<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
Allegheny Power Systems, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Allegheny Power Systems, Inc.
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
<PAGE> 2
ALLEGHENY POWER SYSTEM, INC.
[LOGO]
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD ON MAY 11, 1995
AND PROXY STATEMENT
<PAGE> 3
[LOGO]
12 East 49th Street
New York, N.Y. 10017
April 7, 1995
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of ALLEGHENY
POWER SYSTEM, INC. will be held on the third floor of 270 Park Avenue, between
47th and 48th Streets, New York, N.Y., on Thursday, May 11, 1995, at 10:30 a.m.,
New York time, for the following purposes:
(1) To elect directors to hold office until the next Annual Meeting of
Stockholders and until their successors are duly chosen and qualified;
(2) To consider and vote upon a proposal to eliminate cumulative voting;
(3) To consider and vote upon a proposal to eliminate preemptive rights;
(4) To approve the appointment of independent accountants;
(5) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Holders of record at the close of business on April 3, 1995, will be
entitled to vote at the meeting.
By Order of the Board of Directors,
EILEEN M. BECK
Secretary
<PAGE> 4
PROXY STATEMENT
Proxies in the form enclosed are solicited by the Board of Directors of
Allegheny Power System, Inc. (the Company), 12 East 49th Street, New York, New
York 10017, for the Annual Meeting of Stockholders to be held on May 11, 1995.
The proxy card provided each stockholder by the Company covers the total number
of shares registered in his or her name and, in the case of participants in the
Company's Dividend Reinvestment and Stock Purchase Plan, the shares held for his
or her account under the Plan. A proxy may be revoked at any time prior to its
exercise by written notice to the Company, by submission of another proxy
bearing a later date or by voting in person at the meeting.
At the close of business on April 3, 1995, there were outstanding
shares of Common Stock, each entitled to one vote. In elections of
directors, each holder entitled to vote is entitled to as many votes as shall
equal the number of shares held multiplied by the number of directors to be
elected and may cast all of such votes for a single director or may distribute
them among the number of directors to be elected or any two or more of them.
There are no conditions precedent to the exercise of such cumulative voting
rights.
The presence in person or by proxy of the holders of record of a majority
of the outstanding shares of Common Stock entitled to vote constitutes a quorum.
The affirmative vote of a majority of all the votes entitled to be cast is
required for the election of each director and for approval of the appointment
of Price Waterhouse as independent accountants. Abstentions are counted only for
purposes of determining whether a quorum is present. Broker non-votes are not
treated as votes nor are they calculated in determining the existence of a
quorum. The affirmative vote of at least two-thirds of all the votes entitled to
be cast is required for approval of the elimination of cumulative voting and
preemptive rights.
The approximate date on which the proxy statement and form of proxy are
first being sent or given to stockholders is April 7, 1995. The Annual Report
for 1994 has already been mailed to stockholders.
ELECTION OF DIRECTORS
At the meeting eleven directors are to be elected to hold office until the
next Annual Meeting of Stockholders and until their respective successors are
duly chosen and qualified. The proxies received, unless marked to the contrary,
will be voted for the election of the following persons, all of whom are now
directors of the Company and are the nominees of the Board of Directors at this
election, or, if considered desirable, cumulative voting rights will be
exercised by the proxy holders to elect as many of such nominees as possible.
The Board of Directors does not expect that any of the nominees will become
unable to serve as a director, but if that should occur for any reason prior to
the meeting, the proxy holders reserve the right to name another person of their
choice.
<TABLE>
<CAPTION>
DIRECTORS, PRINCIPAL OCCUPATION, DIRECTOR
OTHER DIRECTORSHIPS, OF THE
BUSINESS EXPERIENCE, AND 1994 COMPANY
BOARD AND COMMITTEE MEETINGS ATTENDANCE AGE SINCE
--------------------------------------------------------------------- --- -------
<S> <C> <C>
ELEANOR BAUM (3) (4) 54 1988
Dean of The Albert Nerken School of Engineering of The Cooper Union
for the Advancement of Science and Art. Director of Avnet, Inc. and
United States Trust Company, Commissioner of the Engineering
Manpower Commission, a fellow of the Institute of Electrical and
Electronic Engineers, member of Board of Governors, New York
Academy of Sciences, and President, American Society of Engineering
Education.
Attendance: 22 of 22.
</TABLE>
1
<PAGE> 5
<TABLE>
<CAPTION>
DIRECTORS, PRINCIPAL OCCUPATION, DIRECTOR
OTHER DIRECTORSHIPS, OF THE
BUSINESS EXPERIENCE, AND 1994 COMPANY
BOARD AND COMMITTEE MEETINGS ATTENDANCE AGE SINCE
--------------------------------------------------------------------- --- -------
<S> <C> <C>
WILLIAM L. BENNETT (1) (5) 45 1991
Chairman, Director, and Chief Executive Officer of Noel Group,
Inc., a holder of major equity interests in various operating
companies. Director of Belding Heminway Company, Inc., Global
Natural Resources Inc., Lincoln Snacks Company, Simmons Outdoor
Corporation, Sylvan, Inc. and TDX Corporation. Formerly, general
partner, Discovery Funds, a venture capital affiliate of
Rockefeller & Company, Inc., an investment management company.
Attendance: 11 of 12.
KLAUS BERGMAN (2) (3) (5) 63 1985
Chairman of the Board and Chief Executive Officer of the Company
and its principal subsidiaries.
Attendance: 14 of 14.
WENDELL F. HOLLAND 43 1994
Of Counsel, Law Firm of Reed, Smith, Shaw & McClay. Formerly,
Partner, Law Firm of LeBoeuff, Lamb, Greene & MacRae, and
Commissioner of the Pennsylvania Public Utility Commission.
Attendance: 3 of 3. (6)
PHILLIP E. LINT (1) (3) (5) 65 1989
Retired. Formerly partner, Price Waterhouse.
Attendance: 17 of 17.
EDWARD H. MALONE (3) 70 1985
Retired. Formerly Vice President of General Electric Company and
Chairman, General Electric Investment Corporation. Director of
Fidelity Group of Mutual Funds, General Re Corporation, and Mattel,
Inc.
Attendance: 10 of 13.
FRANK A. METZ, JR. (2) (3) (4) 60 1984
Retired. Formerly Senior Vice President, Finance and Planning, and
Director of International Business Machines Corporation, a
manufacturer and distributor of information systems equipment and
services. Director of Monsanto Company and Norrell Corporation.
Attendance: 20 of 22.
ALAN J. NOIA (2) 48 1994
President and Chief Operating Officer of the Company and Allegheny
Power Service Corporation. Director of the Company's other
principal subsidiaries. Formerly, President of The Potomac Edison
Company.
Attendance: 3 of 3. (6)
STEVEN H. RICE (2) (3) (4) (5) 51 1986
Bank consultant and attorney-at-law. Director and Vice Chairman of
the Board of Stamford Federal Savings Bank. Formerly, President and
Director of The Seamen's Bank for Savings and Director of Royal
Group, Inc.
Attendance: 25 of 25.
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
DIRECTORS, PRINCIPAL OCCUPATION, DIRECTOR
OTHER DIRECTORSHIPS, OF THE
BUSINESS EXPERIENCE, AND 1994 COMPANY
BOARD AND COMMITTEE MEETINGS ATTENDANCE AGE SINCE
--------------------------------------------------------------------- --- -------
<S> <C> <C>
GUNNAR E. SARSTEN (5) 58 1992
Chairman and Chief Executive Officer of MK International. Formerly,
President and Chief Operating Officer of Morrison Knudsen
Corporation, President and Chief Executive Officer of United
Engineers & Constructors International, Inc., (now Raytheon
Engineers & Constructors, Inc.), and Deputy Chairman of the Third
District Federal Reserve Bank in Philadelphia.
Attendance: 10 of 10.
PETER L. SHEA (1) 63 1993
Managing Director of Hydrocarbon Energy, Inc., a privately owned
oil and gas development drilling and production company and an
Individual General Partner of Panther Partners, L.P., a closed-end
non-diversified management company.
Attendance: 12 of 12.
</TABLE>
------------
(1) Member of Audit Committee.
(2) Member of Executive Committee.
(3) Member of Finance Committee.
(4) Member of Management Review Committee.
(5) Member of New Business Committee.
(6) Elected September 8, 1994.
COMPENSATION OF DIRECTORS
Each of the directors is also a director of the following subsidiaries of
the Company: Monongahela Power Company, The Potomac Edison Company, West Penn
Power Company, and Allegheny Power Service Corporation. In 1994, directors who
were not officers or employees of System companies (outside directors) received
for all services to System companies (a) $16,000 in retainer fees, (b) $800 for
each committee meeting attended, except Executive Committee meetings for which
such fees are $200, and (c) $250 for each Board meeting of each company
attended. Under an unfunded deferred compensation plan, a director may elect to
defer receipt of all or part of his or her director's fees for succeeding
calendar years to be payable with accumulated interest when the director ceases
to be such, in equal annual installments, or, upon authorization by the Board of
Directors, in a lump sum. Effective January 1, 1995, in addition to the
foregoing compensation, (a) the Chairperson of each committee other than the
Executive Committee will receive an additional fee of $4,000 per year; (b)
outside directors of the Company will receive 200 shares of Common Stock
pursuant to the Allegheny Power System, Inc. Restricted Stock Plan for Outside
Directors; and (c) under the Allegheny Power System Board of Directors
Retirement Plan, outside directors will receive an annual pension equal to the
retainer fee paid to them at the time of their retirement, providing the
director has at least five years of service and, except under special
circumstances, serves until age 65.
BOARD OF DIRECTORS AND CERTAIN COMMITTEE MATTERS
The Board of Directors has Audit, Finance, Management Review, and New
Business Committees. The Audit Committee makes recommendations to the Board with
respect to auditing matters, including the employment of independent accountants
and the handling of the annual audit of the books and accounts of the Company
and its subsidiaries. It met three times in 1994. The Management Review
Committee, which is made up of outside directors only, makes recommendations to
the Board on certain matters concerning directors and officers, including
compensation and management succession. This Committee serves also as the
3
<PAGE> 7
nominating committee for directors and considers recommendations sent by
shareholders to the Company that are accompanied by a comprehensive written
resume of the proposed nominee's experience and background and a written consent
of such person to serve as a director if nominated and elected. It met nine
times in 1994. The total number of Board meetings held in 1994 was nine.
PROPOSAL TO ELIMINATE CUMULATIVE VOTING
The Board of Directors has approved for submission to shareholders an
amendment to Article VII of the Articles of Restatement of Charter of the
Company (Articles) which would eliminate the requirement of cumulative voting in
the election of directors. The Articles currently provide that at the election
of directors each holder of shares of stock entitled to vote shall be entitled
to as many votes as shall equal the number of shares of such stock held
multiplied by the number of directors to be elected, and the stockholder may
cast all such votes for a single director or may distribute them among the
number of directors to be elected, or any two or more of them as the stockholder
may see fit. The Corporations and Associations Article of the Annotated Code of
Maryland does not require cumulative voting at elections of directors.
The Board of Directors believes that the benefits of cumulative voting are
much less relevant today than they were when cumulative voting was originally
included in the Company's Charter. At that time, minority shareholders had few
Federal and state remedies to protect them from overreaching by majority
shareholders and therefore had a greater need for board representation. Today,
the Board of Directors believes that the disadvantages of cumulative voting
outweigh the advantages for large, extensively regulated and widely held
companies. Of the shares of the Company's stock outstanding, no
shareholder today owns greater than %. Thus, cumulative voting may allow a
minority of shareholders to obtain representation on a company's board of
directors against the wishes of the majority to further objectives which may be
contrary to those of the majority of the shareholders. Furthermore, cumulative
voting may enable a minority to elect a director who represents interests intent
on a takeover of the Company or similar action on terms not equally beneficial
to all shareholders. For a board of directors to work effectively for all of the
shareholders, each director should feel a responsibility to the shareholders as
a whole and not to any special group of minority shareholders. If the proposed
amendment is passed, and cumulative voting is eliminated, the holders of a
majority of shares entitled to vote in an election of directors will be able to
elect all of the directors being elected at that time and no director will be
elected by any special interest group of minority shareholders.
The Board of Directors recommends the elimination of cumulative voting
because it believes that non-cumulative voting is more likely to lead to
representation of the shared interests of all shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED ELIMINATION OF
CUMULATIVE VOTING.
PROPOSAL TO ELIMINATE PREEMPTIVE RIGHTS
The Board of Directors has also approved for submission to shareholders an
amendment to Article VII of the Articles which would eliminate the limited
preemptive rights of shareholders to purchase additional shares of the Company's
Common Stock (preemptive rights). Maryland law does not require that a
corporation's charter provide for preemptive rights. Also, unless the charter
provides otherwise, Maryland law prohibits preemptive rights in many
circumstances.
The Articles provide that shares of Common Stock, and any securities
convertible into Common Stock, may be issued, without first being offered to
shareholders, (a) if sold for money either in a public offering or to or through
underwriters or investment bankers who agree to make a public offering thereof;
or (b) in payment for property. Under other circumstances, shareholders are
granted preemptive rights. Preemptive rights originated at a time when
corporations were generally small, had relatively few shares of stock
outstanding, and those shares were not widely traded. As a result, there was
little opportunity to purchase additional shares at a reasonable price except
when a corporation had a new issue and, therefore, these rights were needed to
preserve a shareholder's proportionate interest in voting rights in the
corporation. The Board of Directors believes that preemptive rights have little
significance today. Allegheny Power System, Inc. has
4
<PAGE> 8
shares outstanding and listed for trading on the New York, Chicago and Pacific
stock exchanges, and it is extremely unusual that shares of its stock do not
trade each and every trading day. Shareholders may purchase additional shares on
any trading day at competitively based costs. Furthermore, pursuant to the
Company's Dividend Reinvestment and Stock Purchase Plan, and the optional cash
payment provision provided therein, shareholders may increase their ownership of
the Company's common stock at relatively minor cost. While that Plan could be
amended or terminated, it has been in effect for over 17 years. As a result,
shareholders have continuous opportunities to preserve their proportionate
interest and voting rights in the Company by acquiring additional shares of
common stock.
The Board of Directors believes that elimination of preemptive rights will
give the Board of Directors greater flexibility in carrying out and reducing the
cost of financings, including the sale of new shares of Common Stock, or senior
securities convertible into Common Stock, through private placements because the
Company would no longer be required to first offer shares to existing
shareholders. Under certain conditions, such private forms of financing will
enable the Company to fund its capital requirements at a savings in time,
expense and overall costs when compared with other forms of financing. The Board
of Directors believes that the advantages to the Company of elimination of
preemptive rights derived from having such private forms of financing available
outweigh any remaining benefits of preemptive rights to shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED ELIMINATION OF
PREEMPTIVE RIGHTS.
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed Price Waterhouse LLP as independent accountants for the Company to
audit its consolidated financial statements for 1994 and to perform other audit
related services. Such services include: review of the Company's quarterly
interim financial information; review of periodic reports and registration
statements filed by the Company with the Securities and Exchange Commission;
issuance of special purpose reports covering such matters as employee benefit
plans and submissions to various governmental agencies; and consultation in
connection with various accounting and financial reporting matters. Price
Waterhouse also performs non-audit services for the Company. Fees for the 1994
audit and fees for audit services paid during the year aggregated $770,200, and
fees for non-audit services were $33,260. The Board has directed that the
appointment of Price Waterhouse be submitted to the stockholders for approval.
If the stockholders should not approve, the Audit Committee and the Board would
reconsider the appointment. Representatives of Price Waterhouse will be present
at the annual meeting to make a statement if they wish and to answer questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE
APPOINTMENT OF PRICE WATERHOUSE LLP AS INDEPENDENT ACCOUNTANTS AND WILL SO VOTE
PROXIES RECEIVED THAT DO NOT OTHERWISE SPECIFY.
MANAGEMENT REVIEW COMMITTEE REPORT
GENERAL
The compensation program for executive officers of the Company and its
subsidiaries is directed by the Management Review Committee of the Company's
Board of Directors. The Committee recommends the annual compensation program for
each year to the Board of Directors of the Company and of each subsidiary for
its approval.
The executive compensation program is intended to meet three objectives:
- Create a strong link between executive compensation and total return to
stockholders, reliable and economical service to customers which assures
customer satisfaction, environmental stewardship, and System financial
stability, integrity, and overall performance.
- Offer compensation opportunities that are competitive with the median
level of opportunity in the marketplace, at expected levels of
performance.
- Ensure internal compensation equity -- maintaining a reasonable
relationship between compensation and the duties and responsibilities of
each executive position.
5
<PAGE> 9
EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program has three components: salary
and short-term and long-term incentive awards.
The Company's executive compensation is both market- and performance-based.
The Committee believes that it is necessary to use both market- and
performance-based compensation to meet the challenges of intensifying
competitive, economic and regulatory pressures.
To ensure that the System's salary structure and total compensation
continue to be competitive, they are compared each year through an annual
compensation survey with those of comparable electric utilities -- over 30
companies in recent years. The survey companies are either similar in type and
size to Allegheny, contiguous to its geographic territory, or have a similar
fuel mix.
In 1994, over 80% of these survey companies are included in the Dow Jones
Electric Index to which the Company's performance is compared on page 11 of this
proxy statement. This comparison, conducted by a national compensation
consulting firm, involves matching System positions, including the Chairman and
Chief Executive Officer (CEO), with those in the survey companies that have
comparable duties and responsibilities. For 1994, the survey indicated that the
System's executive salary structure was slightly below the median. As in prior
years, this survey data became the basis for the consulting firm's
recommendations as to salary structure position placement and total
compensation, and 1994 base salary ranges for each position in line with the
survey average for comparable positions.
Base salary:
The base salaries of all executive officers, including the CEO, are
reviewed annually by the Committee, which makes recommendations to the Boards of
Directors. In recommending base salary levels, the Committee gives most weight
to the performance of each executive. The Committee receives a report from the
CEO including (a) the performance rating of each executive (other than himself)
based on that executive's position-specific responsibilities and performance
evaluation by his or her supervisor and (b) a specific salary recommendation for
each. In determining its recommendations to the Boards, the Committee also takes
into consideration operating performance, including such factors as safety,
efficiency, and customer satisfaction, and financial results, including such
things as total returns, earnings per share, quality of earnings, dividends paid
and dividend payout ratio.
Annual Performance Incentive Plan:
The Allegheny Power System Annual Performance Incentive Plan (the
"Incentive Plan") is designed to supplement base salaries and provide cash
incentive compensation opportunities motivate and reward individual performance
relative to overall System performance of, as well as to attract and retain, a
senior group of managers of Allegheny Power System, including executive officers
selected by the Management Review Committee. The Incentive Plan provides for
establishment of individual incentive awards based on meeting specific
predetermined performance targets. The performance targets are based on net
income available to common shareholders, achieved shareholder return, and
overall corporate financial results (changes in earnings per share, quality of
earnings, dividends paid per share and dividend payout ratio) as well as System
operating results, quality and cost of service to customers and System
performance. In addition, personal performance goals as to operating factors
such as efficiency and safety are set on a position-specific basis for
participants.
Specific operating, management, or financial areas to be emphasized, as
well as performance targets, are determined each year by the Committee with the
recommendations of the CEO. If the performance targets are not met, no awards
are paid. The target awards under the Plan are a percent of base compensation
determined by the Committee, and participants may earn up to 1 1/4 times the
target award. For the CEO and other named officers for the 1994 Plan the targets
were 25% and 20% of 1994 base compensation, respectively. Targets for other
participants were 20% or less. Incentive Plan awards earned are paid in the year
after the year for which they are earned. Awards earned for performance in 1992,
1993 and 1994 are set forth in the
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<PAGE> 10
Summary Compensation Table for those years under the column "Incentive Award"
for the individuals named therein.
Performance Share Plan:
The Allegheny Power System Performance Share Plan (the "Performance Plan"),
as approved by the stockholders at the May 1994 annual meeting, is designed as
an aid in attracting and retaining individuals of outstanding ability and in
rewarding them for the continued profitable management of, and continued
providor of economical and reliable service to customers by, the Company and its
subsidiaries. Nine executive officers of the Company were selected to
participate in the 1994 Performance Plan by the Management Review Committee. The
Performance Plan provides for the establishment of corporate incentive awards
based on meeting specific stockholder and customer performance rankings (total
stockholder return ranking in the Dow Jones Electric Utility Index and cost of
customer service versus nine other utilities).
The first cycle of the Performance Plan is based on three years, the first
being the period 1994-1996. The target awards under the Plan for the named
officers, other than Mr. Hayes, are a flat dollar amount ranging from $55,000 to
$170,000 for the CEO. Targets for the other four participants are less. Awards
will be determined in 1997 after the completion of the first cycle and
determination of the actual stockholder and customer rankings. The actual awards
will be paid in Company stock and can range from 0% to 200% of target. The
second cycle became effective January 1, 1995 and will be for the period
1995-1997.
------------------------
For the CEO, the Management Review Committee develops salary and incentive
award recommendations for the Board's consideration. The base salary
recommendation was based upon the Committee's evaluation of the CEO's
performance of his responsibilities in the context of the Company's overall
performance, including the factors described in the next sentence and the
quality and cost of service rendered to its customers. The incentive award
recommendation was based on 1994 corporate results, including changes in
earnings per share, quality of earnings, dividends paid per share, and dividend
payout ratio; total shareholder return, as well as the relative ranking of such
return versus that of other electric utilities; overall quality and cost of
service rendered to customers; and System operating performance. Mr. Bergman's
1994 total compensation reflected the Committee's evaluation of his performance
and the described 1994 overall results.
The executive compensation program, which is annually reviewed by the
Committee and the Board, is intended to reward the individual performance of
each executive relative to the overall performance of the Company, the service
provided to customers, and its cost. The program is further intended to provide
competitive compensation to help the Company attract, motivate, and retain the
executives needed to ensure continued stockholder return and reliable and
economical electric service to customers.
Section 162(m) of the Internal Revenue Code generally limits to $1 million
the corporate deduction for compensation paid to executive officers named in the
Proxy Statement, unless certain requirements are met. This Committee has
carefully considered the effect of this tax code provision on the current
executive compensation program. At this time, Allegheny's deduction for officer
compensation is not limited by the provisions of Section 162(m). The Committee
intends to take such actions with respect to the executive compensation program,
if necessary, to preserve the corporate tax deduction for executive compensation
paid.
No current member of the Management Review Committee is or ever was an
employee of the Company or any of its subsidiaries.
Frank A. Metz, Jr., Chairman
Eleanor Baum
Steven H. Rice
7
<PAGE> 11
EXECUTIVE COMPENSATION
During 1994, and for 1993 and 1992, the annual compensation paid by the
Company and its operating subsidiaries directly or indirectly for services in
all capacities to such companies to their Chief Executive Officer and each of
the four most highly paid executive officers of the Company and its subsidiaries
whose cash compensation exceeded $100,000 was as follows:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------------------------- INCENTIVE ALL OTHER
NAME AND CAPACITIES IN WHICH SERVED YEAR SALARY AWARD(A) COMPENSATION(B)(C)
----------------------------------- ---- ----------- -------- ------------------
<S> <C> <C> <C> <C>
KLAUS BERGMAN
Chairman of the Board, and Chief 1994 $ 485,000 $120,000 $ 91,458
Executive Officer of the Company and 1993 460,000 90,000 46,889
of the Company's principal 1992 445,000 80,000 13,529
subsidiaries.
ALAN J. NOIA
President, Chief Operating Officer and 1994 $ 236,336 $ 57,000 $ 47,867
Director of the Company and 1993 212,500 37,000 20,107
Allegheny Power Service Corporation. 1992 200,000 38,000 7,975
Director of the Company's other
principal subsidiaries.
STANLEY I. GARNETT, II
Senior Vice President, Finance of the 1994 $ 219,336 $ 47,000 $ 70,213
Company and Allegheny Power Service 1993 206,000 40,000 24,006
Corporation. Vice President and 1992 195,600 35,000 7,939
Director of the Company's other
principal subsidiaries.
PETER J. SKRGIC
Senior Vice President of the Company 1994 $ 213,336 $ 50,000 $ 57,253
and Allegheny Power Service 1993 200,000(d) 38,000 18,678
Corporation. Vice President and 1992 190,000(d) 31,000 8,325
Director of the Company's other
principal subsidiaries.
BENJAMIN H. HAYES
President and Director of Monongahela 1994 $ 197,500 $ 58,000 $ 92,798(e)
Power Company. (Retired January 1, 1993 190,000 35,000 19,668
1995.) 1992 180,000 30,000 11,114
JAY S. PIFER
Senior Vice President of Allegheny 1994 $ 189,996 $ 39,000 $ 50,630
Power Service Corporation. President 1993 175,500 25,000 18,093
and Director of the Company's 1992 156,495 28,000 9,870
operating subsidiaries.
</TABLE>
(a) Incentive awards are based upon performance in the year in which the figure
appears but are paid in the first or second quarter of the following year.
The incentive award plan will be continued for 1995.
(b) The figures in this column include the present value of the executives'
cash value at retirement attributable to the current year's premium payment
for both the Executive Life Insurance and Secured Benefit Plans (based upon
the premium, future valued to retirement, using the policy internal rate of
return minus the corporation's premium payment), as well as the premium
paid for the basic group life insurance program plan and the contribution
for the Employee Stock Ownership and Savings Plan (ESOSP) established as a
non-contributory stock ownership plan for all eligible employees effective
January 1, 1976, and amended in 1984 to include a savings program.
8
<PAGE> 12
Effective January 1, 1992, the basic group life insurance provided
employees was reduced from two times salary during employment, which
reduced to one times salary after five years in retirement, to a new plan
which provides one times salary until retirement and $25,000 thereafter.
Executive officers and other senior managers remain under the prior plan.
In order to pay for this insurance for these executives during 1992,
insurance was purchased on the lives of each of them. Effective January 1,
1993, the Company started to provide funds to pay for the future benefits
due under the supplemental retirement plan (Secured Benefit Plan). To do
this, the Company purchased, during 1993, life insurance on the lives of
the covered executives. The premium costs of both the 1992 and 1993
policies plus a factor for the use of the money are returned to the Company
at the earlier of (a) death of the insured or (b) the later of age 65 or 10
years from the date of the policy's inception. Under the ESOSP for 1994,
all eligible employees may elect to have from 2% to 7% of their
compensation contributed to the Plan as pre-tax contributions and an
additional 1% to 6% as post-tax contributions. Employees direct the
investment of these contributions into one or more of seven available
funds. Fifty percent of the pre-tax contributions up to 6% of compensation
are matched with common stock of Allegheny Power System, Inc. Effective
January 1, 1994 the maximum amount of any employee's compensation that may
be used in these computations is $150,000. Employees' interests in the
ESOSP vest immediately. Their pre-tax contributions may be withdrawn only
upon meeting certain financial hardship requirements or upon termination of
employment. For 1994, the figure shown includes amounts representing (a)
the aggregate of life insurance premiums and dollar value of the benefit to
the executive officer of the remainder of the premium paid on the Group
Life Insurance program, the Executive Life Insurance, and Secured Benefit
Plans, and (b) ESOSP contributions respectively, as follows: Mr. Bergman
$86,958 and $4,500, Mr. Noia $43,367 and $4,500; Mr. Garnett $66,253 and
$3,960; Mr. Skrgic $52,753 and $4,500; Mr. Hayes $47,798 and $4,500; and
Mr. Pifer $46,130 and $4,500, respectively.
(c) In 1994, the Boards of Directors of the Company and its operating
subsidiaries implemented a Performance Share Plan for senior officers which
was approved by the shareholders of the Company at the annual meeting in
May 1994. The first plan cycle began on January 1, 1994 and will end on
December 31, 1996. After completion of that cycle, performance share awards
or cash may be granted if a participant has met his or her performance
criteria. Since the plan cycle will not be complete until 1997, no awards
have been granted and the amount which any named executive officer will
receive has not yet been determined. The second cycle became effective
January 1, 1995 and will be for the period 1995-1997.
(d) Salary includes a $15,000 housing allowance in 1992 and 1993.
(e) This amount includes $40,500, representing accrued vacation for which he
was paid.
------------------------
In February 1995, the Company entered into employment contracts with
certain of the named executive officers (Agreements). Each Agreement sets forth
(i) the severance benefits that will be provided to the employee in the event
the employee is terminated subsequent to a Change in Control of the Company (as
defined in the Agreements) and (ii) the employee's obligation to continue his
employment after the occurrence of certain circumstances that could lead to a
Change in Control. The Agreements provide generally that unless employment is
terminated by the Company for Cause, Disability or Retirement or by the employee
for Good Reason (each as defined in the Agreements), severance benefits will
consist of a cash payment equal to 2.99 times the employee's annualized
compensation together with the Company maintaining existing benefits for the
employee and the employee's dependents for a period of three years. Each
Agreement initially expires on December 31, 1997 but will be automatically
extended for one year periods thereafter unless either the Company or the
employee gives notice otherwise. Notwithstanding the delivery of such notice,
the Agreements will continue in effect for twenty-four months after a Change in
Control.
9
<PAGE> 13
RETIREMENT PLAN
The Company maintains a Retirement Plan covering substantially all
employees. The Retirement Plan is a noncontributory, trusteed pension plan
designed to meet the requirements of Section 401(a) of the Internal Revenue Code
of 1986, as amended (the Code). Each covered employee is eligible for retirement
at normal retirement date (age 65), with early retirement permitted. In
addition, executive officers and other senior managers participate in a
supplemental executive retirement plan (Secured Benefit Plan).
Pursuant to the Secured Benefit Plan senior executives of Allegheny Power
System companies who retire at 60 or over with 40 or more years of service are
entitled to a supplemental retirement benefit in an amount that, together with
the benefits under the basic plan and from other employment, will equal 60% of
the executive's highest average monthly earnings for any 36 consecutive months.
The supplemental benefit is reduced for less than 40 years service and for
retirement age from 60 to 55. It is included in the amounts shown where
applicable. To provide funds to pay such benefits, beginning January 1, 1993 the
Company purchased insurance on the lives of the participants in the Secured
Benefit Plan. If the assumptions made as to mortality experience, policy
dividends, and other factors are realized, the Company will recover all premium
payments, plus a factor for the use of the Company's money. The portion of the
premiums for this insurance required to be deemed "compensation" by the
Securities and Exchange Commission is included in the "All Other Compensation"
column on page of this proxy statement. All executive officers are
participants in the Secured Benefit Plan. It also provides for use of Average
Compensation in excess of Code maximums.
The following table shows estimated maximum annual benefits payable
following retirement (assuming payments on a normal life annuity basis and not
including any survivor benefit) to an employee in specified remuneration and
years of credited service classifications. These amounts are based on an
estimated Average Compensation (defined as average total earnings, excluding
incentive awards, during the highest-paid 36 consecutive calendar months or, if
smaller, the member's highest rate of pay as of any July 1st"), retirement at 65
and without consideration of any effect of various options which may be elected
prior to retirement. The benefits listed in the Pension Plan Table are not
subject to any deduction for Social Security or any other offset amounts.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
AVERAGE ---------------------------------------------------------------
COMPENSATION(A) 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS 40 YEARS
---------------------------------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$200,000........................ $ 60,000 $ 80,000 $100,000 $110,000 $115,000 $120,000
250,000........................ 75,000 100,000 125,000 137,500 143,750 150,000
300,000........................ 90,000 120,000 150,000 165,000 172,500 180,000
350,000........................ 105,000 140,000 175,000 192,500 201,250 210,000
400,000........................ 120,000 160,000 200,000 220,000 230,000 240,000
450,000........................ 135,000 180,000 225,000 247,500 258,750 270,000
500,000........................ 150,000 200,000 250,000 275,000 287,500 300,000
550,000........................ 165,000 220,000 275,000 302,500 316,250 330,000
600,000........................ 180,000 240,000 300,000 330,000 345,000 360,000
</TABLE>
---------------
(a) The earnings of Messrs. Bergman, Noia, Garnett, Skrgic and Pifer covered by
the plan correspond substantially to such amounts shown for them in the
summary compensation table. As of December 31, 1994, they had accrued 23,
25, 13, 30 and 30 years of credited service, respectively, under the
Retirement Plan. Mr. Hayes retired January 1, 1995 and receives an annual
pension benefit of $102,500.
10
<PAGE> 14
PERFORMANCE GRAPH
The graph set forth below compares the Company's cumulative total
shareholder return on its Common Stock with the Dow Jones Electric Utility Index
and the Standard & Poor's Midcap 400 Index at each December 31 during the period
beginning December 31, 1989 and ending December 31, 1994, and assumes the
investment of $100 in each on December 31, 1989 and the reinvestment of all
dividends.
COMPARISON OF ALLEGHENY POWER SYSTEM, INC.'S 5-YEAR CUMULATIVE
TOTAL RETURN VS. DOW JONES ELECTRIC UTILITY INDEX AND S&P MIDCAP 400
<TABLE>
<CAPTION>
MEASUREMENT PERIOD ALLEGHENY DOW JONES S&P MIDCAP
(FISCAL YEAR COVERED) POWER ELECTRIC 400
<S> <C> <C> <C>
1989 100 100 100
1990 96 102 95
1991 125 132 142
1992 144 141 159
1993 170 158 181
1994 150 138 175
</TABLE>
11
<PAGE> 15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below shows the number of shares of Common Stock that are
beneficially owned, directly or indirectly, by each named director and each
named executive officer of the Company and its subsidiaries, and by all
directors and executive officers of the Company and its subsidiaries as a group
as of March 1, 1995. To the best of the knowledge of the Company, there is no
person who is a beneficial owner of more than 5% of the outstanding shares of
Common Stock.
<TABLE>
<CAPTION>
SHARES OF
APS, INC. PERCENT
NAME COMMON STOCK OF CLASS
------------ ---------------
<S> <C> <C>
Eleanor Baum............................. 2,000 Less than .01%
William L. Bennett....................... 2,453 "
Klaus Bergman............................ 10,463 "
Stanley I. Garnett, II................... 4,390 "
Benjamin H. Hayes........................ 5,697 "
Wendell F. Holland....................... 140 "
Phillip E. Lint.......................... 600 "
Edward H. Malone......................... 1,468 "
Frank A. Metz, Jr........................ 1,936 "
Alan J. Noia............................. 11,202 "
Jay S. Pifer............................. 7,856 "
Steven H. Rice........................... 2,148 "
Gunnar E. Sarsten........................ 5,000 "
Peter L. Shea............................ 1,500 "
Peter J. Skrgic.......................... 5,633 "
All directors and executive officers of
the Company and its subsidiaries as a
group (31 persons)..................... 128,582 Less than .11%
</TABLE>
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's officers and directors to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission and
the New York Stock Exchange. No director or officer failed to file such reports
on a timely basis.
12
<PAGE> 16
OTHER MATTERS
The Board of Directors is not aware of any other matters which may come
before the meeting. If any other matters properly come before the meeting, it is
the intention of the persons named in the proxy to vote the proxy thereon in
accordance with their judgment.
The Company will bear the cost of solicitation of proxies. In addition to
the use of the mails, proxies may be solicited by officers, directors, and
regular employees of the Company and its subsidiaries personally, by telephone,
or telegraph, and the Company may reimburse persons holding stock in their names
or in the names of their nominees for their expenses in sending soliciting
material to their principals. Although there are no plans to do so, the Company
may also obtain the services of additional persons in soliciting proxies. The
cost of any such additional solicitation, if undertaken, is not expected to
exceed $40,000.
It is important that proxies be returned promptly. Stockholders are,
therefore, urged to mark, date, sign, and return the proxy immediately. No
postage need be affixed if mailed in the enclosed envelope in the United States.
DEADLINE FOR SHAREHOLDER PROPOSALS
The date by which shareholder proposals must be received by the Company for
inclusion in the proxy materials relating to the next annual meeting is December
8, 1995.
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY IMMEDIATELY. NO POSTAGE IS
NECESSARY IF MAILED IN THE ENCLOSED ENVELOPE IN THE UNITED STATES. IF YOU ATTEND
THE MEETING, WE SHALL BE GLAD TO RETURN IT TO YOU, SO THAT YOU MAY VOTE IN
PERSON.
13
<PAGE> 17
PRELIMINARY COPY
PROXY
[LOGO ALLEGHENY POWER SYSTEM, INC.]
12 East 49th Street
New York, N.Y. 10017
PROXY FOR USE AT ANNUAL MEETING OF STOCKHOLDERS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder hereby appoints Klaus Bergman, Stanley I.
Garnett, II, and Eileen M. Beck, and each of them, Proxies, with full power of
substitution, to vote all shares the undersigned is entitled to vote at the
Annual Meeting of Stockholders of Allegheny Power System, Inc. to be held on the
3rd Floor of 270 Park Avenue, between 47th and 48th Streets, New York, New York,
on May 11, 1995, at 10:30 a.m., New York time, and at any adjournments thereof,
with all the powers the undersigned would possess if personally present, as
hereinafter specified by the undersigned on the proposals listed on the reverse
side hereof and in their discretion on such matters as may properly come before
the meeting.
WHEN PROPERLY EXECUTED AND RETURNED, THIS PROXY WILL BE VOTED AS SPECIFIED
BY THE UNDERSIGNED STOCKHOLDER. IF NO VOTING SPECIFICATION IS MADE, THIS PROXY
WILL BE VOTED "FOR ALL NOMINEES" IN ITEM 1 AND "FOR" ITEMS 2, 3, AND 4.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND RETURN PROMPTLY.
12 East 49th Street
[LOGO ALLEGHENY POWER SYSTEM, INC.] New York, N.Y. 10017
Please mark
PROXY / X / your votes
like this
----------------- -------------------------
Shares in Shares in
Your Name Dividend Reinvestment
FOR all WITHHOLD for all
nominees nominees
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
"FOR ALL NOMINEES" IN ITEM 1.
Item 1--Election of the following nominees as / / / /
Directors: Eleanor Baum, William L. Bennett,
Klaus Bergman, Wendell F. Holland,
Phillip E. Lint, Edward H. Malone,
Frank A. Metz, Jr., Alan J. Noia,
Steven H. Rice, Gunnar E. Sarsten
and Peter L. Shea.
To Withhold authority to vote for any nominee,
write the name on the line below.
---------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ITEMS 2, 3 AND 4.
FOR AGAINST ABSTAIN
Item 2--Proposal to eliminate cumulative voting. / / / / / /
Item 3--Proposal to eliminate preemptive rights. / / / / / /
Item 4--Approval of appointment of Price Waterhouse / / / / / /
as independent accountants.
Date , 1995
-------------------------------------------
-------------------------------------------------------
Signature
-------------------------------------------------------
Signature
(Please sign your name(s) exactly as shown to the left).
