As filed with the Securities and Exchange Commission on April 5, 1996
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:
[ ] Preliminary proxy statement
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
ALLEGHENY POWER SYSTEM,INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
ALLEGHENY POWER SYSTEM,INC.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(2).
[ ] $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:(1)
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
[ ] 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:
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(1) Set forth the amount on which the filing fee is calculated and state how
it was determined.
<PAGE>
ALLEGHENY POWER SYSTEM, INC.
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD ON MAY 9, 1996
AND PROXY STATEMENT
12 East 49th Street
New York, N.Y. 10017
April 5, 1996
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 9, 1996, 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 approve the appointment of independent accountants;
(3) If presented, to consider and vote upon a shareholder proposal that in
the future the Board refrain from providing pensions or other retirement
benefits to non-employee or outside directors unless such benefits are submitted
to the shareholders for approval; and
(4) 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 1, 1996, will be
entitled to vote at the meeting.
By Order of the Board of Directors,
EILEEN M. BECK
Secretary
<PAGE>
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 9, 1996.
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 1, 1996, there were outstanding
120,989,831 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 LLP 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 approximate date on which the proxy statement and form of proxy are
first being sent or given to stockholders is April 5, 1996. The Annual Report
for 1995 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 1995 COMPANY
BOARD AND COMMITTEE MEETINGS ATTENDANCE AGE SINCE
- ----------------------------------------------------------------------- --- -------
<S> <C> <C>
ELEANOR BAUM 3 4 55 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: 24 of 26
WILLIAM L. BENNETT 1 5c 46 1991
Chairman, HealthPlan Services Corporation, a leading managed health
care services company. Formerly, Chairman and Chief Executive Officer
of Noel Group, Inc. Director of Belding Heminway Company, Inc.,
Global Natural Resources Inc., Noel Group, Inc., and Sylvan, Inc.
Attendance: 17 of 18
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS, PRINCIPAL OCCUPATION, DIRECTOR
OTHER DIRECTORSHIPS, OF THE
BUSINESS EXPERIENCE, AND 1995 COMPANY
BOARD AND COMMITTEE MEETINGS ATTENDANCE AGE SINCE
- ----------------------------------------------------------------------- --- -------
<S> <C> <C>
KLAUS BERGMAN 2c 3 5 64 1985
Chairman of the Board and Chief Executive Officer of the Company and
its principal subsidiaries.
Attendance: 19 of 19
WENDELL F. HOLLAND 1 44 1994
Of Counsel, Law Firm of Reed, Smith, Shaw & McClay. Formerly,
Partner, Law Firm of LeBoeuf, Lamb, Greene & MacRae, and Commissioner
of the Pennsylvania Public Utility Commission.
Attendance: 10 of 10
PHILLIP E. LINT 1c 3 5 66 1989
Retired. Formerly partner, Price Waterhouse.
Attendance: 23 of 23
EDWARD H. MALONE 3 71 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: 11 of 14
FRANK A. METZ, JR. 2 3 4c 61 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: 25 of 26
ALAN J. NOIA 2 3 5 49 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: 19 of 19
STEVEN H. RICE 2 3c 4 52 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: 28 of 28
GUNNAR E. SARSTEN 4 5 59 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: 18 of 18
PETER L. SHEA 1 5 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. Director of Temblor Petroleum
Company L.L.C., a privately owned oil and gas exploration and
production company.
Attendance: 16 of 16
</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.
c Current committee Chairman.
2
<PAGE>
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 (System or System
companies). In 1995, directors who were not officers or employees (outside
directors) received for all services to the Company and 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 the Company and Monongahela, Potomac Edison, and West Penn
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. In addition to the foregoing compensation, (a) the
Chairperson of each committee other than the Executive Committee receives an
additional fee of $4,000 per year; (b) outside directors of the Company 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 four times in 1995. 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
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 twelve
times in 1995. The total number of Board meetings held in 1995 was nine.
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 1995 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 1995
audit and fees for audit services paid during the year aggregated $774,200, and
fees for non-audit services were $103,950. 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.
3
<PAGE>
SHAREHOLDER PROPOSAL
John Chevedden, 2215 Nelson Avenue, No. 205, Redondo Beach, CA 90278, who is
the owner of 2,773 shares of common stock of the Company, has advised the
Company that he plans to introduce the following resolution at the Annual
Meeting.
BE IT RESOLVED: That the shareholders of Allegheny Power System, Inc.
request that the Board of Directors in the future to refrain from providing
pension or other retirement benefits to non-employee or outside Directors
(unless such benefits are specifically submitted to the shareholders for
approval).
SUPPORTING STATEMENT
I believe that certain business or financial relationships can adversely
affect the ability of Directors to function in their appropriate management
oversight role. This is especially critical for so-called outside or independent
Directors who are not employees/Directors and who should bring a certain
arms-length objectivity to Board deliberations. According to the Company's most
recent proxy statement, the Company provides a pension plan for non-employee
Directors with at least five years of service who will receive an annual pension
equal to their highest annual retainer fee.
While non-employee or outside Directors should be entitled to reasonable
compensation for their time and expertise, I believe that additional layers of
compensation in the form of retirement benefits which are 100% of the Director's
base compensation, has the pernicious effect of compromising their independence
and impartiality. It is my view that such generous and unnecessary extra
compensation for outside Directors of the Company is management's way to insure
their unquestioning loyalty and acquiescence to whatever policy management
initiates.
Accordingly, this type of retirement pay becomes yet another device to
enhance and entrench management's control over corporate policy while being
accountable only to themselves, and not to the company's owners. I believe that
this additional layer of compensation to Directors may influence their ability
to exercise that degree of independence from management which is critical to the
proper functioning of the Board.
Because of my concern for maximizing the ability of the Board of Directors
to act in shareholders' interest, I feel that the long-term best interests of
the company are not served by such retirement plans. The vast preponderance of
Corporate Directors are covered by generous retirement policies at their
principal place of employment, and they do not need to "double-dip" at Allegheny
Power.
To support this objective and to further enhance the Directors'
responsiveness to shareholders and corporate performance, I also believe that
management and the Board should also adopt the following:
1. Board members may not be members of more than 3 Boards of Directors,
including their Allegheny Power Board membership.
2. Board members must not currently work or consult with the Company nor
have done so in the past.
3. Pay 50 percent of Directors' compensation in stock and require it be
held 3 years.
4. Link Director's pay to corporate performance.
5. Adopt confidential shareholder voting, additionally beneficial as a
way of protecting shareholders from management pressure to change
their votes before ballots are tallied.
4
<PAGE>
As a first step, vote yes on this resolution to eliminate Directors'
pensions or other retirement benefits to non-employee or outside Directors
(unless such benefits are specifically submitted to the shareholders for
approval).
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL AND WILL SO
VOTE PROXIES RECEIVED THAT DO NOT OTHERWISE SPECIFY.
SHAREHOLDERS SHOULD BE AWARE THAT THE ADDITIONAL MATTERS INCORPORATED BY THE
PROPONENT IN HIS SUPPORTING STATEMENT are not part of his proposal and are not
subject to a vote at this time.
The Board of Directors believes that it is in the best interests of
Allegheny Power and its shareholders to attract and retain the most qualified
individuals to serve as Directors. To accomplish this task, Allegheny Power must
offer a compensation package that is competitive with the compensation packages
offered by other major companies. A competitive mix of retainer and meeting
fees, annual stock awards, and the retirement plan provides an incentive to join
the Board and to remain long enough to gain experience and knowledge of the
Company's business. Payment of retirement benefits also recognizes the ever
increasing time commitment, diligence, and risks associated with Board service.
The Non-Employee Director Pension Plan has been designed so that funds to
pay benefits are provided through Company purchased insurance on the lives of
the Plan participants. As a result, if the assumptions made as to mortality
experience, policy dividends, and other factors are realized, the Company will
recover all premium payments, plus appropriate reimbursement for the use of the
Company's money, and these benefits will not be a burden on shareholders.
Directors' pension plans such as the Company's are not entitlements--they
must be earned, thereby encouraging long-term service and promoting greater
continuity and stability within the Board. In the opinion of the Board of
Directors, the present Non-Employee Director Pension Plan is fair, appropriate
and consistent with industry standards and should be retained.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE PROPOSED
RESOLUTION.
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 Committee believes that with the advent of competition to this industry
a larger portion of compensation should be included in incentive plans. For 1996
compensation both of the incentive plans detailed below will include more pay
"at risk", while at the same time limiting changes in base salary.
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 above 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>
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--23 or more in recent years.
The survey companies are either similar in type and size to the System,
contiguous to our geographic territory, or have a similar fuel mix.
In 1995, 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 1995, 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 1995 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 of the System companies. 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, competitive position, 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 to attract, retain and motivate 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
ratios) quality and cost of service to customers and System performance,
including competitive position. 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 1995 Incentive Plan were
determined by the Committee, and participants could earn up to 1 1/4 times
the target award. For the CEO and other named officers for the 1995
Incentive Plan the targets were $150,000 for the CEO and from $40,000 to
$100,000 for the others. Targets for other participants were approximately
20% or less of 1995 base compensation. Incentive Plan awards earned are paid
in the year after the year for which they are earned. Awards earned for
performance in 1993, 1994
6
<PAGE>
and 1995 are set forth in the 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)
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 providing of economical and reliable service to customers by,
the Company and its subsidiaries. Eight executive officers of the Company
were selected by the Management Review Committee to participate in Cycle I
(1994-1996) and six were selected to participate in Cycle II (1995-1997) of
the Performance Plan. 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 Cycle I target awards under the Performance Plan are a flat dollar
amount ranging from $45,000 to $170,000 for the CEO. The Cycle II target
awards are a flat dollar amount ranging from $60,000 to $175,000 for the
CEO. Awards will be determined in 1997 for Cycle I, and in 1998 for Cycle
II, after the completion of each 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 third cycle became
effective January 1, 1996, will be for the period 1996-1998 and will include
11 executives.
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
financial and operating 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 primarily on 1995 corporate financial
results, including total shareholder return, changes in earnings per share,
quality of earnings, dividends paid per share, and dividend payout ratios. The
overall quality and cost of service rendered to customers and overall System
performance, including competitive position, were also considered. Mr. Bergman's
1995 total compensation reflected the Committee's evaluation of his performance
and the described 1995 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 financial 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
Gunnar E. Sarsten
7
<PAGE>
EXECUTIVE COMPENSATION
During 1995, and for 1994 and 1993, 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 Executive 1995 $515,000 $ 187,500 $63,677
Officer of the Company and of the Company's 1994 485,000 120,000 91,458
principal subsidiaries. 1993 460,000 90,000 46,889
ALAN J. NOIA
President, Chief Operating Officer and 1995 $305,000 $ 120,000 $48,983
Director of the Company and Allegheny Power 1994 236,336 57,000 47,867
Service Corporation. Director of the 1993 212,500 37,000 20,107
Company's other principal subsidiaries.
PETER J. SKRGIC
Senior Vice President of the Company and 1995 $238,000 $ 73,800 $37,830
Allegheny Power Service Corporation. Vice 1994 213,336 50,000 57,253
President and Director of the Company's 1993 200,000(d) 38,000 18,678
other principal subsidiaries.
JAY S. PIFER
Senior Vice President of the Company and 1995 $220,000 $ 72,600 $34,098
Allegheny Power Service Corporation. 1994 189,996 39,000 50,630
President and Director of the Company's 1993 175,500 25,000 18,093
operating subsidiaries.
NANCY H. GORMLEY(e)
Vice President of the Company and Allegheny 1995 $187,500 $ 42,000 $51,776(f)
Power Service Corporation and an operating 1994 175,008 37,000 22,478
subsidiary. 1993 162,504 28,000 15,446
</TABLE>
<TABLE>
<C> <S>
(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 1996.
(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.
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 polices 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 1995, 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
</TABLE>
8
<PAGE>
<TABLE>
<C> <S>
seven available funds. Fifty percent of the pre-tax contributions up to 6% of
compensation are matched with common stock of the Company. 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 1995, 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 and the Executive Life Insurance and Secured Benefit Plans, and
(b) ESOSP contributions respectively, as follows: Mr. Bergman $59,177 and $4,500; Mr.
Noia $44,483 and $4,500; Mr. Skrgic $33,855 and $3,975; Mr. Pifer $29,598 and $4,500;
and Mrs. Gormley $24,199 and $4,500, respectively.
(c) In 1994, the Boards of Directors of the Company and the other System companies
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. The second cycle became
effective January 1, 1995 for the period 1995-1997. Awards will be determined in 1997
for Cycle I and in 1998 for Cycle II. The third cycle became effective January 1, 1996
for the period 1996-1998. After completion of each cycle, performance share awards or
cash may be granted if a participant has met his or her performance criteria.
(d) Salary includes a $15,000 housing allowance in 1993.
(e) Retired effective January 1, 1996.
(f) Included in this amount is $23,077 representing accrued vacation for which she was
paid.
</TABLE>
----------------
In connection with the relocation of the New York office, the System made
available to each employee involved in the relocation an interest-free loan of
up to 95% of the appraised equity in the employee's current residence for the
purchase of a new residence. The loans must be repaid upon actual relocation.
Interest paid by an employee on a new mortgage will be reimbursed by the System
until the actual date of relocation. In 1995 interest-free loans were made to
the following, in the amounts shown: $215,000 to Richard J. Gagliardi, a Vice
President of the System; $75,000 to Thomas K. Henderson, a Vice President of
Monongahela, Potomac Edison and West Penn; and in 1996, $61,000 to Peter J.
Skrgic, a Senior Vice President of the System and a Vice President of Potomac
Edison. Appropriate monthly interest payments as described above also have been
and will be paid.
----------------
The Company has entered into employment contracts with certain of the named
and other 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, 1998 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 thirty-six months after a Change in
Control.
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
9
<PAGE>
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 System companies
who retire at age 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 assumption 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 8 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 age
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>
- ------------
<TABLE>
<C> <S>
(a) The earnings of Messrs. Bergman, Noia, Skrgic, and Pifer covered by the plan correspond
substantially to such amounts shown for them in the summary compensation table. As of
December 31, 1995, they had accrued 24, 26, 31, and 31 years of credited service,
respectively, under the Retirement Plan. Mrs. Gormley retired January 1, 1996 and
receives an annual pension benefit of $95,921.
</TABLE>
10
<PAGE>
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, 1990 and ending December 31, 1995, and assumes the
investment of $100 in each on December 31, 1990 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
300
250
[ GRAPH ]
200
150
100
50
1990 1991 1992 1993 1994 1995
---------------------
() Allegheny Power
[] Dow Jones Electric
/\ S&P Midcap 400
---------------------
------------------------------------------------------------------
December 31 1990 1991 1992 1993 1994 1995
Allegheny Power 100 131 151 177 157 221
Dow Jones Electric 100 130 138 155 136 178
S&P Midcap 400 100 150 168 191 185 242
------------------------------------------------------------------
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
11
<PAGE>
of March 1, 1996. 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......................... 2,400 Less than .01%
William L. Bennett................... 2,949 "
Klaus Bergman........................ 11,390 "
Nancy H. Gormley..................... 6,185 "
Wendell F. Holland................... 550 "
Phillip E. Lint...................... 1,010 "
Edward H. Malone..................... 1,868 "
Frank A. Metz, Jr.................... 2,475 "
Alan J. Noia......................... 12,436 "
Jay S. Pifer......................... 8,595 "
Steven H. Rice....................... 2,712 "
Gunnar E. Sarsten.................... 6,400 "
Peter L. Shea........................ 2,000 "
Peter J. Skrgic...................... 6,198 "
All directors and executive officers
of the Company and its subsidiaries
as a group (25 persons)............ 114,710 Less than .10%
</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.
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
6, 1996.
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.
12
<PAGE>
PROXY ALLEGHENY POWER SYSTEMS, INC.
12 East 49th Street
New York, NY 10017
PROXY FOR USE AT ANNUAL MEETING OF STOCKHOLDERS
Solicited on behalf of the Board of Directors
The undersigned stockholder hereby appoints Klaus Bergman, Thomas K.
Henderson 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 Street,
New York, New York, on May 9,1996, 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 specification is made, this
proxy will be voted "FOR all nominees" in Item 1, "FOR" Item 2 and "AGAINST"
Item 3.
This Proxy Is Continued on the Reverse Side
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND RETURN PROMPTLY.
<PAGE>
[LOGO] 12 East 49th Street [ X ] Please mark
New York, NY 10017 your vote as
indicated in
this sample.
PROXY
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, Philip 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
- --------------------------------------------
WITHHOLD
FOR all for all
nominees nominees
[ ] [ ]
The Board of Directors recommends a vote "FOR" Item 2
FOR AGAINST ABSTAIN
Item 2 - Approval of appointment of Price [ ] [ ] [ ]
Waterhouse LLP as independent accountants.
The Board of Directors recommends a vote "AGAINST" Item 3
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
Item 3-Shareholder proposal that in the
future the Board refrain from providing
pensions or other retirement benefits to
non-employee or outside directors unless
submitted to the shareholders for approval.
Date: 1996
---------------------------
---------------------------
Signature
---------------------------
Signature
(Please sign your name(s) exactly as shown to the left.)
