, each year.
If you choose to access future Proxy Statements and Annual Reports online,
you will continue to receive a proxy form in the mail. Future proxy forms
will contain the website address and other necessary information to view
the proxy materials and to submit your vote. Whether you receive your proxy
materials in the mail or view them on the Internet, you will continue to
have the option to vote on the Internet, by telephone, by mail or in person
at the Annual Meeting.
Q: WHAT IS "HOUSEHOLDING"?
A: Certain beneficial owners of the Company's common stock, sharing a single
address, may receive only one copy of the Proxy Statement and Annual Report
unless the broker, bank or nominee has received contrary instructions from
any beneficial owner at that address. This practice -- known as
householding -- is designed to reduce printing and mailing costs. If a
beneficial owner does not wish to participate in householding, this year or
in the future, he or she may contact Stockholder Services at (800) 554-7626
or at 270 Peachtree Street NW, Atlanta, Georgia 30303 and ask to receive a
Proxy Statement or Annual Report. As noted earlier, beneficial owners may
view the Proxy Statement and Annual Report on the Internet.
Q: WHEN ARE STOCKHOLDER PROPOSALS DUE FOR THE 2005 ANNUAL MEETING OF
STOCKHOLDERS?
A: The deadline for the receipt of stockholder proposals to be considered for
inclusion in the Company's proxy materials for the 2005 Annual Meeting of
Stockholders is December 22, 2004. Proposals must be submitted in writing
to Tommy Chisholm, Corporate Secretary, Bin 912, Southern Company, 270
Peachtree Street NW, Atlanta, Georgia 30303. Additionally, the proxy
solicited by the Board of Directors for next year's meeting will confer
discretionary
1
authority to vote on any stockholder proposal presented at that meeting
that is not included in the Company's proxy materials unless the Company is
provided written notice of such proposal no later than March 7, 2005.
Q: WHO PAYS THE EXPENSE OF SOLICITING PROXIES?
A: The Company pays the cost of soliciting proxies. The officers or other
employees of the Company or its subsidiaries may solicit proxies to have a
larger representation at the meeting. The Company has engaged Georgeson
Shareholder Communications, Inc. to assist with the solicitation of proxies
for a fee of $10,000 plus expenses.
The Company's 2003 Annual Report to the Securities and Exchange Commission on
Form 10-K will be provided without charge upon written request to Tommy
Chisholm, Corporate Secretary, Bin 912, Southern Company, 270 Peachtree Street
NW, Atlanta, Georgia 30303.
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CORPORATE GOVERNANCE
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COMPANY ORGANIZATION
Southern Company is a holding company managed by a core group of officers and
governed by a Board of Directors that is currently comprised of 10 members. The
number of Directors to be elected at this Annual Meeting of Stockholders has
been set at 11.
DIRECTOR INDEPENDENCE
No Director will be deemed to be independent unless the Board affirmatively
determines that the Director is independent of the Company's management. The
Board affirmatively determined that each current member of the Board and each
nominee for election as a Director, except Mr. Franklin, Chairman and Chief
Executive Officer of the Company, and Mr. Ratcliffe, President of the Company,
are independent under the Director Independence Requirements of the Company's
Corporate Governance Guidelines. The Guideline's Independence Requirements
include the independence standards in the New York Stock Exchange corporate
governance rules.
In making the independence determination, the Board reviews and considers all
commercial, consulting, legal, accounting, charitable or other business
relationships that a director or his or her immediate family members have with
the Company.
The Corporate Governance Guidelines are available on the Company's website at
www.southerncompany.com under Investor Relations.
COMMUNICATING WITH THE BOARD
Stockholders may send communications to the Company's Board or to specified
Directors by regular mail or electronic mail. Regular mail should be sent to the
attention of Mr. Tommy Chisholm, Corporate Secretary, Southern Company, Bin 912,
270 Peachtree Street, Atlanta, Georgia 30303. The electronic mail address is
CORPGOV@southernco.com. The electronic mail address also can be accessed from
the Corporate Governance web page located under Investor Relations on the
Southern Company website at www.southerncompany.com, under the link entitled
"Contact Corporate Governance." With the exception of commercial solicitations,
all stockholder communications directed to the Board or to specified Directors
will be relayed to them.
DIRECTOR COMPENSATION
Only non-employee Directors are compensated for Board service. The pay
components are:
ANNUAL RETAINERS:
M $40,000 if first elected as a Director before 1997, of which $10,000 is
deferred in shares of Company common stock until Board membership ends
M $49,000 if first elected as a Director in 1997 or later, of which $19,000 is
deferred in shares of Company common stock until Board membership ends
M $5,000 if serving as chair of a Board committee
EQUITY GRANTS:
M 1,000 additional shares of Company common stock in quarterly grants of 250
shares are deferred until Board membership ends
MEETING FEES:
M $2,500 for participation in a meeting of the Board
M $2,000 for participation in a meeting of a Committee of the Board other than
a meeting of the Audit Committee
3
M $4,000 for attendance in person at a meeting of the Audit Committee
M $2,000 for participation by telephone in a meeting of the Audit Committee
Directors may elect to defer up to 100 percent of their compensation until
membership on the Board ends.
There is no pension plan for non-employee Directors.
MEETINGS OF NON-MANAGEMENT DIRECTORS
Non-management Directors meet in executive session with no member of management
present following each regularly scheduled Board meeting. There is a presiding
Director at each of these executive sessions. Mr. Bruce S. Gordon, chair of the
Governance Committee, served as presiding Director during the past year and will
continue to serve until the Annual Meeting of Stockholders on May 26, 2004. Mr.
Gerald J. St. Pe, chair of the Compensation and Management Succession Committee,
has been named by non-management Directors as the presiding Director to serve
between the annual meetings of 2004 and 2005 or until a successor is named by
the non-management Directors. The presiding Director is selected from the chairs
of the Board's five standing committees. See "Communicating with the Board" on
page 3 for information regarding communications with the Board or its members.
COMMITTEES OF THE BOARD
COMMITTEE CHARTERS
Charters for each of the five standing committees, the Company's Corporate
Governance Guidelines and Code of Ethics can be found at the Company's
website -- www.southerncompany.com. The Audit Committee Charter is also shown in
Appendix A of this Proxy Statement.
AUDIT COMMITTEE:
M Members are Mr. Purcell, Chair, Ms. Bern, Mr. James and Dr. Pate
M Met 12 times in 2003
M Oversees the Company's financial reporting and audit processes, internal
controls and legal, regulatory and ethical compliance; appoints the Company's
independent auditors, approves their services and fees and reviews the scope
and timing of their audits; reviews and discusses the Company's financial
statements with management and the independent auditors, including critical
accounting policies and practices, material alternative financial treatments
within generally accepted accounting principles, proposed adjustments,
control recommendations, significant management judgments and accounting
estimates, new accounting policies and changes in accounting principles, any
disagreements with management and other material written communications
between the auditors and management; and recommends the filing of the
Company's annual financial statements with the Securities and Exchange
Commission (the "SEC")
The Board has determined that the four members of the Audit Committee are
independent as defined by the New York Stock Exchange corporate governance rules
within its listing standards and rules of the SEC promulgated pursuant to the
Sarbanes-Oxley Act. The Board has determined that Mr. Purcell qualifies as an
"audit committee financial expert" as defined by the SEC. The Audit Committee
Charter (see Appendix A) complies with the New York Stock Exchange corporate
governance rules.
COMPENSATION AND MANAGEMENT SUCCESSION COMMITTEE:
M Members are Mr. St. Pe, Chair, Mr. Amos and Mr. Chapman
M Met six times in 2003
M Evaluates performance of executive officers and establishes their
compensation, administers executive compensation plans and reviews management
succession plans
4
FINANCE COMMITTEE:
M Members are Mr. James, Chair, Mr. Amos and Mr. Gordon
M Met six times in 2003
M Reviews the Company's financial matters, recommends actions such as dividend
philosophy to the Board and approves certain capital expenditures
GOVERNANCE COMMITTEE:
M Members are Mr. Gordon, Chair, Ms. Bern, Mr. Chapman and Mr. St. Pe
M Met seven times in 2003
M Oversees the composition of the Board and its committees, determines
non-employee Directors' compensation, maintains the Company's Corporate
Governance Guidelines and coordinates the performance evaluations of the
Board and its committees
GOVERNANCE COMMITTEE -- NOMINEES FOR ELECTION TO THE BOARD
The Governance Committee, comprised entirely of independent Directors, is
responsible for identifying, evaluating and recommending nominees for election
to the Board of Directors. The Committee solicits recommendations for candidates
for consideration from its current Directors and is authorized to engage third
party advisers to assist in the identification and evaluation of candidates for
consideration. Any stockholder may make recommendations to the Governance
Committee by sending a written statement setting forth the candidate's
qualifications, relevant biographical information and signed consent to serve.
These materials should be submitted in writing to the Company's corporate
secretary and received by that office by December 22, 2004 for consideration by
this Committee as a nominee for election at the Annual Meeting of Stockholders
to be held in 2005. Any stockholder recommendation is reviewed in the same
manner as candidates identified by the Committee.
The Governance Committee only considers candidates with the highest degree of
integrity and ethical standards. The Committee evaluates a candidate's
independence from management, ability to provide sound and informed judgment,
history of achievement reflecting superior standards, willingness to commit
sufficient time, financial literacy and number of other board memberships. The
Board as a whole should be diverse and have collective knowledge and experience
in accounting, finance, leadership, business operations, risk management,
corporate governance and the Company's industry. The Committee recommends
candidates to the Board of Directors for consideration as nominees. Final
selection of the nominees is within the sole discretion of the Board of
Directors.
All the nominees recommended by the Governance Committee for election to the
Board at the 2004 Annual Meeting of Stockholders are currently directors except
Mr. Francis S. Blake. Mr. Blake was recommended to the Governance Committee for
consideration as a nominee by a third-party director search firm that was
retained by the Governance Committee.
NUCLEAR OVERSIGHT COMMITTEE:
M Membership is Dr. Pate, Chair
M Reviews and oversees the nuclear generating policies and facilities of the
Company's subsidiaries
DIRECTOR ATTENDANCE
The Board of Directors met nine times in 2003. The average attendance for
directors at all Board and committee meetings was 96 percent. No nominee
attended less than 75 percent of applicable meetings.
Directors are expected to attend the Annual Meeting of Stockholders. Nine of the
10 members of the Board of Directors attended the 2003 Annual Meeting of
Stockholders.
5
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STOCK OWNERSHIP TABLE
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This table shows the number of shares of the Company's common stock owned by
directors, nominees and executive officers as of December 31, 2003. The shares
owned by all directors, nominees, and executive officers as a group constitute
less than one percent of the total number of shares of the class.
SHARES BENEFICIALLY OWNED INCLUDE:
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SHARES
INDIVIDUALS
SHARES HAVE RIGHTS TO
BENEFICIALLY ACQUIRE WITHIN SHARES HELD BY
TITLE OF SECURITY OWNED(1) 60 DAYS(2) FAMILY MEMBERS
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DANIEL P. AMOS Southern Common Stock 19,086
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DORRIT J. BERN Southern Common Stock 19,049
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FRANCIS S. BLAKE Southern Common Stock 200
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THOMAS F. CHAPMAN Southern Common Stock 8,272
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THOMAS A. FANNING Southern Common Stock 85,419 83,657
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H. ALLEN FRANKLIN Southern Common Stock 1,249,367 1,207,841
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BRUCE S. GORDON Southern Common Stock 20,133
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W. GEORGE HAIRSTON, III Southern Common Stock 86,224 81,959
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DONALD M. JAMES Southern Common Stock 17,949
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CHARLES D. MCCRARY Southern Common Stock 259,492 256,031
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ZACK T. PATE Southern Common Stock 27,060
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J. NEAL PURCELL Southern Company Stock 6,628
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D. M. RATCLIFFE Southern Common Stock 227,807 214,558
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GERALD J. ST. PE Southern Common Stock 69,981 4,804
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DIRECTORS, NOMINEES AND Southern Common Stock 2,650,970 2,365,464 4,804
EXECUTIVE OFFICERS AS A GROUP
(18 PEOPLE)
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(1) "Beneficial ownership" means the sole or shared power to vote, or to direct
the voting of, a security or investment power with respect to a security, or
any combination thereof.
(2) Indicates shares of the Company's common stock that certain executive
officers have the right to acquire within 60 days. Shares indicated are
included in the Shares Beneficially Owned column.
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PROPOSALS
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ITEM NO. 1 -- ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS
The Proxies named on the proxy form will vote, unless otherwise instructed, each
properly executed proxy form for the election of the following nominees as
Directors. If any named nominee becomes unavailable for election, the Board may
substitute another nominee. In that event, the proxy would be voted for the
substitute nominee unless instructed otherwise on the proxy form. Each nominee,
if elected, will serve until the 2005 Annual Meeting of Stockholders.
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(PHOTO OF DANIEL P. AMOS) DANIEL P. AMOS
Age: 52
Director since: 2000
Board committees: Compensation and
Management Succession, Finance
Principal occupation: Chairman of
the board and
chief
executive
officer of
AFLAC
Incorporated,
insurance
holding
company
Other directorships: AFLAC
Incorporated and Synovus
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DORRIT J. BERN
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(PHOTO OF DORRIT J. BERN)
Age: 53
Director since: 1999
Board committees: Audit,
Governance
Principal occupation: Chairman of
the board,
president and
chief
executive
officer of
Charming
Shoppes, Inc.,
retail apparel
stores
Other directorships: Charming
Shoppes, Inc. and Brunswick Corporation
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9
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(PHOTO OF FRANCIS S. BLAKE) FRANCIS S. BLAKE
Age: 54
Director since: First-time
nominee
Principal occupation: Executive vice
president,
business
development
and corporate
operations of
The Home
Depot, Inc.,
home
improvement
Recent business Mr. Blake
served as vice
president,
business
development
from
experience: 1998 to July
2000 of GE
Power Systems,
as senior vice
president,
corporate
business
development
from July 2000
to May
10
2001 of General Electric Company and as
U.S. Deputy
Secretary of
Energy from
May 2001 to
April 2002,
when he
assumed his
current
position.
Other directorships: None
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(PHOTO OF THOMAS F. CHAPMAN) THOMAS F. CHAPMAN
Age: 60
Director since: 1999
Board committees: Compensation and
Management Succession, Governance
Principal occupation: Chairman of
the board and
chief
executive
officer of
Equifax, Inc.,
information
services and
transaction
processing
11
Recent business Mr. Chapman
served as
president from
August 1997 to
June 1999,
experience: and chief
operating
officer of
Equifax from
August 1997 to
January 1998.
He was
appointed
chief
executive
officer in
January 1998
and chairman
of the board
of Equifax in
May 1999.
Other directorships: Equifax, Inc.
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12
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(PHOTO OF ALLEN FRANKLIN) ALLEN FRANKLIN
Age: 59
Director since: 1988
Principal occupation: Chairman of
the board and
chief
executive
officer of the
Company
Recent business Mr. Franklin
served as president and chief executive
officer of
experience: Georgia Power
Company and
executive vice
president of
the Company
from 1994
until June
1999. He
served as
president and
chief
operating
officer of the
Company from
June 1999 to
March 2001,
president and
chief
executive
officer from
March 2001 to
April 2001,
and chairman
of the board,
president and
chief
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executive officer from April 2001 to
April 2004,
when he
assumed his
current
position.
Other directorships: SouthTrust
Corporation,
Vulcan
Materials
Company and
Southern
system
companies --
Alabama Power
Company,
Georgia Power
Company, Gulf
Power Company
and Southern
Power Company
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14
(PHOTO OF BRUCE S. GORDON) BRUCE S. GORDON
Age: 58
Director since: 1994
Board committees: Finance,
Governance (chair)
Principal occupation: Retired
president of
retail markets
group of
Verizon
Communications,
Inc.,
telecommunications
Recent business Mr. Gordon
served as group president of enterprise
business group
experience: of Verizon
from December
1998 to July
2000, and as
president of
retail markets
group of
Verizon from
July 2000
until his
retirement in
January 2004.
Other directorships: Bartech
15
Personnel Services, Office Depot and
Tyco
International
Ltd.
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16
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(PHOTO OF DONALD M. JAMES) DONALD M. JAMES
Age: 55
Director since: 1999
Board committees: Audit, Finance
(chair)
Principal occupation: Chairman of
the board and
chief
executive
officer of
Vulcan
Materials
Company,
construction
materials
Other directorships: Vulcan
Materials
Company,
Protective
Life
Corporation
and SouthTrust
Corporation
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17
(PHOTO OF ZACK T. PATE) ZACK T. PATE
Age: 67
Director since: 1998
Board committees: Audit, Nuclear
Oversight (chair)
Principal occupation: Chairman
emeritus of
the World
Association of
Nuclear
Operators and
chairman
emeritus of
the Institute
of Nuclear
Power
Operations
(INPO), an
independent,
nonprofit
organization
promoting
safety,
reliability
and excellence
in
18
the operation of nuclear electric
generating
plants
Recent business Dr. Pate
retired as chairman of the World
Association of Nuclear
experience: Operators in
2002.
Other directorships: None
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19
(PHOTO OF J. NEAL PURCELL) J. NEAL PURCELL
Age: 62
Director since: 2003
Board committees: Audit (chair)
Principal occupation: Retired vice-
chairman,
audit
operations, of
KPMG, public
accounting
Recent business Mr. Purcell
served as KPMG's Southeast Area Managing
Partner
experience: from July 1993
to October
1998 and as
vice-chairman
in charge of
National Audit
Practice
Operations
from October
1998 to his
retirement on
January 31,
2002.
Other directorships: Kaiser
Permanente,
Inc., Kaiser
Permanente of
20
Georgia, Synovus and advisory director
of Synovus
Financial
Services
------------------------------------------------------------
21
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(PHOTO OF DAVID M. RATCLIFFE) DAVID M. RATCLIFFE
Age: 55
Director since: 2003
Principal occupation: President
of the
Company
Recent business Mr.
Ratcliffe served as executive vice
president, treasurer and
experience: chief
financial
officer of
Georgia
Power
Company
from May
1998 to May
1999. He
served as
president
and chief
executive
officer of
Georgia
Power
Company
from May
1999 until
January
2004 and as
chairman
and chief
executive
officer of
Georgia
Power
Company
from
January
2004 until
April 2004.
He served
as
executive
vice
president
of the
Company
from May
1999 until
April 2004,
when he
22
assumed his current position.
Other directorships: CSX
Corporation
and
Southern
system
companies -- Georgia
Power
Company and
Southern
Power
Company
------------------------------------------------------------
(PHOTO OF GERALD J. ST. PE) GERALD J. ST. PE
Age: 64
Director since: 1995
Board committees: Compensation
and Management
Succession
(chair),
Governance
Principal occupation: Former
president of
Ingalls
Shipbuilding
and retired
executive
vice
president of
Litton
Industries
23
Recent business Mr. St. Pe
served as president, Ingalls
Shipbuilding from
experience: 1985 to
August 1999
and as chief
operating
officer of
Northrop-
Grumman Ship
Systems from
August 1999
to November
2001.
Other directorships: Delta Health
Group,
Signal
International,
Mac Land
Disposal
Centers and
Merchants
and Marine
Bank
------------------------------------------------------------
Each nominee has served in his or her present position for at least the past
five years, unless otherwise noted.
The affirmative vote of a plurality of shares present and entitled to vote is
required for the election of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES LISTED IN ITEM NO.
1.
ITEM NO. 2 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Audit Committee of the Board of Directors has appointed Deloitte & Touche
LLP as the Company's independent auditors for 2004. This appointment is being
submitted to stockholders for ratification. Representatives of Deloitte & Touche
LLP will be present at the Annual Meeting to respond to appropriate questions
from stockholders and will have the opportunity to make a statement if they
desire to do so.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM NO. 2.
24
ITEM NO. 3 -- APPROVAL OF THE COMPANY'S OUTSIDE DIRECTORS STOCK PLAN
The Board of Directors has adopted effective May 26, 2004, subject to
stockholder approval, the Outside Directors Stock Plan for Directors of The
Southern Company and its Subsidiaries (the "Plan"). The Plan is a consolidation
of the Outside Directors Stock Plan for The Southern Company that was approved
by the Company's stockholders in 1994 and the Outside Directors Stock Plan for
Subsidiaries of The Southern Company that was approved by the Company's
stockholders in 1995 (collectively, the "Prior Plans"). The purpose of the Plan
is to provide a mechanism for non-employee directors to increase their ownership
of Company common stock and thereby further align their interests with those of
the stockholders.
The Plan will be administered by the Board's Governance Committee.
The Plan provides for the payment to non-employee directors of a portion of
their annual retainer fee in unrestricted shares of common stock of the Company,
par value $5 per share. See "Director Compensation" on page 3 of this Proxy
Statement for a description of the stock retainer paid to Company Directors. For
the subsidiary company participants the stock retainer presently being paid
under the Plan ranges from 340 to 520 shares per year. The Plan permits
participants to elect to receive a greater portion -- up to all -- of their
compensation in shares of Company common stock. For Company Directors, the
receipt of all shares under the Plan will be deferred until termination from the
Board. Subsidiary participants may elect to defer receipt of all or a portion of
the stock paid under the Plan until termination from their respective board of
directors. The Company expects that there will be approximately 50 directors
initially participating in the Plan.
The maximum number of shares that may be granted under the Plan is 1,000,000
shares of the Company's common stock in addition to the shares of the Company's
common stock that have not yet been granted under the Prior Plans which is
approximately 1,700,000 shares. The Plan will expire on May 26, 2014.
The Board of Directors of the Company may amend or terminate the Plan at any
time, subject to stockholder approval when required by law or regulation.
The following table sets forth estimated amounts to be paid under the Plan in
2004 to non-employee directors. Officers and other employees are not eligible to
participate in this Plan.
POSITION DOLLAR VALUE ($) NUMBER OF SHARES
-------------------------------------------------------------------------------------------------
Non-executive directors as a group.......................... 1,800,000 60,000
-------------------------------------------------------------------------------------------------
The vote needed to approve the Plan is a majority of the shares of the Company's
common stock represented at the meeting and entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEM NO. 3.
25
--------------------------------------------------------------------------------
INFORMATION ON A STOCKHOLDER PROPOSAL
--------------------------------------------------------------------------------
The Company received a proposal from the Sisters of St. Dominic of Caldwell New
Jersey and other stockholders requesting that an independent committee of the
Board of Directors assess how the Company is responding to rising regulatory,
competitive, and public pressure to significantly reduce carbon dioxide and
other emissions. In support of their position, the proponents set forth the
following:
M Southern Company's 2003 Environmental Progress Report acknowledges that
climate change is a significant issue and that the company's CO(2) emissions
are expected to increase over the next decade.
M Southern Company's 2002 Form 10-K states, "Compliance with possible
additional federal or state legislation related to global climate change
. . . could significantly affect Southern Company."
M Commitments to reduce carbon dioxide emissions and other air pollutants are
emerging. Massachusetts and New Hampshire have enacted legislation capping
power plants' greenhouse gas emissions. Governors of 11 states pledged to
reduce carbon dioxide emissions significantly. Renewable energy standards
exist in 13 states, indicating increasing support for non-polluting
electricity sources.
M In October 2003, 43 U.S. Senators voted in favor of legislation that would
cap greenhouse gas emissions from a range of industrial sectors.
M At the Company's 2003 Annual Meeting of Stockholders, a stockholder
resolution requesting a report on the economic risks associated with the
Company's past, present and future carbon dioxide and other emissions, and
the public stance of the Company regarding efforts to reduce those emissions,
received 23.7% of the shares voted.
M In response to the 2003 resolution, the Company told stockholders in the
Proxy Statement that the Company currently provides details regarding its
risk factors including historic and anticipated environmental costs and known
future contingencies. This information was included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2002, as well as in other
documents, including the Environmental Progress Report. The Company also
stated that the detailed information requested on future costs and risks
would require knowledge of future governmental or other legal action and was
"too speculative to report and quantify" beyond what is already reported.
We believe management and the Board have a fiduciary duty to carefully assess
and disclose to shareholders all pertinent information on its climate change
responses.
Stockholders therefore request that "a committee of independent directors of the
Board assess how the company is responding to rising regulatory, competitive,
and public pressures to significantly reduce carbon dioxide and other emissions,
and issue a report to shareholders (at reasonable cost and omitting proprietary
information) by September 1, 2004."
The stockholder proponents withdrew the resolution as a result of the Company's
commitment to conduct further assessments of how the Company is responding to
rising regulatory, competitive, and public pressure to significantly reduce
carbon dioxide and other emissions and develop the requested report, using
internal and external resources as appropriate, as well as soliciting input from
interested stakeholders. The full Board will actively participate in and review
the results of the assessment. A summary of the results will be included in the
Company's next Environmental Progress Report, to be published by spring 2005.
The contents of the report will include:
M A discussion of the environmental requirements that the Company currently
faces and may face in the future, with particular attention to an assessment
of current proposals for mandatory restraints on carbon dioxide emissions;
M An assessment of the strategic options the Company could take to respond to
these requirements, with emphasis on their impacts on shareholder value and
the competitive position of the Company; and
M An evaluation of the actions the Company is taking and proposes to take to
respond to current and future requirements and an assessment of these current
and proposed actions on shareholder value; this will include how these
actions affect and will affect the Company's total annual emissions of CO(2),
SO(2), NOx and mercury and the net emissions of CO(2) after accounting for
offsets, for the time frame 2000-2020.
The stockholder proponents have expressed their appreciation to the Company for
including in the Proxy Statement a discussion of the proposal and the basis on
which the proponents agreed to its withdrawal.
26
--------------------------------------------------------------------------------
AUDIT COMMITTEE REPORT
--------------------------------------------------------------------------------
The Audit Committee (the "Committee") oversees the Company's financial reporting
process on behalf of the Board of Directors. Management has the primary
responsibility for the financial statements and the reporting process including
the systems of internal controls. In fulfilling its oversight responsibilities,
the Committee reviewed the audited consolidated financial statements of the
Company and its subsidiaries in the Annual Report to stockholders with
management. The Committee also reviews the Company's quarterly and annual
reporting on Forms 10-Q and 10-K prior to filing with the Securities and
Exchange Commission ("SEC"). The Committee's review process included discussions
of the quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments and estimates and the clarity of
disclosures in the financial statements.
The independent auditors are responsible for expressing an opinion on the
conformity of those audited financial statements with accounting principles
generally accepted in the United States. The Committee reviewed with the
independent auditors their 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 Committee under generally accepted
auditing standards, rules and regulations of the SEC and the New York Stock
Exchange corporate governance rules. In addition, the Committee has discussed
with the independent auditors their independence from management and the Company
including the matters in the written disclosures made under Rule 3600T of the
Public Company Accounting Oversight Board, which, on an interim basis, has
adopted Independence Standards Board No. 1, "Independence Discussions with Audit
Committees." The Committee also has considered whether the independent auditors'
provision of non-audit services to the Company is compatible with maintaining
their independence.
The Committee discussed the overall scopes and plans with the Company's internal
and independent auditors for their respective audits. The Committee meets with
the internal and independent auditors with and without management present, to
discuss the results of their audits, their evaluations of the Company's internal
controls and the overall quality of the Company's financial reporting. The
Committee also meets privately with the Company's compliance officer. The
Committee held 12 meetings during 2003.
In reliance on the reviews and discussions referred to above, the Committee
recommended to the Board of Directors (and the Board approved) that the audited
consolidated financial statements be included in the Company's Annual Report on
Form 10-K for the year ended December 31, 2003 and filed with the SEC. The
Committee also reappointed Deloitte & Touche LLP as the Company's independent
auditors for 2004. At the annual meeting of the Company's stockholders, the
stockholders will be asked to ratify the Committee's selection of the
independent auditors.
Members of the Committee:
J. Neal Purcell, Chair
Dorrit J. Bern
Donald M. James
Zack T. Pate
27
PRINCIPAL PUBLIC ACCOUNTING FIRM FEES
The following represents the fees billed to the Company for the last two fiscal
years by Deloitte & Touche LLP ("Deloitte & Touche") -- the Company's principal
public accountant:
2003 2002
-----------------------------------------------------------------------------------
Audit Fees(a)............................................ $ 6,342,600 $5,375,000
Audit-Related Fees(b).................................... 3,901,500 1,014,000
Tax(c)................................................... 285,800 888,000
All Other(d)............................................. 0 252,000
-----------------------------------------------------------------------------------
Total.................................................. $10,529,900 $7,529,000
-----------------------------------------------------------------------------------
---------------
(a) Includes services performed in connection with financing transactions
(b) Includes internal control review services, benefit plan and other
non-statutory audit services and accounting consultations
(c) Includes review services in connection with the consolidated federal tax
return, tax compliance services in connection with the benefit plans and
licensing and training costs
(d) Includes Deloitte Consulting services arranged prior to the engagement of
Deloitte & Touche as the Company's independent auditors
The Audit Committee has adopted a Policy on Engagement of the Independent
Auditor for Audit and Non-Audit Services (see Appendix B) that includes
requirements for the Audit Committee to pre-approve audit and non-audit services
provided by Deloitte & Touche. This policy was initially adopted in July 2002
and since that time, all audit-related, tax and other non-audit services
included in the chart above have been pre-approved by the Audit Committee.
CHANGE IN PRINCIPAL PUBLIC ACCOUNTING FIRM
On March 28, 2002, the Board of Directors of the Company, upon recommendation of
the Committee, decided not to engage Arthur Andersen LLP ("Arthur Andersen") as
the Company's principal public accountants for fiscal year 2002 and engaged
Deloitte & Touche to serve as the Company's principal public accountant.
Arthur Andersen's report on the consolidated financial statements of the Company
and its subsidiaries for the fiscal year ended December 31, 2001 did not contain
any adverse opinion or disclaimer of opinion, nor was it qualified or modified
as to uncertainty, audit scope or accounting principles. Such report has not
been re-issued in connection with the Company's financial statements included in
the Annual Report on Form 10-K for the year ended December 31, 2003.
During the Company's two fiscal years ended December 31, 2001, and the
subsequent interim period through March 28, 2002:
M 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 them to make reference to
the subject matter of the disagreement in connection with their reports;
M there were no reportable events as described in Item 304(a)(1)(v) of
Regulation S-K; and
M the Company did not consult Deloitte & Touche with respect to the application
of accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on the
Company's consolidated financial statements, or any other matters or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation
S-K.
28
--------------------------------------------------------------------------------
COMPENSATION AND MANAGEMENT SUCCESSION COMMITTEE REPORT
--------------------------------------------------------------------------------
The Compensation and Management Succession Committee of the Board is responsible
for the oversight and administration of the Company's executive compensation
program. The Committee is composed entirely of independent directors and
operates pursuant to a written charter.
TOTAL EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION PHILOSOPHY
The Company's executive compensation program is based on a philosophy that total
executive compensation must be competitive and must be tied to the Company's
short- and long-term performance. With the objective of maximizing stockholder
value over time, our program aligns the interests of our executives and
stockholders.
DETERMINATION OF TOTAL EXECUTIVE COMPENSATION
We retain an independent executive compensation consultant who provides
information on total executive compensation paid at other large companies in the
electric and gas utility industries. Twelve of these companies are included in
the 22 companies that comprise the S&P Electric Utility Index -- the peer group
used in the five-year performance graph. Based on the market data, total
executive compensation targets are set at an appropriate size-adjusted level.
This means that for target level performance, our program is designed to pay
executives an amount that is at or near the median of the market. Total
executive compensation is paid through an appropriate mix of both fixed and
performance-based (incentive) compensation. Because our program focuses on
incentive compensation, actual total compensation paid can be above or below the
targets based on actual corporate performance.
COMPONENTS OF TOTAL EXECUTIVE COMPENSATION
The primary components of our executive compensation program are:
M Base pay (salary);
M Short-term incentives (annual performance bonuses); and
M Long-term incentives.
The Company also provides certain perquisites that we review periodically to
determine if they are reasonable and appropriate. The primary perquisites
provided by the Company are financial planning services, club memberships (for
business use) and home security.
BASE PAY
A range for base pay is determined for each named executive officer, including
Mr. Franklin, by comparing the base pay at the appropriate peer group of
companies described previously. Base pay is generally set at a level that is at
or below the size-adjusted median paid at those companies because of our
emphasis on incentive compensation in our executive compensation program. The
2003 base pay level did not exceed the median by more than five percent for any
of the named executive officers. The base pay level for Mr. Franklin was below
the size-adjusted median.
ANNUAL PERFORMANCE BONUSES
Annual bonuses are paid through the Omnibus Incentive Compensation Plan. All
named executive officers participated in this plan in 2003.
29
PERFORMANCE GOALS
Annual performance bonuses are based on the attainment of corporate performance
goals and attainment of the respective business unit's adjusting goals. All
performance goals were set in the first quarter of the year.
For 2003, the corporate performance goals included specific targets for:
M Company earnings -- earnings per share ("EPS") and
M Subsidiary companies' net income or return on equity ("ROE")
We believe that accomplishing the corporate goals is essential for the Company's
continued success and sustained financial performance. A target performance
level is set for each corporate performance goal. Performance above or below the
targets results in proportionately higher or lower bonus payments. The bonus
amount is then adjusted, up or down, based on the degree of achievement of the
respective business unit's adjusting goals related to such measures as capital
expenditures, cash flow, customer service, plant availability and diversity.
A target percentage of base pay is established for each named executive officer
based on his or her position level for target-level performance. Annual
performance bonuses may range from zero percent of the target to 230 percent
based on actual corporate and individual performance.
No bonuses are paid if performance is below a threshold level or if a minimum
earnings level is not reached. Also, no bonuses are paid if the Company's
current earnings are not sufficient to fund the Company's common stock dividend
at the same level as the prior year. We also capped the maximum amount for the
annual performance bonus for each named executive officer at 0.6 percent of the
Company's net income.
ANNUAL BONUS PAYMENTS
Performance met or exceeded the target levels in all areas in 2003, resulting in
bonuses that exceeded the target levels.
Mr. Franklin's annual performance bonus under the Plan for target-level
performance was 100 percent of his base pay. His bonus for 2003 performance was
based on the degree of achievement of the Company's EPS goal. The bonus amount
was adjusted as described above. Based on the Company's performance his bonus
exceeded the target.
The target percentage of base pay for the other named executive officers ranged
from 60 to 75 percent and, based on corporate performance, the resulting payout
exceeded the named executive officers' respective targets.
LONG-TERM INCENTIVES
We base a significant portion of our total compensation program on long-term
incentives including Company stock options and performance dividend equivalents.
STOCK OPTIONS
The named executive officers are granted options with ten-year terms to purchase
the Company's common stock at the market price on the date of the grant under
the terms of the Omnibus Incentive Compensation Plan. The estimated annualized
value represented approximately 58 percent of Mr. Franklin's total target
compensation, and 19 to 25 percent for the other named executive officers. The
size of prior grants was not considered in determining the size of the grants
made in 2003. These options vest over a three-year period.
PERFORMANCE DIVIDENDS
The named executive officers also are paid performance-based dividend
equivalents on most stock options held at the end of the year. Dividend
equivalents can range from 25 percent of the Company's common stock dividend
paid during the year if total stockholder return over a four-year period,
compared to a group of other utility companies, is at the 30th percentile to 100
percent of the dividend paid if it reaches the 90th percentile. No dividend
equivalents are paid if total stockholder return over the period is below the
30th percentile or if the Company's earnings are not sufficient to fund the
current common stock dividend. For eligible stock options held on December 31,
2003, all executives received a payout of $1.385 per option for maximum
performance under the Omnibus Incentive Compensation Plan.
30
POLICY ON INCOME TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code")
limits the deductibility of certain executives' compensation that exceeds $1
million per year unless the compensation is paid under a performance-based plan
as defined in the Code and that has been approved by stockholders. The Company
has obtained stockholder approval of the Omnibus Incentive Compensation Plan.
However, because our policy is to maximize long-term stockholder value, tax
deductibility is only one factor considered in setting compensation.
SUMMARY
We believe that the policies and programs described in this report link pay and
corporate performance and serve the best interest of stockholders. We frequently
review the various pay plans and policies and modify them as we deem necessary
to continue to attract, retain and motivate talented executives.
Members of the Committee:
G. J. St. Pe, Chair
D. P. Amos
T. F. Chapman
--------------------------------------------------------------------------------
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
--------------------------------------------------------------------------------
The Company's Compensation and Management Succession Committee is made up of
non-employee directors who have never served as officers of, or been employed
by, the Company. None of the Company's executive officers serve on a board of
directors of any entity that has a director or officer serving on this
Committee.
31
--------------------------------------------------------------------------------
FIVE-YEAR PERFORMANCE GRAPH
--------------------------------------------------------------------------------
This performance graph compares the cumulative total stockholder return on the
Company's common stock with the Standard & Poor's Electric Utility Index and the
Standard & Poor's 500 Index for the past five years. The graph assumes that $100
was invested on December 31, 1998, in the Company's common stock and each of the
above indices, and that all dividends are reinvested. The distribution of shares
of Mirant Corporation stock to Company stockholders effective April 2, 2001, is
treated as a special dividend for purposes of calculating stockholder return.
The stockholder return shown below for the five-year historical period may not
be indicative of future performance.
(PERFORMANCE GRAPH)
1998 1999 2000 2001 2002 2003
------------------------------------------------------------------------------------------------------
Southern Company $ 100 $ 84.99 $ 126.41 $ 167.12 $ 196.57 $ 219.49
------------------------------------------------------------------------------------------------------
S & P Electric Utility Index 100 83.60 128.61 107.03 90.91 112.81
------------------------------------------------------------------------------------------------------
S & P 500 Index 100 121.04 110.02 96.95 75.52 97.18
------------------------------------------------------------------------------------------------------
32
--------------------------------------------------------------------------------
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
--------------------------------------------------------------------------------
No reporting person failed to file, on a timely basis, the reports required by
Section 16(a) except Messrs. Fanning, Holland and Ratcliffe. On two separate
occasions, Mr. Fanning failed to report, on time, one transaction on a Form 4.
Messrs. Holland and Ratcliffe each failed to report, on time, one transaction on
one Form 4.
--------------------------------------------------------------------------------
LEGAL PROCEEDINGS
--------------------------------------------------------------------------------
In November 2002, the Company and certain current and former directors of Mirant
Corporation ("Mirant"), including Allen Franklin, chairman and chief executive
officer of the Company, were added as defendants in a class action lawsuit (In
re: Mirant Corporation Securities Litigation, United States District Court for
the North District of Georgia) originally filed by certain Mirant shareholders
against Mirant and certain Mirant officers. On July 14, 2003, the court
dismissed the claims in the lawsuit that were based on Mirant's alleged improper
energy trading and marketing activities involving the California energy market.
The remaining claims are based on alleged false statements and omissions in
Mirant's prospectus for its initial public offering and accounting-related
issues previously disclosed by Mirant. Such claims allege that the Company was a
control person, as defined in Section 20(a) of the Securities Exchange Act of
1934 and Section 15 of the Securities Act of 1933, as to Mirant, based on the
Company's majority ownership of Mirant prior to the April 2, 2001 Mirant
spin-off and allegations of knowledge of and involvement in Mirant's activities
thereafter. The claims against Mr. Franklin and the other current and former
Mirant directors are based on alleged misstatements and omissions in Mirant's
initial public offering prospectus. The Company does not believe that Mr.
Franklin's interest in this litigation is adverse to the Company, and the
Company has filed an answer to the consolidated amended class action complaint.
Plaintiffs also have filed a motion for class certification. The final outcome
of this matter cannot now be determined.
On July 14, 2003, Mirant filed for voluntary reorganization under Chapter 11
with the U.S. Bankruptcy Court. With the exception of document discovery,
litigation in the above matter has been stayed until further order of the
bankruptcy court.
For more information concerning this litigation, please see the Company's
financial statements, including particularly note 3 and Management's Discussion
and Analysis of Results of Operation and Financial Condition which are included
in the Company's 2003 Annual Report.
--------------------------------------------------------------------------------
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------------------------------
During 2003, subsidiaries of the Company paid Vulcan Materials Company $260,573
for products and services. These amounts are less than one-tenth of one percent
of the 2003 revenues of Vulcan Materials Company and less than one-one hundredth
of one percent of the Company's 2003 revenues. Donald M. James, a director of
the Company, is chairman and chief executive officer of Vulcan Materials
Company.
During 2003, subsidiaries of the Company paid The Home Depot $491,329 for
products and services. These amounts are less than one-tenth of one percent of
the 2003 revenues of The Home Depot and the Company. Francis S. Blake, a nominee
for election as a director of the Company, is executive vice president of The
Home Depot.
During 2003, Mr. Jeffrey G. Franklin, son of Allen Franklin, a director and
executive officer of the Company, and Ms. Iris Franklin, daughter-in-law of
Allen Franklin, were employed by subsidiaries of the Company. Mr. Franklin was
employed by Southern Company Services, Inc. as a Project Manager through March
2003 and by Alabama Power Company, thereafter, as an Assistant to Executive Vice
President. His aggregate compensation in 2003 was $127,077. Ms. Franklin was
employed by Alabama Power Company as a Market Specialist and received
compensation in 2003 of $61,398.
33
--------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
--------------------------------------------------------------------------------
EMPLOYMENT, CHANGE IN CONTROL AND SEPARATION AGREEMENTS
The Company has Change in Control Agreements with each of its executive officers
shown on the Summary Compensation Table on page 22. If an executive is
involuntarily terminated, other than for cause, within two years following a
change in control of the Company, the Agreements provide for:
M lump sum payment of three times annual compensation,
M up to five years' coverage under group health and life insurance plans,
M immediate vesting of all stock options previously granted,
M payment of any accrued long-term and short-term bonuses and dividend
equivalents, and
M payment of any excise tax liability incurred as a result of payments made
under the Agreement.
A change in control is defined under the Agreements as:
M acquisition of at least 20 percent of the Company's stock,
M a change in the majority of the members of the Company's Board of Directors
in connection with an actual or threatened change in control,
M a merger or other business combination that results in the Company's
stockholders immediately before the merger owning less than 65 percent of the
voting power after the merger, or
M a sale of substantially all the assets of the Company.
If a change in control affects only a subsidiary of the Company, these payments
would only be made to executives of the affected subsidiary who are
involuntarily terminated as a result of that change in control.
The Company's Omnibus Incentive Compensation Plan provides for pro-rata payments
at not less than target-level performance if a change in control occurs and the
plan is not continued or replaced with a comparable plan or plans.
On February 23, 1998, the Company and Southern Nuclear Operating Company entered
into a Deferred Compensation Agreement with Mr. Hairston which provided that on
the fifth anniversary of the Agreement, if still employed by the Company or one
of its subsidiaries, Mr. Hairston would receive the cash value of the number of
shares of common stock that could have been purchased for $250,000 on February
23, 1998, and on which dividends were reinvested throughout the five-year
period. If certain performance goals are met, Mr. Hairston also will receive the
estimated income tax expense on the compensation. This Agreement expired by its
terms on February 23, 2003, and the cash value of the shares on that date
($601,058) was paid to Mr. Hairston along with the estimated income tax expense
on the compensation ($464,647) for a total payment of $1,065,705.
34
--------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
--------------------------------------------------------------------------------
This table shows information concerning the Company's chief executive officer
serving during 2003 and each of the other four most highly compensated executive
officers of the Company serving during 2003.
LONG-TERM COMPENSATION
------------------------------------
ANNUAL COMPENSATION NUMBER OF LONG-
------------------------------------ SECURITIES TERM
OTHER RESTRICTED UNDERLYING INCENTIVE
ANNUAL STOCK STOCK PLAN ALL OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION AWARDS($) OPTIONS PAYOUTS COMPENSATION
POSITION YEAR ($) ($) ($)(1) (2) (#) ($)(3) ($)(4)
------------------------------------------------------------------------------------------------------------------------------------
H. A. FRANKLIN 2003 966,240 2,083,162 5,940 -- 501,935 2,404,720 59,881
Chairman & CEO 2002 929,215 1,984,320 7,080 -- 382,242 1,672,510 61,822
Southern Company 2001 855,969 1,867,320 2,770 648,863 497,790 1,249,890 44,786
------------------------------------------------------------------------------------------------------------------------------------
D. M. RATCLIFFE 2003 606,558 927,416 3,876 -- 83,780 459,813 33,597
President 2002 573,018 865,767 4,550 -- 92,521 522,736 33,309
Southern Company 2001 483,324 865,280 3,134 -- 155,694 476,734 26,000
------------------------------------------------------------------------------------------------------------------------------------
T. A. FANNING(5) 2003 375,820 522,396 110,691 -- 42,314 223,482 156,405
Executive Vice President, CFO &
Treasurer Southern Company
------------------------------------------------------------------------------------------------------------------------------------
W. G. HAIRSTON, III 2003 459,231 499,660 9,296 -- 59,097 217,489 24,353
President & CEO 2002 440,104 507,131 11,485 -- 65,890 239,842 27,969
Southern Nuclear Operating Company2001 414,594 370,798 1,583 -- 96,135 294,360 22,523
------------------------------------------------------------------------------------------------------------------------------------
C. D. MCCRARY 2003 521,649 694,948 9,111 -- 72,054 483,081 26,180
President & CEO 2002 493,604 673,140 34,993 -- 79,751 374,984 24,101
Alabama Power Company 2001 391,647 438,652 91,403 -- 92,338 284,529 118,975
------------------------------------------------------------------------------------------------------------------------------------
(1) Tax reimbursement on certain perquisites.
(2) The amount for Mr. Franklin reflects the value of restricted stock units on
the date granted. The restricted stock units vested on April 2, 2001 and the
value was transferred to the Company's Deferred Compensation Plan.
(3) Payout of performance dividend equivalents on most stock options granted
after 1996 that were held by the executive at the end of the performance
periods under the Omnibus Incentive Compensation Plan for the four-year
performance periods ended December 31, 2001, 2002 and 2003, respectively.
Dividend equivalents can range from 25 percent of the common stock dividend
paid during the last year of the performance period if total stockholder
return over the four-year period, compared to a group of other large utility
companies, is at the 30th percentile to 100 percent of the dividend paid if
it reaches the 90th percentile. No dividend equivalents are paid if the
total stockholder return is below the 30th percentile or if the Company's
earnings are not sufficient to fund the common stock dividend. For eligible
stock options held on December 31, 2001, 2002 and 2003, all named executive
officers received a payout of $1.34, $1.355 and $1.385 per option,
respectively.
(4) Company contributions in 2003 to the Employee Savings Plan (ESP) and
Employee Stock Ownership Plan (ESOP), non-pension related accruals under the
Supplemental Benefit Plan (SBP), and tax sharing benefits paid to
participants who elected receipt of dividends on Company common stock held
in the Employee Saving Plan, are provided in the following table. For Mr.
Fanning, the amount also includes additional relocation assistance of
$138,149.
ESP TAX
SHARING
ESP ($) ESOP ($) SBP ($) BENEFIT
-------------------------------------------------------------------------
H. A. Franklin 8,100 744 49,696 1,341
-------------------------------------------------------------------------
D. M. Ratcliffe 7,995 744 24,306 552
-------------------------------------------------------------------------
T. A. Fanning 7,600 744 9,912 --
-------------------------------------------------------------------------
W. G. Hairston, III 8,026 744 15,207 376
-------------------------------------------------------------------------
C. D. McCrary 6,946 744 18,490 --
-------------------------------------------------------------------------
(5) Mr. Fanning first became an executive officer of the Company on April 11,
2003.
35
--------------------------------------------------------------------------------
STOCK OPTIONS
--------------------------------------------------------------------------------
OPTION GRANTS IN 2003
NUMBER
OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE OR GRANT DATE
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION PRESENT
NAME GRANTED(1) FISCAL YEAR(2) ($/SH)(1) DATE(1) VALUE ($)(3)
-------------------------------------------------------------------------------------------------------------
H. A. FRANKLIN 501,935 7.0 27.975 7/01/2009 1,801,947
-------------------------------------------------------------------------------------------------------------
D. M. RATCLIFFE 83,780 1.2 27.975 2/14/2013 300,770
-------------------------------------------------------------------------------------------------------------
T. A. FANNING 42,314 0.6 27.975 2/14/2013 151,907
-------------------------------------------------------------------------------------------------------------
W. G. HAIRSTON, III 59,097 0.8 27.975 2/14/2013 212,158
-------------------------------------------------------------------------------------------------------------
C. D. MCCRARY 72,054 1.0 27.975 2/14/2013 258,674
-------------------------------------------------------------------------------------------------------------
(1) Stock option grants were made on February 14, 2003 and vest annually at a
rate of one-third on the anniversary date of the grant. Grants fully vest
upon termination as a result of death, total disability or retirement and
expire five years after retirement, three years after death or total
disability or their normal expiration date if earlier. Exercise price is the
average of the high and low price of the Company's common stock on the date
granted. Options may be transferred to a revocable trust and, for the named
executive officers, also may be transferred to certain family members,
family trusts and family limited partnerships.
(2) A total of 7,165,452 stock options were granted in 2003.
(3) Value was calculated using the Black-Scholes option valuation model. The
actual value, if any, ultimately realized depends on the market value of the
Company's common stock at a future date. Significant assumptions are shown
below:
RISK-FREE RATE DIVIDEND EXPECTED
VOLATILITY OF RETURN YIELD TERM
--------------------------------------------------------------
23.59% 2.72% 4.90% 4.28 years
--------------------------------------------------------------
36
--------------------------------------------------------------------------------
OPTION EXERCISES
--------------------------------------------------------------------------------
AGGREGATED OPTION EXERCISES IN 2003 AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
NUMBER OF VALUE OPTIONS AT YEAR-END (#) YEAR-END ($)(2)
SHARES ACQUIRED REALIZED --------------------------- ---------------------------
NAME ON EXERCISE (#) ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
--------------------------------------------------------------------------------------------------------------------
H. A. FRANKLIN None 0 813,567 922,693 9,140,670 4,045,262
--------------------------------------------------------------------------------------------------------------------
D. M. RATCLIFFE 137,568 2,049,179 134,637 197,358 1,107,781 975,326
--------------------------------------------------------------------------------------------------------------------
T. A. FANNING 22,830 332,827 78,236 83,123 801,883 386,126
--------------------------------------------------------------------------------------------------------------------
W. G. HAIRSTON, III 79,070 799,208 21,964 135,068 109,600 665,782
--------------------------------------------------------------------------------------------------------------------
C. D. MCCRARY None 0 192,915 155,880 2,256,632 711,585
--------------------------------------------------------------------------------------------------------------------
(1) The "Value Realized" is ordinary income, before taxes, and represents the
amount equal to the excess of the fair market value of the shares at the
time of exercise above the exercise price.
(2) These columns represent the excess of the fair market value of the Company's
common stock of $30.25 per share, as of December 31, 2003, above the
exercise price of the options. The amounts under the Exercisable column
report the "value" of options that are vested and therefore could be
exercised. The Unexercisable column reports the "value" of options that are
not vested and therefore could not be exercised as of December 31, 2003.
37
--------------------------------------------------------------------------------
PENSION PLAN TABLE
--------------------------------------------------------------------------------
YEARS OF ACCREDITED SERVICE
---------------------------------------------------------------------------------------------------
COMPENSATION 15 20 25 30 35 40
---------------------------------------------------------------------------------------------------
$ 100,000 $ 25,500 $ 34,000 $ 42,500 $ 51,000 $ 59,500 $ 68,000
---------------------------------------------------------------------------------------------------
500,000 127,500 170,000 212,500 255,000 297,500 340,000
---------------------------------------------------------------------------------------------------
900,000 229,500 306,000 382,500 459,000 535,500 612,000
---------------------------------------------------------------------------------------------------
1,100,000 280,500 374,000 467,500 561,000 654,500 748,000
---------------------------------------------------------------------------------------------------
1,300,000 331,500 442,000 552,500 663,000 773,500 884,000
---------------------------------------------------------------------------------------------------
1,500,000 382,500 510,000 637,500 765,000 892,500 1,020,000
---------------------------------------------------------------------------------------------------
1,700,000 433,500 578,000 722,500 867,000 1,011,500 1,156,000
---------------------------------------------------------------------------------------------------
1,800,000 459,000 612,000 765,000 918,000 1,071,000 1,224,000
---------------------------------------------------------------------------------------------------
2,000,000 510,000 680,000 850,000 1,020,000 1,190,000 1,360,000
---------------------------------------------------------------------------------------------------
2,200,000 561,000 748,000 935,000 1,122,000 1,309,000 1,496,000
---------------------------------------------------------------------------------------------------
2,500,000 637,500 850,000 1,062,500 1,275,000 1,487,500 1,700,000
---------------------------------------------------------------------------------------------------
2,800,000 714,000 952,000 1,190,000 1,428,000 1,666,000 1,904,000
---------------------------------------------------------------------------------------------------
3,000,000 765,000 1,020,000 1,275,000 1,530,000 1,785,000 2,040,000
---------------------------------------------------------------------------------------------------
3,200,000 816,000 1,088,000 1,360,000 1,632,000 1,904,000 2,176,000
---------------------------------------------------------------------------------------------------
3,400,000 867,000 1,156,000 1,445,000 1,734,000 2,023,000 2,312,000
---------------------------------------------------------------------------------------------------
This table shows the estimated annual pension benefits payable at normal
retirement age under Southern's qualified Pension Plan, as well as non-qualified
supplemental benefits, based on the stated compensation and years of service
with the Company's subsidiaries. Compensation for pension purposes is limited to
the average of the highest three of the final 10 years' compensation.
Compensation is base salary plus the excess of annual incentive compensation
over 15 percent of base salary. These compensation components are reported under
the columns titled "Salary" and "Bonus" in the Summary Compensation Table on
page 22.
As of December 31, 2003, the applicable compensation levels and years of
accredited service for determination of pension benefits would have been:
ACCREDITED
COMPENSATION SERVICE
----------------------------------------------------
H. A. Franklin 2,774,275 32
----------------------------------------------------
D. M. Ratcliffe 1,350,337 31
----------------------------------------------------
T. A. Fanning 613,396 22
----------------------------------------------------
W. G. Hairston, III 835,226 34
----------------------------------------------------
C. D. McCrary 1,017,144 29
----------------------------------------------------
The amounts shown in the table were calculated according to the final average
pay formula and are based on a single life annuity without reduction for joint
and survivor annuities or computation of Social Security offset that would apply
in most cases.
38
--------------------------------------------------------------------------------
EQUITY COMPENSATION PLAN INFORMATION
--------------------------------------------------------------------------------
The following table provides information as of December 31, 2003 concerning
shares of the Company's common stock authorized for issuance under Southern
Company's existing non-qualified equity compensation plans.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EQUITY COMPENSATION
BE ISSUED UPON EXERCISE EXERCISE PRICE OF PLANS (EXCLUDING
OF OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, SECURITIES REFLECTED IN
WARRANTS AND RIGHTS WARRANTS AND RIGHTS COLUMN (A))
PLAN CATEGORY (A) (B) (C)
-----------------------------------------------------------------------------------------------------------------
Equity compensation plans approved by
security holders..................... 33,931,892 $21.97 41,470,967(1)
-----------------------------------------------------------------------------------------------------------------
Equity compensation plans not approved
by security holders.................. N/A N/A N/A
-----------------------------------------------------------------------------------------------------------------
(1) Includes shares available for future issuance under the Omnibus Compensation
Incentive Plan (39,752,039) and the Outside Directors Stock Plans
(1,712,928).
39
APPENDIX A
AUDIT COMMITTEE CHARTER
This Charter identifies the composition, purpose, authority, meeting
requirements and responsibilities of the Southern Company (the Company) Audit
Committee (the Committee) as approved by the Southern Company Board of Directors
(the Board).
I. Composition
The Committee will be comprised of at least three independent members of
the Board, each of whom will be financially literate. A deliberate effort
will be made to include at least one Director who is a financial expert.
The selection of Committee members will be in accordance with requirements
for independence and financial literacy and expertise, as interpreted by
the Board in its best business judgment, giving full consideration to the
rules of the Securities and Exchange Commission (SEC) and the New York
Stock Exchange.
II. Purpose
To assist the Board of Directors in fulfilling its oversight
responsibilities for the following:
A. Integrity of the financial reporting process;
B. The system of internal control;
C. The independence and performance of the internal and independent audit
process; and
D. The Company's process for monitoring adherence with the spirit and
intent of its Code of Ethics and compliance with laws and regulations.
III. Authority
The Audit Committee has authority to conduct or authorize investigations
into any matters within its scope of responsibility. It is empowered to:
A. Appoint, compensate, and oversee the work of the independent auditors.
B. Resolve any disagreements between management and the independent
auditors regarding financial reporting.
C. Pre-approve all auditing and non-audit services provided by the
independent auditors.
D. Retain independent counsel, accountants, or others to advise the
Committee or assist in the conduct of an investigation.
E. Seek any information it requires from employees -- all of whom are
directed to cooperate with the Committee's requests -- or external
parties.
F. Meet with Company officers, independent auditors, internal auditors,
inside counsel or outside counsel, as necessary.
In the execution of its duties, the Committee will report to the Board of
Directors.
IV. Meeting Requirements
The Committee shall meet a minimum of four times each year, or more often
if warranted, to receive reports and to discuss the quarterly and annual
financial statements, including disclosures and other related information.
The Committee shall meet separately, at least annually, with Company
management, the Director of Internal Auditing, the Compliance Officer, and
the independent auditors to discuss matters that the Committee or any of
these persons believe should be discussed privately. Meetings of the
Committee may utilize conference call, Internet or other similar electronic
communication technology.
i
V. Responsibilities
A. Financial Reporting and Independent Audit Process --
The oversight responsibility of the Committee in the area of financial
reporting is to provide reasonable assurance that the Company's financial
disclosures and accounting practices accurately portray the financial
condition, results of operations, cash flows, plans and long-term
commitments of the Company on a consolidated basis, as well as on a
separate company basis for each consolidated subsidiary that has publicly
traded securities. To accomplish this, the Committee will:
1. Provide oversight of the independent audit process, including direct
responsibility for:
a. Annual appointment of the independent auditors.
b. Compensation of the independent auditors.
c. Review and confirmation of the independence of the external
auditors by obtaining statements from the auditors on relationships
between the auditors and the Company, including non-audit services,
and discussing the relationships with the auditors. Ensure that
non-audit services provided by the independent auditors comply with
and are disclosed to investors in periodic reports required by the
Securities Exchange Act of 1934 and the Sarbanes-Oxley Act of 2002.
d. Review of the independent auditors' quarterly and annual work
plans, and results of audit engagements.
e. Review of the experience and qualifications of the senior members
of the independent audit team annually and ensure that all partner
rotation requirements are executed.
f. Evaluation of the independent auditors' performance.
g. Oversight of the coordination of the independent auditors'
activities with the Internal Auditing and Accounting functions.
2. Review and discuss with management the quarterly and annual consolidated
earnings announcements and earnings guidance provided to analysts and
rating agencies.
3. Review and discuss with management and the independent auditors the
quarterly and annual financial statements (including disclosures under
Management's Discussion and Analysis of Financial Condition and Results
of Operations) and recommend the reports for filing with the SEC. The
financial statements include the Southern Company consolidated financial
statements as well as the separate financial statements for all
consolidated subsidiaries with publicly traded securities.
a. The review and discussion will be based on timely reports from the
independent auditors, including:
i. All critical accounting policies and practices to be used.
ii. All alternative treatments of financial information within
generally accepted accounting principles that have been discussed
with management; ramifications of the use of such alternative
disclosures and treatments, and the treatment preferred by the
independent auditors.
iii. Other material written communications between the independent
auditors and management, such as any management letter or
schedule of unadjusted differences.
b. In addition, the following items will also be reviewed and
discussed:
i. Significant judgments and estimates made by management.
ii. Significant reporting or operational issues identified during the
reporting period, including how they were resolved.
iii. Issues on which management sought second accounting opinions.
iv. Significant regulatory changes and accounting and reporting
developments proposed by Financial Accounting Standards Board, SEC
or other regulatory agency.
ii
v. Any audit problems or difficulties and management's response.
4. Review the letter of management representations given to the
independent auditors in connection with the audit of the annual
financial statements.
B. Internal Control --
The responsibility of the Committee in the area of internal control, in
addition to the actions described in Section (V).(A.)., is to:
1. Provide oversight of the internal audit function including:
a. Review of audit plans, budgets and staffing levels.
b. Review of audit results.
c. Review of management's appointment, appraisal of, and/or removal of
the Company's Director of Internal Auditing. At least every two
years, regardless of the performance of the incumbent, the
President and Chief Executive Officer will review with the
Committee the merits of reassigning the Director of Internal
Auditing.
2. Assess management's response to any reported weaknesses or compliance
deficiencies.
3. Provide oversight of the Company's Legal and Regulatory Compliance and
Ethics Programs, including:
a. Creation and maintenance of procedures for:
i. Receipt, retention and treatment of complaints received by
management regarding accounting, internal accounting controls or
audit matters.
ii. Confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
b. Review of plans and activities of the Company's Corporate
Compliance Officer.
c. Review of results of auditing or other monitoring programs designed
to prevent or detect violations of laws or regulations.
d. Review of corporate policies relating to compliance with laws and
regulations, ethics, conflict of interest and the investigation of
misconduct or fraud.
e. Review of reported cases of employee fraud, conflict of interest,
unethical or illegal conduct.
4. Review the quality assurance practices of the internal auditing
function and the independent auditors.
5. Review and discuss significant risks facing the Company and the
guidelines and policies to govern the process by which risk assessment
and risk management is undertaken.
C. Conduct an annual self-assessment of the Committee's performance.
D. Other
1. Set clear employment policies for Southern Company's hiring of
employees or former employees of the independent auditors.
2. Report Committee activities and findings to the Board on a regular
basis.
3. Report Committee activities in the Company's annual proxy statement to
shareholders.
4. Review this charter at least annually and recommend appropriate
changes.
LAST AMENDED ON FEBRUARY 17, 2003
BY THE SOUTHERN COMPANY
BOARD OF DIRECTORS
iii
APPENDIX B
POLICY ON ENGAGEMENT OF THE INDEPENDENT AUDITOR
FOR AUDIT AND NON-AUDIT SERVICES
A. Southern Company (including its subsidiaries) will not engage the
independent auditor to perform any services that are prohibited by the
Sarbanes-Oxley Act of 2002. It shall further be the policy of the Company
not to retain the independent auditor for non-audit services unless there is
a compelling reason to do so and such retention is otherwise pre-approved
consistent with this policy. Non-audit services that are prohibited include:
1. Bookkeeping and other services related to the preparation of
accounting records or financial statements of the Company or its
subsidiaries.
2. Financial information systems design and implementation.
3. Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports.
4. Actuarial services.
5. Internal audit outsourcing services.
6. Management functions or human resources.
7. Broker or dealer, investment adviser, or investment banking services.
8. Legal services or expert services unrelated to financial statement
audits.
9. Any other service that the Public Company Accounting Oversight Board
determines, by regulation, is impermissible.
B. Effective January 1, 2003, officers of the Company (including its
subsidiaries) may not engage the independent auditor to perform any personal
services, such as personal financial planning or personal income tax
services.
C. All audit services (including providing comfort letters and consents in
connection with securities issuances) and permissible non-audit services
provided by the independent auditor must be pre-approved by the Southern
Company Audit Committee.
D. Under this Policy, the Audit Committee's approval of the independent
auditor's annual arrangements letter shall constitute pre-approval for all
services covered in the letter.
E. By adopting this Policy, the Audit Committee hereby pre-approves the
engagement of the independent auditor to provide services related to the
issuance of comfort letters and consents required for securities sales by
the Company and its subsidiaries and services related to consultation on
routine accounting and tax matters. The actual amounts expended for such
services each calendar quarter shall be reported to the Committee at a
subsequent Committee meeting.
F. The Audit Committee also delegates to its Chairman the authority to grant
pre-approvals for the engagement of the independent auditor to provide any
permissible service up to a limit of $50,000 per engagement. Any engagements
pre-approved by the Chairman shall be presented to the full Committee at its
next scheduled regular meeting.
G. The Southern Company Comptroller shall establish processes and procedures to
carry out this Policy.
Approved by the Southern Company Audit Committee
December 9, 2002
iv
(SOUTHERN COMPANY LOGO)
(RECYCLE LOGO)
RECYCLED PAPER
OUTSIDE DIRECTORS STOCK PLAN FOR
THE SOUTHERN COMPANY AND ITS SUBSIDIARIES
Effective May 26, 2004
OUTSIDE DIRECTORS STOCK PLAN FOR
THE SOUTHERN COMPANY AND ITS SUBSIDIARIES
Preamble
Prior to the Effective Date (defined herein) of this Outside Directors
Stock Plan for The Southern Company and Its Subsidiaries (the "Plan"), Directors
(defined herein) participated in The Southern Company Outside Directors Stock
Plan ("Southern Stock Plan") and the Outside Directors Stock Plan for
Subsidiaries of the Southern Company ("Subsidiaries Stock Plan"). The purpose of
this Plan is to update the stock compensation provisions to be in compliance
with New York Stock Exchange rules and to merge the Southern Stock Plan and the
Subsidiaries Stock Plan into this successor Plan in order to consolidate the
statement of these compensation related obligations to Directors. Grants of
stock to Directors prior to the Effective Date are governed by the terms of the
Southern Stock Plan and the Subsidiaries Stock Plan, as applicable.
The Company has reserved 1,000,000 (one million) authorized and
registered shares of Stock (defined herein) that may be granted to Directors
under the terms of this Plan. Additionally, any unissued shares of Stock
previously authorized and registered for issuance under the Southern Stock Plan
and Subsidiaries Stock Plan as of May 26, 2004 shall be transferred to the Plan,
added to the reserved Stock and available for issuance to Participants under the
Plan. This Plan shall expire on the tenth (10th) anniversary of the Effective
Date.
ARTICLE I - PURPOSE AND ADOPTION OF PLAN
1.1 Adoption. The Southern Company hereby adopts the Outside Directors
Stock Plan for The Southern Company and Its Subsidiaries, effective May 26, 2004
subject to (a) the approval of the adoption by the Board of Directors of The
Southern Company of the Outside Directors Stock Plan for The Southern Company
and Its Subsidiaries by the shareholders of the Company at the annual meeting
thereof to be held on May 26, 2004, and (b) the Company's receipt of the
requisite approval of the issuance of the Stock pursuant to the Plan by the
Securities and Exchange Commission under the Public Utility Holding Company Act
of 1935, as amended, and the rules thereunder.
1.2 Purpose. The Plan is designed to more closely align the interests of
Directors with the interests of the shareholders of the Company through
ownership of Stock.
ARTICLE II - DEFINITIONS
2.1 "Affiliated Employer" shall mean any corporation which is a member of
the controlled group of corporations of which the Company is the common parent
corporation.
2.2 "Board of Directors" shall mean either the Southern Board or a System
Company Board, as applicable to a Director.
2.3 "Commission" shall mean the Securities and Exchange Commission.
2.4 "Company" shall mean The Southern Company.
2.5 "Director" shall mean any person who is not an active employee of the
Company or a System Company and who either serves on the Southern Board or a
System Company Board.
2.6 "Effective Date" shall mean May 26, 2004.
2.7 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
2.8 "Market Value" shall mean the following:
(a) With respect to Stock that is issued by the Company, the average of the
high and low prices of the Stock, as published in the Wall Street Journal in its
report of New York Stock Exchange composite transactions, on the date one day
prior to the date of distribution as set forth in Section 4.3(a) of the Plan (or
the average of the high and low sale prices on the trading day immediately
preceding such determination date if the Stock is not traded on the date one day
prior to the date of distribution).
(b) With respect to Stock that is purchased on the open market, the actual
purchase price paid for such Stock on the date of purchase.
2.9 "Participant" shall mean each Director who meets the requirements of
Section 3.1 of the Plan.
2.10 "Plan" shall mean the Outside Directors Stock Plan for The Southern
Company and Its Subsidiaries, as amended from time to time.
2.11 "Plan Administrator" shall mean the Governance Committee of the
Southern Board.
2.12 "Plan Year" shall mean the calendar year.
2.13 "Retainer Fee" shall mean the annual rate of the fees paid to a
Director as determined by the Board of Directors from time-to-time, but
excluding reimbursements for expenses and any fees or compensation for (a)
attendance at the meetings of the Board of Directors or any committee, (b)
service on a committee, and (c) service at the request of the Board of Directors
or a committee.
2.14 "Stock" shall mean the Company's common stock, par value $5.00 per
share.
2.15 "Southern Board" shall mean the Board of Directors of The Southern
Company.
2.16 "System Company" shall mean any Affiliated Employer of the Company
which the Southern Board may from time to time determine to bring under the Plan
and which shall adopt the Plan, and any successor of any of them. The System
Companies that have adopted the Plan are listed in Schedule A, attached hereto,
as such Schedule may be amended from time to time.
2.17 "System Company Board" shall mean the Board of Directors of a System
Company.
The masculine pronoun shall be construed to include the feminine pronoun
and the singular shall include the plural, where the context so requires.
ARTICLE III - ELIGIBILITY
3.1 Eligibility Requirements.
(a) Except as provided in Subsections (b) and (c) below, each Director
shall become a Participant in the Plan on the first date such Director serves on
the Board of Directors.
(b) For purposes of the 2004 Plan Year, a Director who is serving on a
Board of Directors as of the Effective Date shall become a Participant in the
Plan on the Effective Date, subject to (1) approval of the Plan by the
shareholders of the Company at the annual meeting thereof to be held on May 26,
2004, and (2) the Company's receipt of the requisite approval of the Plan by the
Commission under the Public Utility Holding Company Act of 1935, as amended, and
the rules thereunder.
ARTICLE IV - FORM AND TIME OF BENEFIT DISTRIBUTIONS
4.1 Stock Grant. Each Participant shall receive a portion of his annual
Retainer Fee in Stock, with the remainder of such annual Retainer Fee and
meeting attendance fees to be payable, in increments elected by the Director in
accordance with Section 4.2 below, in cash or in Stock. The portion of the
annual Retainer Fee required to be paid in Stock pursuant to this Section 4.1
may be denominated as dollars and/or shares and shall be stated in Schedule B,
attached hereto, as such Schedule shall be amended from time to time.
4.2 Election to Determine Percentage or Amount of Compensation to be Paid
in Stock. Each Participant shall have an opportunity to elect to have the
non-Stock portion of his Retainer Fee paid in cash or Stock of the Company, or a
combination thereof. Each Participant also shall have an opportunity to elect to
have a portion of his meeting attendance fees payable in Stock. Such elections
shall be made at the time specified by the Plan Administrator on a form provided
to the Participant by the Plan Administrator. Nothing contained in this Section
4.2 shall be interpreted in such a manner as would disqualify the Plan from
treatment as a "formula plan" under Rule 16b-3, as promulgated by the Commission
under the Exchange Act, as that rule may be amended from time to time.
4.3 Amount and Date of Payment for Stock Compensation.
(a) For any Plan Year in which a Director is a Participant for the full
Plan Year, any Stock compensation due a Participant pursuant to Sections 4.1 and
4.2 above shall be payable on a quarterly basis. The amount of Stock to be
distributed to a Participant shall initially be determined by first dividing the
Participant's required and elected dollar amount of Stock compensation by four
(4) and then dividing such quarterly quotient by the Market Value of the Stock.
Subsequent distributions shall be based on such quarterly quotient divided by
the Market Value of the Stock.
(b) Notwithstanding the foregoing, for purposes of the 2004 Plan Year, for
Participants who are serving as Directors as of the Effective Date, no Stock
distributions shall be made under the Plan prior to receipt of the requisite
approval described in Section 1.1; provided, however, that once the requisite
approval of the Plan is received, the Stock distribution shall be made on the
first quarterly date following such approval in accordance with Article IV.
4.4 Deferral of Retainer. The portion of the Retainer Fee required to be
paid in Stock pursuant to Section 4.1 shall be deferred in accordance with the
terms of the deferred compensation plan maintained by the Company or Subsidiary
Company for its Directors. Directors also shall have the option to defer in such
plan pursuant to its terms that portion of the Retainer Fee not required to be
paid in Stock and meeting attendance fees.
4.5 Death Benefits. No grants of Stock shall be made to any beneficiary of
a Participant following a Participant's death.
ARTICLE V - ADMINISTRATION OF PLAN
5.1 Administrator. The general administration of the Plan shall be the
responsibility of the Plan Administrator.
5.2 Powers. The Plan Administrator shall administer the Plan in accordance
with its terms and shall have all powers necessary to carry out the provisions
of the Plan more particularly set forth herein. It shall interpret the Plan and
shall have the discretion to determine all questions arising in the
administration, interpretation and application of the Plan, including any
ambiguities contained herein or any questions of fact. Any such determination by
it shall be conclusive and binding on all persons. It may adopt such regulations
as it deems desirable for the conduct of its affairs. It may appoint such
accountants, counsel, actuaries, specialists and other persons as it deems
necessary or desirable in connection with the administration of this Plan, and
shall be the agent for the service of process.
5.3 Duties of the Plan Administrator.
(a) The Plan Administrator is responsible for the daily administration of
the Plan. It may appoint other persons or entities to perform any of its
fiduciary functions. The Plan Administrator and any such appointee may employ
advisors and other persons necessary or convenient to help it carry out its
duties, including its fiduciary duties. The Plan Administrator shall have the
right to remove any such appointee from his position. Any person, group of
persons or entity may serve in more than one fiduciary capacity.
(b) The Plan Administrator shall maintain accurate and detailed records and
accounts of Participants and of their rights under the Plan and of all receipts,
disbursements, transfers and other transactions concerning the Plan. Such
accounts, books and records relating thereto shall be open at all reasonable
times to inspection and audit by persons designated by the Board of Directors.
(c) The Plan Administrator shall take all steps necessary to ensure that
the Plan complies with the law at all times. These steps shall include such
items as the preparation and filing of all documents and forms required by any
governmental agency; maintaining of adequate Participants' records; recording
and transmission of all notices required to be given to Participants; the
receipt and dissemination, if required, of all reports and information received
relating to the Plan; securing of such fidelity bonds as may be required by law;
and doing such other acts necessary for the proper administration of the Plan.
The Plan Administrator shall keep a record of all of its proceedings and acts,
and shall keep all such books of account, records and other data as may be
necessary for proper administration of the Plan.
5.4 Indemnification. The System Companies and the Company shall indemnify
the Plan Administrator against any and all claims, losses, damages, expenses and
liability arising from any action or failure to act, except when the same is
finally judicially determined to be due to gross negligence or willful
misconduct. The System Companies and the Company may purchase at their own
expense sufficient liability insurance for the Plan Administrator to cover any
and all claims, losses, damages and expenses arising from any action or failure
to act in connection with the execution of the duties as Plan Administrator.
ARTICLE VI - MISCELLANEOUS
6.1 Assignment. Neither the Participant nor his legal representative shall
have any rights to sell, assign, transfer or otherwise convey the right to
receive the payment of any benefit due hereunder, which payment and the right
thereto are expressly declared to be nonassignable and nontransferable. Any
attempt to assign or transfer the right to payment under the Plan shall be null
and void and of no effect.
6.2 Amendment and Termination. The Plan may be wholly or partially amended
or otherwise modified, suspended or terminated at any time by the Southern Board
or by the Governance Committee with the approval of the Southern Board, upon
execution of a duly authorized written document; provided, however, that,
without the approval of the shareholders of the Company entitled to vote
thereon, no amendment may be made which would, absent such shareholder approval,
disqualify the Plan for coverage under Rule 16b-3, as promulgated by the
Commission under the Exchange Act, as that rule may be amended from time to
time; and provided further that the Plan may not be amended more than once every
six (6) months unless such amendment is made in order to comply with changes to
either the Internal Revenue Code of 1986, as amended, or the Employee Retirement
Income Security Act of 1974, as amended, and the rules thereunder.
Notwithstanding the foregoing, no such amendment or termination shall impair any
rights to payments to which a Participant may be entitled prior to the effective
date of such amendment or termination.
6.3 No Guarantee of Continued or Future Service on a Board of Directors.
Participation hereunder shall not be construed as creating a right in any
Director to continued service or future service on the Board of Directors.
Participation hereunder does not constitute an employment contract between any
Director and any System Company or the Company as the case may be.
6.4 Construction. This Plan shall be construed in accordance with and
governed by the laws of the State of Georgia, to the extent such laws are not
otherwise superseded by the laws of the United States.
[The remainder of this page is left intentionally blank.]
IN WITNESS WHEREOF, the Southern Board, through its duly authorized
officers, has adopted this Outside Directors Stock Plan for The Southern Company
and Its Subsidiaries this 21st day of April, 2004, to be
effective as provided herein.
THE SOUTHERN COMPANY:
(CORPORATE SEAL)
By: /s/Tommy Chisholm
Its: Secretary
Attest:
By: /s/Patricia L. Roberts
Its: Assistant Secretary
OUTSIDE DIRECTORS STOCK PLAN FOR
THE SOUTHERN COMPANY AND ITS SUBSIDIARIES
SCHEDULE A
The System Companies as of May 26, 2004 are:
OUTSIDE DIRECTORS STOCK PLAN FOR
THE SOUTHERN COMPANY AND ITS SUBSIDIARIES
SCHEDULE B
As of __________
The portion of a Participant's Retainer Fee required to be distributed in common
stock of The Southern Company shall be determined in accordance with the
following schedule:
Company Dollar Amount of Required
Stock Distribution
Southern Company
o Pre-1997 Appointed Directors $10,000.00
o Post-1996 Appointed Directors $19,000.00
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Company Shares Distributed
Southern Company 250 shares per quarter
Alabama Power Company 130 shares per quarter
Georgia Power Company 130 shares per quarter
Gulf Power Company 80 shares per quarter
Mississippi Power Company 80 shares per quarter
Savannah Electric and Power Company 80 shares per quarter
Admission Ticket [GRAPHIC OMITTED]
(Not Transferable)
2004 Annual Meeting of Stockholders
10 a.m. ET, May 26, 2004
The Southern Pine at Callaway
Highway 18
Pine Mountain, GA 31822
Please present this Admission Ticket in order to gain admittance to the meeting.
Ticket admits only the stockholder(s) listed on reverse side and is not
transferable.
Directions to Meeting Site:
o From Atlanta, GA. - take I-85 south to I-185 (Exit 21). From I-185 south,
take Exit 34, Georgia Highway 18. Take Georgia Highway 18 east to Callaway.
o From Birmingham, AL. - take U.S. Highway 280 east to Opelika, AL. Take I-85
north to Georgia Highway 18 (Exit 2). Take Georgia Highway 18 east to
Callaway.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of The Southern Company will be held on
Wednesday, May 26, 2004, at 10:00 a.m., ET, at The Southern Pine at Callaway,
Pine Mountain, Georgia. Stockholders owning shares at the close of business on
March 29, 2004, are entitled to attend and vote at the meeting. Stockholders
will elect members of the Board of Directors; vote upon ratification of the
independent auditors; vote upon approval of Outside Directors Stock Plan; and
transact other business properly coming before the meeting or any adjournments
thereof.
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[GRAPHIC OMITTED]
FORM OF PROXY AND FORM OF PROXY AND
TRUSTEE VOTING TRUSTEE VOTING
INSTRUCTION FORM INSTRUCTION FORM
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS AND ESP/ESOP TRUSTEES
If a stockholder of record, the undersigned hereby appoints H. A. Franklin, T.
A. Fanning and T. Chisholm, or any of them, Proxies with full power of
substitution in each, to vote all shares the undersigned is entitled to vote at
the Annual Meeting of Stockholders of The Southern Company, to be held at The
Southern Pine at Callaway, Pine Mountain, Georgia, on May 26, 2004, at 10:00
a.m., ET, and any adjournments thereof, on all matters properly coming before
the meeting, including, without limitation, the items listed on the reverse side
of this form.
If a beneficial owner holding shares through the Employee Savings Plan ("ESP")
and/or the Employee Stock Ownership Plan ("ESOP"), the undersigned directs the
Trustees of these Plans to vote all shares the undersigned is entitled to vote
at the Annual Meeting of Stockholders, and any adjournments thereof, on all
matters properly coming before the meeting, including, without limitation, the
items listed on the reverse side of this form.
This Form of Proxy/Trustee Voting Instruction Form is solicited jointly by the
Board of Directors of The Southern Company and the Trustees of the Employee
Savings Plan and Employee Stock Ownership Plan pursuant to a separate Notice of
Annual Meeting and Proxy Statement. If not voted electronically, this form
should be mailed in the enclosed envelope to the Company's proxy tabulator at 51
Mercedes Way, Edgewood, NY 11717. The deadline for receipt of Trustee Voting
Instruction Forms for ESP and ESOP shares is 5:00 p.m. on Monday, May 24, 2004.
The deadline for receipt of shares of record voted through the Form of Proxy is
9:00 a.m. on Wednesday, May 26, 2004. The deadline for receipt of instructions
provided electronically is 11:59 p.m. on Tuesday, May 25, 2004.
The proxy tabulator will report separately to the Proxies named above and to the
Trustees as to proxies received and voting instructions provided, respectively.
THIS FORM OF PROXY/TRUSTEE VOTING INSTRUCTION FORM WILL BE VOTED AS
SPECIFIED BY THE UNDERSIGNED. IF NO CHOICE IS INDICATED, THE SHARES WILL BE
VOTED AS THE BOARD OF DIRECTORS RECOMMENDS.
Continued and to be voted and signed on reverse side.
[GRAPHIC OMITTED] Please consider furnishing your voting instructions
electronically by Internet or phone. Processing
C/O PROXY SERVICES paper forms is more than twice as expensive as
P. O. BOX 9112 electronic instructions.
FARMINGDALE, NY 11735
If you vote by Internet or phone, please do not
mail this form
VOTE BY INTERNET - www.proxyvote.com Use the
Internet to transmit your voting instructions and
for electronic delivery of information up until
11:59 P.M. Eastern Time the day before the cut-off
date or meeting date. Have your proxy card in hand
when you access the web site and follow the
instructions to obtain your records and create an
electronic voting instruction form.
VOTE BY TELEPHONE - 1-800-690-6903 Use any
touch-tone telephone to transmit your voting
instructions up until 11:59 P.M. Eastern Time the
day before the cut-off date or meeting date. Have
your proxy card in hand when you call and then
follow the instructions.
VOTE BY MAIL
Mark, sign and date this form and return it in the
postage-paid envelope we have provided or return
it to Southern Company, C/O ADP, 51 Mercedes Way,
Edgewood, NY, 11717.
THANK YOU
VIEW ANNUAL REPORT AND PROXY STATEMENT ON THE
INTERNET - www.southerncompany.com
NOTE: The last instruction received, either paper or electronic, will be the
last tabulated.
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
STHCO1 KEEP THIS PORTION FOR YOUR RECORDS
-------------------------------------------------------------------------------
DETACH AND RETURN THIS PORTION ONLY
THIS FORM OF PROXY/TRUSTEE VOTING INSTRUCTION FORM
IS VALID ONLY WHEN SIGNED AND DATED.
THE SOUTHERN COMPANY
The Board recommends a vote FOR Items 1, 2 and 3.
1. ELECTION OF DIRECTORS
For Withhold For All To withhold authority to vote, mark "For All
01) D. P. Amos 02) D. J. Bern 03) F. S. Blake All All Except Except" and write the nominee's number on the
04) T. F. Chapman 05) H. A. Franklin 06) B. S. Gordon ( ) ( ) ( ) line below.
07) D. M. James 08) Z. T. Pate 09) J. N. Purcell ______________________________
10) D. M. Ratcliffe 11) G. J. St. Pe
For Against Abstain
2 RATIFICATION OF THE APPOINTMENT OF DELOITTE &
TOUCHE AS INDEPENDENT AUDITORS FOR 2004 ( ) ( ) ( )
3. APPROVAL OF OUTSIDE DIRECTORS STOCK PLAN ( ) ( ) ( )
UNLESS OTHERWISE SPECIFIED ABOVE, THE SHARES WILL BE VOTED "FOR" ITEMS 1, 2 AND
3.
I consent to suspending future mailings of the Annual Report and Proxy Statement
on this account. I have access to copies of the documents or can access them
electronically through the Internet. I can revoke this consent at any time by
notifying Stockholder Services. ( )
Please indicate if you plan to attend this meeting. ( ) ( )
Yes No
Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date