<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:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-2.
</TABLE>
ALLEGHENY ENERGY, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(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 Energy LOGO]
NOTICE OF ANNUAL MEETING
OF STOCKHOLDERS
TO BE HELD ON MAY 11, 2000
AND PROXY STATEMENT
<PAGE> 3
[Allegheny Energy LOGO]
10435 DOWNSVILLE PIKE
HAGERSTOWN, MARYLAND 21740
April 7, 2000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of ALLEGHENY
ENERGY, INC. will be held in Conference Room A on the eleventh floor of 270 Park
Avenue, between 47th and 48th Streets, New York, N.Y., on Thursday, May 11, 2000
at 9:30 a.m., New York time, for the following purposes:
(1) To elect two directors to hold office until 2003 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
regarding global warming;
(4) If presented, to consider and vote upon a shareholder proposal
regarding golden parachutes;
(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, 2000 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 Energy, Inc. (the Company), 10435 Downsville Pike, Hagerstown,
Maryland 21740, for the Annual Meeting of Stockholders to be held on May 11,
2000. 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, 2000, there were outstanding
110,436,317 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 cast is required for the
election of each director. The affirmative vote of a majority of all the votes
cast is required for approval of the appointment of PricewaterhouseCoopers LLP
as independent accountants and for the two proposals. Abstentions are counted
only for purposes of determining whether a quorum is present. Broker non-votes
are not treated as votes.
The approximate date on which the proxy statement and form of proxy are
first being sent or given to stockholders is April 7, 2000. The Annual Report
for 1999 has already been mailed to stockholders.
ELECTION OF DIRECTORS
As a result of the passage of Maryland legislation affecting corporate
governance of companies incorporated in the state, on July 15, 1999 the
Company's Board of Directors by resolution amended the Company's Articles of
Incorporation, which amendment was filed with the Maryland State Department of
Assessments and Taxation on July 20, 1999, adding provisions that among other
things, divided the Board of Directors into three classes, with each class
serving a three-year term and one class being elected each year. The current
Board of eight members now consists of Class I with two members and Classes II
and III with three members each. The term of office of the Class I directors
expires this year. Therefore they are the only directors standing for election
this year. The term of Class II directors ends in 2001 and of Class III
directors in 2002. At this and future annual meetings of the stockholders, the
successors to the class of directors whose term expires that year will be
elected for a three-year term.
The proxies received, unless marked to the contrary, will be voted for the
election of the following persons, both 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
holder to elect as many of such nominees as possible. The Board of Directors
does not expect that either 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.
1
<PAGE> 5
<TABLE>
<CAPTION>
DIRECTOR, PRINCIPAL OCCUPATION, DIRECTOR
OTHER DIRECTORSHIPS, OF THE
BUSINESS EXPERIENCE, AND 1999 COMPANY COMPANY
BOARD AND COMMITTEE MEETINGS ATTENDANCE AGE SINCE
- --------------------------------------- --- --------
<S> <C> <C>
NOMINEES FOR ELECTION FOR THE CLASS OF DIRECTORS WHOSE TERMS
EXPIRE IN 2003
WENDELL F. HOLLAND(1)(5) 48 1994
Of Counsel, Obermayer, Rebmann, Maxwell & Hippel LLP and
Director of Bryn Mawr Bank Corporation. Formerly, Vice
President, American International Water Services Company,
of Counsel, Law Firm of Reed, Smith, Shaw & McClay,
Partner, Law Firm of LeBoeuf, Lamb, Greene & MacRae, and
Commissioner of the Pennsylvania Public Utility
Commission.
Attendance: 23 of 23
GUNNAR E. SARSTEN(4)(5)(6) 62 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), and Deputy Chairman of the Third District
Federal Reserve Bank in Philadelphia.
Attendance: 31 of 31
THE DIRECTORS WHOSE TERMS CONTINUE ARE AS FOLLOWS:
DIRECTORS WHOSE TERMS EXPIRE IN 2001
ELEANOR BAUM(3)(4) 59 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,
Chair of the Engineering Workforce Commission, a fellow of
the Institute of Electrical and Electronic Engineers, and
Past Chairman of the Board of Governors, New York Academy
of Sciences. Formerly, President of Accreditation Board
for Engineering and Technology and President, American
Society for Engineering Education.
Attendance: 27 of 28
WILLIAM L. BENNETT(1)(5c)(6) 50 1991
Vice Chairman and Director, HealthPlan Services
Corporation, a leading managed health care services
company and Director of Sylvan, Inc. Formerly, Chairman,
Director, and Chief Executive Officer of Noel Group, Inc.
Attendance: 24 of 25
PHILLIP E. LINT(1c)(3)(5)(6) 70 1989
Retired. Formerly partner, Price Waterhouse.
Attendance: 30 of 30
DIRECTORS WHOSE TERMS EXPIRE IN 2002
FRANK A. METZ, JR.(2)(3)(4c)(6c) 65 1984
Retired. Director of Solutia Inc. Formerly, Senior Vice
President, Finance and Planning and Director of
International Business Machines Corporation, a
manufacturer and distributor of information systems
equipment and services and Director of Monsanto Company
and Norell Corporation.
Attendance: 29 of 29
</TABLE>
2
<PAGE> 6
<TABLE>
<CAPTION>
DIRECTOR, PRINCIPAL OCCUPATION, DIRECTOR
OTHER DIRECTORSHIPS, OF THE
BUSINESS EXPERIENCE, AND 1999 COMPANY COMPANY
BOARD AND COMMITTEE MEETINGS ATTENDANCE AGE SINCE
- --------------------------------------- --- --------
<S> <C> <C>
ALAN J. NOIA(2c)(3)(5) 53 1994
Chairman of the Board, President, and Chief Executive
Officer of the Company and of Allegheny Energy Service
Corporation and Chairman and Chief Executive Officer of
the Company's other principal subsidiaries. Formerly,
President and Chief Operating Officer of the Company and
President of The Potomac Edison Company.
Attendance: 25 of 25
STEVEN H. RICE(2)(3c)(4)(6) 56 1986
Attorney and Consultant to financial institutions.
Director of LaJolla Bank, a Federal Savings Bank and
LaJolla Bancorp, Inc. Formerly, President, LaJolla Bank,
Northeast Region, President and Chief Executive Officer of
Stamford Federal Savings Bank, President of The Seamen's
Bank for Savings, and Director of the Royal Insurance
Group, Inc.
Attendance: 29 of 29
</TABLE>
- ---------------
(1) Member of Audit Committee.
(2) Member of Executive Committee.
(3) Member of Finance Committee.
(4) Member of Management Review and Director Affairs Committee.
(5) Member of New Business Committee.
(6) Member of Strategic Affairs Committee.
(c) Current committee Chairman.
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 Energy Service Corporation (Allegheny companies).
In 1999, directors who were not officers or employees (outside directors)
received for all services to the Company and Allegheny companies (a) $17,000 in
retainer fees (annual retainer fee increased from $16,000 to $20,000 effective
October 1, 1999), (b) $800 for each committee meeting attended except Executive
Committee meetings for which such fees were $200, and (c) $250 for attendance at
each Board meeting of the Company, Monongahela, Potomac Edison, and West Penn
through September 30, 1999 and (d) effective October 1, 1999 $1,000 for each
committee meeting attended. The Board meeting fee did not change. The
Chairperson of each committee, other than the Executive Committee, receives an
additional fee of $4,000 per year. Under an unfunded deferred compensation plan,
an outside 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, effective October 1, 1999 the outside directors of the
Company receive an annual retainer of $12,000 worth of Common Stock (in lieu of
the 200 shares of Common Stock received pursuant to the Allegheny Energy, Inc.
Restricted Stock Plan for Outside Directors, which was terminated September 30,
1999). Further, a Deferred Stock Unit Plan for Outside Directors provides for a
lump sum payment (payable at the director's election in one or more
installments, including interest thereon equivalent to the dividend yield) to
directors calculated by reference to the price of the Company's Common Stock.
Outside directors who serve at least five years on the Board and leave at or
after age 65, or upon death or disability, or as otherwise directed by the
Board, will receive such payments. In 1999 the Company credited each outside
director's account with 275 deferred stock units; the number will increase to
300 in 2000; to 325 in 2001; to 350 in 2002; and to 375 in 2003. Effective
September 1, 1999, outside directors are also granted 1,000 stock options each
year; in 1999 they received three-years' worth, with 1,000 options to vest each
year 1999-2001.
3
<PAGE> 7
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently appoints the following committees: Audit,
Executive, Finance, Management Review and Director Affairs, New Business, and
Strategic Affairs.
Audit Committee. Messrs. Phillip E. Lint (Chairman), William L. Bennett
and Wendell F. Holland. The Audit Committee, which is made up of outside
directors only, 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 1999.
Executive Committee. Messrs. Alan J. Noia (Chairman), Frank A. Metz, Jr.,
and Steven H. Rice. The Executive Committee has, with certain exceptions, all
the powers of the Board when the Board is not in session. No meetings were held
in 1999.
Finance Committee. Mr. Steven H. Rice (Chairman), Mrs. Eleanor Baum and
Messrs Phillip E. Lint, Frank A. Metz, Jr., and Alan J. Noia. The Finance
Committee reviews and makes recommendations to the Board with respect to
financing, short-term borrowing policies, pension risk management, proposals for
mergers, and acquisition of other companies and properties. It met five times in
1999.
Management Review and Director Affairs Committee. Mr. Frank A. Metz, Jr.
(Chairman), Mrs. Eleanor Baum and Messrs. Steven H. Rice and Gunnar E. Sarsten.
The Management Review and Director Affairs 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 ten times in 1999.
New Business Committee. Messrs. William L. Bennett (Chairman), Wendell F.
Holland, Phillip E. Lint, Alan J. Noia, and Gunnar E. Sarsten. The New Business
Committee reviews and makes recommendations to the Board with respect to the
entry of the Company into new businesses and proposed budgets, business plans,
and investments. It met seven times in 1999.
Strategic Affairs Committee. Messrs. Frank A. Metz, Jr. (Chairman),
William L. Bennett, Phillip E. Lint, Steven H. Rice, and Gunnar E. Sarsten. The
Strategic Affairs Committee, which is made up of the outside Directors who are
Chairmen of the other Board committees and Mr. Sarsten, makes recommendations to
the Board with respect to potential significant acquisitions, divestitures,
joint ventures, business combinations, restructuring, or other strategic
initiatives. It met once in 1999.
APPOINTMENT OF INDEPENDENT ACCOUNTANTS
Upon the recommendation of the Audit Committee, the Board of Directors has
appointed PricewaterhouseCoopers LLP as independent accountants for the Company
to audit its consolidated financial statements for 2000 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.
PricewaterhouseCoopers also performs non-audit services for the Company. The
Board has directed that the appointment of PricewaterhouseCoopers 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 PricewaterhouseCoopers 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 PRICEWATERHOUSECOOPERS LLP AS INDEPENDENT ACCOUNTANTS AND WILL SO
VOTE PROXIES RECEIVED THAT DO NOT OTHERWISE SPECIFY.
4
<PAGE> 8
SHAREHOLDER PROPOSALS
The following proposals have been submitted by shareholders for inclusion
in this proxy statement.
The names and addresses of the shareholders submitting the proposals, as
well as the number of shares held, will be furnished by Allegheny Energy either
orally or in writing as requested, promptly upon the receipt of any oral or
written request therefor.
A shareholder submitting a proposal must appear personally or by proxy at
the meeting to move the proposal for consideration. A proposal will be approved
if it is introduced and voted on at the meeting and it is supported by a
majority of the shares that are voted.
SHAREHOLDER PROPOSAL CO-SPONSORED BY TWO ORGANIZATIONS REGARDING GLOBAL WARMING
WHEREAS:
The overwhelming majority of independent, peer-reviewed atmospheric
scientists agree that global warming is a real, existing problem posing serious
challenges to our country;
The Intergovernmental Panel on Climate Change, composed of more than 2000
government selected scientists, warns that global warming caused by burning
fossil fuels and emitting greenhouse gases is already under way;
More frequent and deadly heat waves have claimed the lives of increasing
numbers of poor, asthmatic and elderly people nationwide.
Spring comes a week earlier across the Northern Hemisphere than it did 30
years ago.
Severe rainstorms have grown by almost 20%.
The Arctic ice sheet is in many places 40 inches thinner that its normal 10
ft.
Warmer waters have bleached coral reefs around the globe.
Glaciers are melting.
Sea levels are rising.
WE BELIEVE:
In order to leave the children of the world a safe and healthy environment,
and protect threatened plants and animals, it is time for Allegheny Energy to
live up to its responsibility as a producer of the pollution which causes global
warming. A variety of companies including Enron, BP Amoco, 3M, Toyota and others
have stated that they "accept the views of most scientists that enough is known
about the science and environmental impacts of climate change for us to take
actions to address its consequences." These companies are preparing for the
future now by taking the concrete steps necessary to assess their opportunities
for reducing the amount of carbon pollution they produce. Failing to rise to the
challenge set by these industry leaders will hurt our company's competitiveness
and cost our shareholders increasing amounts of money.
RESOLVED: that the shareholders of Allegheny Energy request that the Board
of Directors report (at reasonable costs and omitting proprietary information),
to shareholders by August 2000, on the greenhouse gas emissions from our
company's own operations and products, including (with dollar amounts where
relevant) (i) what our company is doing in research and/or action to reduce
those emissions and ameliorate the problem, (ii) the financial exposure of our
company and its shareholders due to the likely costs of reducing those emissions
and potential liability for damages associated with climate change, and (iii)
actions by our
5
<PAGE> 9
company, or by the industry associations to which it pays dues, promoting the
view that the issue of climate change is exaggerated, not real, or that global
warming may be beneficial.
SUPPORTING STATEMENT
We believe that Allegheny Energy is exposing its shareholders to financial
risk by continuing to produce unnecessary amounts of the pollution which causes
global warming, even as the problem of climate change becomes more severe, more
widely understood, and more likely to lead to legislation that will penalize
excessive carbon polluters. Furthermore, we believe that our company is using
shareholder money for advertising and lobbying to suggest that the problem of
global warming is exaggerated, not real, or too costly to deal with; and thus
using our prestige and influence to obstruct efforts to address climate change.
END OF SHAREHOLDER PROPOSAL
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL AND WILL SO
VOTE PROXIES RECEIVED THAT DO NOT OTHERWISE SPECIFY.
As detailed below, the Company has taken numerous voluntary, precautionary
steps to address the issue of global climate change. Many uncertainties remain
in the global climate change debate, including the relative contributions of
human activities and natural processes, the extremely high potential costs of
extensive mitigation efforts, and the significant economic and social
disruptions which may result from a large-scale reduction in the use of fossil
fuels. The Company is responding appropriately and will continue to explore
cost-effective opportunities to improve efficiency and performance.
The Company participates in an active climate related research program and
is responsive to the voluntary guidelines suggested in the national Energy
Policy Act of 1992 under Section 1605(b) directed toward reducing, controlling,
avoiding and sequestering greenhouse gases. Since initiating this program in
1995, the Company has taken many concrete steps to reduce greenhouse gases and
help stimulate a business climate that encourages improved efficiency,
performance, electrical loss reductions, and cost effectiveness:
- Allegheny has reduced its annual emissions of greenhouse gases by
approximately 1.6 million short tons of CO2 equivalent.
- Allegheny signed a Memorandum of Understanding with the U.S. Department
of Energy to participate in the Climate Challenge and supports the
Electric Power Research Institute, which funds about $10 million per year
of direct climate research.
- Allegheny supports the Climate Challenge Initiatives in cooperation with
other utilities through Edison Electric Institute (EEI).
Initiatives undertaken by the Company include:
- Envirotech Investment Fund, a venture capital fund for promising
electrotechnologies and renewable energy technologies to which Allegheny
has committed $3.11 million of which nearly $2.9 million has already been
spent; and $100,000 to the Geothermal Heat Pump Consortium, International
Utility Efficiency Partnership, and Utility Forest Carbon Management
Initiatives.
- The Company spends about $2 million annually on in-house research
projects intended to improve efficiency, reliability and cost
effectiveness. Research results to date in these areas have contributed
positively to applications of new technology, operating efficiencies,
reduced electrical losses, and emission reductions.
- In Pennsylvania, under West Penn Power Company's restructuring plan, the
Company has invested $11 million in a fund to promote the development and
use of renewable energy; $8 million per year in a program for
weatherization and other community action programs; $4 million to provide
low income and rural households with the opportunity for clean and
renewable energy sources; a net energy
6
<PAGE> 10
metering rider to install and operate renewable energy generation; and a
solar water heater and photovoltaic program as part of a low income
energy pilot program.
The Company will also maintain its environmental awareness and compliance
with all applicable federal law and state implementation plans, as it has
throughout its history. Under the 1970 Clean Air Act and its Amendments and the
Clean Water Act and its Amendments, the Company has made capital investments of
over $1.6 billion for environmental control equipment. Allegheny is committed to
environmental stewardship and the research needed to provide answers to
difficult compliance problems. Even with these requirements, Allegheny remains
one of the most efficient providers of low cost electricity in America.
Allegheny Energy is pursuing a growth strategy to become a successful
national energy supplier by maximizing and expanding the efficient, low-cost
assets in its generating fleet. In expanding this fleet, the Company has adopted
a fuel diversification strategy that includes a role for natural gas-fired
facilities, as exemplified by the operation of two new 44-megawatt combustion
turbines that entered service in 1999 at Springdale, Pennsylvania and the
announcement of plans for a 540-megawatt combined cycle plant at the same
location. The Company has also recently announced plans to install five
additional 44-megawatt gas-fired combustion turbines at various sites in
Pennsylvania in year 2000. Allegheny Energy recognizes the value of coal as a
fuel source and remains committed to its use for sound economic and
environmental reasons. However as the generating fleet expands, other fuels,
including natural gas, oil and also other sources of energy such as scrap tires,
biomass (wood wastes), and wind will be investigated to help supply customer
demand while achieving economic and environmental objectives.
Allegheny Energy is participating in a variety of voluntary programs to
reduce emissions of greenhouse gases. However, no requirements or regulations
for mandatory reductions of greenhouse gases exist at this time. Any costs or
liabilities for future required reductions or damages are highly speculative in
the absence of reduction requirements. It is not possible to quantify these
potential effects with any accuracy.
Allegheny Energy does not promote, nor does it belong to organizations that
promote, the view that the issue of climate change is not real or that global
warming may be beneficial.
The Company believes that it has taken prudent, adequate, and balanced
steps to protect the environment, consumers, shareholders, and the national
interest in energy security and will continue to do so.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ABOVE
PROPOSAL.
SHAREHOLDER PROPOSAL REGARDING GOLDEN PARACHUTES
RESOLVED:
Shareholder Right to Vote on Golden Parachutes
Golden Parachutes, generous payments to management after a merger, shall be
approved by a majority stockholder vote. This includes a vote as a separate
resolution at a shareholder meeting.
The entire amount of golden parachutes shall be substantially indexed to
the performance of Allegheny Energy (AYE) stock (and/or the merged company) over
the 3 years following the merger completion, compared to the Dow Jones Utilities
Index. This is similar to performance-based stock options.
This includes that golden parachutes shall not be given for a merger with
less than 50% change in control. Or for a merger approved but not completed.
7
<PAGE> 11
SUPPORTING STATEMENT:
A respected proxy advisory service said shareholders should have the
opportunity to independently evaluate, then reject or approve golden parachutes.
Golden parachutes need reasonable limits due to the substantial pay
executives already receive. Golden parachutes may reduce incentives to maximize
shareholder value during merger negotiations because management is guaranteed
specific benefits.
The recent failed merger with DQE Inc. would have given Allegheny
management Golden Parachutes of 3-times their maximum annual pay.
However, the Federal Court said DQE Inc. properly canceled the proposed
Allegheny-DQE merger. Source: Reuters, Dec. 3, 1999.
Allegheny management may still try to salvage their triple-bonus parachutes
by appealing the Federal Court's Dec. 3, 1999 ruling against the merger. Source:
Allegheny Power Dec. 3, 1999 Press Release.
While management focused on the merger for 2 1/2 years, the day to day
operation of the company suffered:
Allegheny reported...
- An extraordinary charge of $265 million
- A net loss of $50.6 million
Business Wire Oct. 16, 1998
3rd quarter earnings dropped $11 million.
Allegheny Press Release Oct. 15, 1999
Allegheny stock drops to one-year low.
Wall Street Journal Dec. 15, 1999
Management needs to give shareholder value higher priority. The Investor
Responsibility Research Center, Washington, DC, said management's 1998 stock
option plan had a potential shareholder dilution of 8% -- four-times the average
in Allegheny's industry peer group. Institutional Shareholder Services
(www.cda.com/iss) recommended a no vote. Management's 1998 stock option was
rejected by 30% of shareholder votes -- ignoring management's direction.
This 30%-rejection shows that management's direction failed the scrutiny of
a substantial number of shareholders. This sizable shareholder rejection alerts
shareholders to question management direction carefully, including its direction
on this resolution.
This proposal, for shareholder right to vote on golden parachutes, received
a sizable 36% shareholders approval at the 1999 shareholder meeting.
The 36%-approval is significant since:
- - Management dominates communication with shareholders.
- - Management directed shareholders not to approve.
- - Management's proxy card makes it easier to mark one box and thus vote all
items per management's direction.
- - Management influences the vote of millions of shares by appointing trustees to
vote for shareholders.
- - Management confused shareholders in 1999 by publishing the
resolution -- deleting its ballot number.
To maximize shareholder value vote yes for:
Shareholder Right to Vote on Golden Parachutes
Yes on 4
END OF SHAREHOLDER PROPOSAL
8
<PAGE> 12
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THIS PROPOSAL AND WILL SO
VOTE PROXIES RECEIVED THAT DO NOT OTHERWISE SPECIFY.
The Company's executive compensation programs are designed to attract and
retain highly qualified executives and motivate them to maximize stockholder
returns. These programs, which have been developed to be competitive with
compensation packages offered by other comparable employers, link a significant
portion of executive compensation to performance and to total stockholder
return.
The Board of Directors oversees the compensation arrangements for the
Company's officers, primarily through the Management Review and Director Affairs
Committee of the Board. (See the report of the Management Review and Director
Affairs Committee below.) The Board recognizes its responsibility to make
executive compensation decisions in a manner it believes to be in the best
interest of the Company and its stockholders.
The Company's Change in Control contracts, one feature of the total
compensation arrangements, are intended to enhance the Company's ability to
attract and retain the highest quality executives. The Board believes that these
executives could have pursued other employment opportunities with companies that
offer similar or greater financial benefits and income security to that offered
in the Company's Change in Control contracts. It would be unreasonable to expose
these executives to financial risks without protection similar to what other
companies would offer in the event that their positions with the Company are
adversely affected by an unanticipated change in circumstances. The Change in
Control contracts are also intended to keep executives focused and objective in
dealing with Company matters, rather than being distracted by the personal
financial effect of their actions if a situation involving potential change of
control arises. With the Change in Control contracts, the Company's executives
are provided with a degree of financial protection that allows them to act
decisively in maximizing stockholder value.
The Board believes the Company's Change in Control contracts, described
under Change in Control contracts on page 17, are appropriate to address these
concerns and are comparable to similar programs at other major companies.
Placing an arbitrary ceiling or restrictions on the Board's ability to provide
such payments to senior executives may put the Company at a competitive
disadvantage by damaging the Company's ability to attract and retain the
executive talent necessary to lead the Company in an industry undergoing radical
change amid an uncertain and evolving regulatory environment. Further, the Board
believes the proposal would be impracticable and unfair. So-called "golden
parachutes" are not paid to individuals still employed by the company making the
payments but to certain executives who have lost their positions due to a
merger. As a result, they have no influence over the performance of that company
following their departure. They should not be expected to wait three years, as
the shareholder proposes, before receiving the compensation provided.
The Management Review and Director Affairs Committee of the Board, on an
ongoing basis, devotes considerable time and effort to compensation issues,
including the balance to be struck among the various objectives of that program.
The Board of Directors believes that it is ultimately in the stockholders' best
interest that the responsibility for this ongoing process continue to be vested
in the Board and that Committee, rather than being preempted and inhibited by
rigid and arbitrary limitations, such as that reflected in the proposed
resolution.
Furthermore, the shareholder misconstrues a company press release which
stated that the company was "reviewing its options" in light of the Court's
decision regarding Allegheny's claim of breach of contract by DQE, Inc.
Management was not trying to "salvage" any payments that might be awarded under
its Change in Control contracts. The Company chose to appeal the Court's
decision because it believed the decision was wrong, and believed it was in the
best interest of the Company to pursue the available judicial remedy. Moreover
the shareholder mis-characterizes the financial data reported. The extraordinary
charge and net loss resulting therefrom were the direct result of electric
utility deregulation pursuant to law, not day-to-day operations.
Finally, the Company does not "influence the vote of millions of shares by
appointing trustees to vote for shareholders." All shareholder votes, no matter
how the shares are held, are cast and tallied exactly as the shareholder
specifies. It is only if the shareholder validates and returns his or her proxy
but does not specify how to vote his or her shares that the proxy holder votes
the shares as set forth in the proxy.
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE ABOVE
PROPOSAL.
9
<PAGE> 13
MANAGEMENT REVIEW AND DIRECTOR AFFAIRS COMMITTEE REPORT
GENERAL
The compensation program for executive officers of the Company and its
subsidiaries is directed by the Management Review and Director Affairs Committee
(the 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 continues to believe that with the advent of competition to
this industry that a large portion of compensation should be included in
incentive plans. For 2000, a substantial portion of total compensation will
continue to be linked to corporate and business performance.
The executive compensation program is intended to meet three objectives:
- Create a strong link between executive compensation and total return to
stockholders.
- Offer compensation opportunities that are competitive with the median
level of opportunity in the marketplace, at expected levels of
performance, but exceed median levels for performance exceeding
expectations.
- Ensure internal compensation equity -- maintaining a reasonable
relationship between compensation and the duties and responsibilities of
each executive position.
In a further effort to tie the executive compensation program to the
overall success of Allegheny, stock ownership guidelines were adopted in 1999
for the executive officers. The guidelines require the Chief Executive Officer
(CEO) to own stock valued at 3.5 times his base salary; the business unit
Presidents and Senior Vice Presidents at 1.75 times base salary; and the Vice
Presidents at one times base salary. They have until December 31, 2003 to meet
the guidelines.
EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program has four components: base
salary, short-term and long-term incentive awards, and stock options.
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 Company's salary structure and total compensation
continue to be competitive, they are compared each year through an annual
compensation survey, prepared by a leading consulting firm, with those of
comparable electric utilities -- 50 or more for 1999. The survey companies are
part of the Energy Services Industry Database of the consulting firm.
In 1999, over 46% of these survey companies are included in the Dow Jones
Electric Index to which the Company's performance is compared on page 18 of this
proxy statement. This comparison, conducted by a national compensation
consulting firm, involves matching Company positions, including the CEO, with
those in the survey companies that have comparable duties and responsibilities.
For 1999, the survey indicated that the Company's executive salary structure was
below the median. This survey data became the basis for the consulting firm's
recommendations as to market prices for each position and total compensation in
line with the survey average for comparable positions.
10
<PAGE> 14
Base salary:
The base salaries of all executive officers, including the CEO, are
reviewed annually by the Committee, which makes recommendations to the Board 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) a performance assessment of each executive (other than
himself) based on that executive's position-specific responsibilities and a
performance evaluation by his or her supervisor and (b) a specific salary
recommendation for each. In determining its recommendations to the Board, 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 return, earnings per share,
quality of earnings, dividends paid, and dividend payout ratio.
Short-term Incentive Awards:
The Allegheny Energy Annual Incentive Plan (the Annual Incentive Plan) is
designed to supplement base salaries and provide cash incentive compensation
opportunities to attract, retain, and motivate a senior group of managers,
including executive officers, selected by the Committee. The Annual Incentive
Plan provides for establishment of individual incentive awards based on
corporate performance. Corporate performance measures are based on net income
available to common shareholders, achieved shareholder return, overall corporate
financial results (changes in earnings per share, dividends paid per share, and
dividend payout ratios), cost of service to customers, and Company performance,
including competitive position. In addition, individual and departmental
performance goals are set on a position specific basis for participants.
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. The target awards under the 1999 Incentive Plan were
determined by the Committee, and participants could earn from zero to 1 1/2
times the target award. For the 1999 Incentive Plan the targets were $312,500
for Mr. Noia and from $90,000 to $160,000 for the other named officers. Targets
for other participants were from $90,000 and lower, which are approximately 50%
or less of 1999 base salary. Annual Incentive Plan awards earned are paid in the
year after the year for which they are earned. Awards earned for performance in
1997, 1998, and 1999 are included in the Annual Compensation Table for those
years under the column "Incentive Awards" for the individuals named therein.
Long-term Incentive Awards: Performance Shares and Stock Options
The Allegheny Energy, Inc. Long-term Incentive Plan (the Incentive Plan)
replaced the Allegheny Power System Performance Share Plan (the Performance
Share Plan) in 1998. Both plans were designed as an aid in attracting and
retaining individuals of outstanding ability. Awards earned under both plans are
based on performance over 3-year "cycles." Eleven executive officers of the
Company and its subsidiaries were selected by the Committee to participate in
Cycle IV (1997-1999); eleven in Cycle V (1998-2000), and fifteen in Cycle VI
(1999-2001). Cycle IV 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). Cycles V and VI are based
solely on total stockholder return ranking in the Dow Jones Electric Utility
Index.
The Cycle IV target awards under the Performance Share Plan range from
$70,000 for the named officers to $230,000 for Mr. Noia, which equate to 2,300
to 7,570 shares of stock as of January 1, 1997, the start of the performance
cycle. The actual award calculated under the Plan equaled 108% of the target
amount. The dollar value of such shares calculated as of December 31, 1999,
including reinvested dividends, is included in the compensation table on page
13.
The Cycle V target awards under the Incentive Plan range from $80,000 for
the named officers to $262,500 for Mr. Noia, which equate to 2,461 to 8,077
shares of stock as of January 1, 1998, the start of the performance cycle.
11
<PAGE> 15
The Cycle VI target awards under the Incentive Plan range from $45,000 for
the named officers to $156,250 for Mr. Noia, which equate to 1,488 to 5,165
shares of stock as of January 1, 1999, the start of the performance cycle. The
target opportunity and the corresponding number of equivalent performance shares
allocated to each named executive officer for Cycle VI are listed in the
Long-term Incentive Plan Table on page 15.
The actual payouts will be determined in 2001 for Cycle V and in 2002 for
Cycle VI, after completion of each cycle and determination of the actual
stockholder rankings. The actual awards may be paid in Company stock or stock
options (for Cycle V) and just Company stock (Cycle VI) and can range from 0 to
200% of the targeted shares noted above.
During 1999, as approved by stockholders during 1998, the executive
officers were granted stock options, based upon surveys of competitive grant
levels for similar positions. Like performance shares, the magnitude of such
awards is determined by the Committee. Stock options are granted with an
exercise price equal to or greater than the fair market value of Allegheny
common stock on the day of grant, and become exercisable after the expiration of
a period of time, typically three years and generally continue to be exercisable
until ten years from the date granted. Such stock options provide incentive for
the creation of shareholder value over the long term since the full benefit of
the compensation package cannot be realized unless an appreciation in the price
of Allegheny common stock occurs over a specified number of years.
For Mr. Noia, the Committee developed salary and Annual Incentive Plan
award recommendations for the Board's consideration. The base salary
recommendation was based upon the Committee's evaluation of his performance as
CEO and of his responsibilities in the context of the Company's overall
financial and operating performance, including the factors described in the next
sentence. The Annual Incentive Plan recommendation was based primarily on 1999
corporate financial results, including total shareholder return, changes in
earnings per share, dividends paid per share, and dividend payout ratios; the
overall quality and cost of service rendered to customers; and overall Allegheny
Energy performance, including competitive position. Mr. Noia's 1999 total
compensation reflected the Committee's evaluation of his performance as CEO and
the described overall results.
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 and Director Affairs 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
12
<PAGE> 16
EXECUTIVE COMPENSATION
During 1999, and for 1998 and 1997, the annual compensation paid by the
Company and its subsidiaries directly or indirectly to the Chief Executive
Officer and each of the four most highly paid executive officers of the Company
whose cash compensation exceeded $100,000 for services in all capacities to the
Company and its subsidiaries was as follows:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------- ------------------------------------------
PERFORMANCE
INCENTIVE SHARE PLAN NUMBER ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY AWARDS(A) PAYOUT(B) OF OPTIONS COMPENSATION(C)
- --------------------------- ---- -------- --------- ----------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ALAN J. NOIA 1999 $575,000 $312,500 $260,183 190,000 $112,350
Chairman, President, Chief 1998 525,000 180,500 286,655 -- 184,788
Executive Officer, and 1997 460,000 253,000 250,657 -- 124,495
Director of the Company and
Allegheny Energy Service
Corporation. Chairman of
the Board of the Company's
other principal
subsidiaries.
PETER J. SKRGIC 1999 $290,000 $196,800 $158,372 80,000 $ 6,925
Senior Vice President of 1998 280,000 123,000 204,753 -- 50,757
the
Company and Allegheny 1997 265,000 155,400 150,394 -- 91,409
Energy Service Corporation.
Vice President and Director
of the Company's other
principal subsidiaries.
MICHAEL P. MORRELL 1999 $260,000 $156,000 $ 96,154 66,000 $ 27,592
Senior Vice President of 1998 255,000 117,000 114,870 -- 28,599
the
Company and Allegheny 1997 240,000 95,200 --(d) -- 26,068
Energy Service Corporation.
Vice President and Director
of the Company's other
principal subsidiaries.
JAY S. PIFER 1999 $255,000 $146,400 $ 96,154 66,000 $ 7,073
Senior Vice President of 1998 250,000 66,500 131,042 -- 41,542
the
Company and Allegheny 1997 240,000 95,200 150,394 -- 67,810
Energy Service Corporation.
President and Director of
the Company's other
principal subsidiaries.
RICHARD J. GAGLIARDI 1999 $210,000 $113,400 $ 79,186 52,000 $ 14,713
Vice President of the 1998 200,000 60,400 114,662 -- 25,345
Company and Allegheny 1997 190,000 75,600 100,263 -- 25,340
Energy Service Corporation
and of certain of the
Company's other
subsidiaries.
</TABLE>
- ---------------
(a) Incentive awards (primarily Annual Incentive Plan awards) are based upon
performance in the year in which the figure appears but are paid in the
following year. The Annual Incentive Plan will be continued for 2000.
(b) In 1994, the Board of Directors of the Company implemented a Performance
Share Plan (the "Plan") for senior officers of the Company and its
subsidiaries 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 ended on December 31, 1996. A second cycle began on January 1, 1995 and
ended on December 31, 1997. The figure shown for 1997 represents the dollar
value paid in 1998 to each of the named executive officers who participated
in Cycle II. A third cycle began on January 1, 1996 and ended on December
31, 1998. The figure shown for 1998 represents the dollar value paid in 1999
to each of the named executives who
13
<PAGE> 17
participated in Cycle III. A fourth cycle began on January 1, 1997 and ended
on December 31, 1999. The figure shown for 1999 represents the dollar value
paid in 2000 to each of the named executives who participated in Cycle IV.
In 1998, the Board of Directors of the Company implemented a new Long-term
Incentive Plan, which was approved by the Company's shareholders at the
annual meeting in 1998. A fifth cycle (the first three-year performance
period of this plan) began on January 1, 1998 and will end on December 31,
2000. A sixth cycle began on January 1, 1999 and will end on December 31,
2001. After completion of each cycle, Company stock, stock options (for
Cycle V), cash, a combination, or just Company stock (Cycle VI) may be paid
if performance criteria have been met.
(c) 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. Some 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, except Mr. Morrell, who is not
covered by this plan. Effective January 1, 1993, Allegheny started to
provide funds to pay for the future benefits due under the supplemental
retirement plan (Secured Benefit Plan). To do this, Allegheny purchased,
during 1993, life insurance on the lives of the covered executives. The
premium costs of both policies plus a factor for the use of the money are
returned to Allegheny 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 1999, all eligible employees may elect to have from 2% to 12%
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 nine 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, 1997 the
maximum amount of any employee's compensation that may be used in these
computations is $160,000. Employees' interest 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 1999,
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. Noia $107,550 and $4,800; Mr.
Skrgic $2,593 and $4,332; Mr. Morrell $23,391 and $4,201; Mr. Pifer $2,273
and $4,800; and Mr. Gagliardi $10,399 and $4,314; respectively.
(d) Michael P. Morrell joined the Company on May 1, 1996 and did not receive a
payment from the Performance Share Plan for the second Plan cycle. The Cycle
III payout is prorated for the period May 1, 1996 -- December 31, 1998.
14
<PAGE> 18
ALLEGHENY ENERGY, INC. LONG-TERM INCENTIVE PLAN
SHARES AWARDED IN LAST FISCAL YEAR
(CYCLE VI)
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
-----------------------------------
PERFORMANCE THRESHOLD TARGET MAXIMUM
PERIOD UNTIL NUMBER OF NUMBER OF NUMBER OF
NAME PAYOUT SHARES SHARES SHARES
- ---- ------------ --------- --------- ---------
<S> <C> <C> <C> <C>
Alan J. Noia................................... 1999-2001 2,583 5,165 10,330
Chief Executive Officer
Peter Skrgic................................... 1999-2001 1,323 2,645 5,290
Senior Vice President
Michael P. Morrell............................. 1999-2001 1,075 2,149 4,298
Senior Vice President
Jay S. Pifer................................... 1999-2001 992 1,983 3,966
Senior Vice President
Richard J. Gagliardi........................... 1999-2001 744 1,488 2,976
Vice President
</TABLE>
The named executives were awarded the above number of performance shares
for Cycle VI. Such number of shares are only targets. As described below, no
payouts will be made unless certain criteria are met. Each executive's 1999-2001
target long-term incentive opportunity was converted into performance shares
equal to an equivalent number of shares of the Company's common stock based on
the price of such stock on December 31, 1998. At the end of this three-year
performance period, the performance shares attributed to the calculated award
will be valued based on the price of the Company's common stock on December 31,
2001 and will reflect dividends that would have been paid on such stock during
the performance period as if they were reinvested on the date paid. If an
executive retires, dies or otherwise leaves the employment of the Company prior
to the end of the three-year period, the executive may still receive an award
based on the number of months worked during the period. The final value of an
executive's account, if any, will be paid to the executive in early 2002.
The actual payout of an executive's award may range from 0 to 200% of the
target amount, before dividend reinvestment. The Management Review and Director
Affairs Committee may decide to convert the value of such performance shares to
stock options at that time or deliver cash or shares of common stock. The payout
is based upon stockholder performance versus the peer group. The stockholder
rating is then compared to a pre-established percentile ranking chart to
determine the payout percentage of target. A ranking below 30% results in a 0%
payout. The minimum payout begins at the 30% ranking, which results in a payout
of 60% of target, ranging up to a payout of 200% of target if there is a 90% or
higher ranking.
15
<PAGE> 19
OPTION GRANTS IN 1999
<TABLE>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS(1)
---------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS GRANTED GRANT DATE
NAME UNDERLYING TO PRESENT
OPTIONS EMPLOYEES IN EXERCISE PRICE VALUE(2)
GRANTED(1) 1999 ($/SH) EXPIRATION DATE ($)
- ---------------------------------------------------------------------------------------------------------------------
40,000 3.64% 30.1875 02/22/2009 $203,102
Alan J. Noia 150,000 13.66% 31.4895 12/02/2009 794,480
- ---------------------------------------------------------------------------------------------------------------------
20,000 1.82% 30.1875 02/22/2009 101,551
Peter J. Skrgic 60,000 5.46% 31.4895 12/02/2009 317,792
- ---------------------------------------------------------------------------------------------------------------------
16,000 1.46% 30.1875 02/22/2009 81,241
Michael P. Morrell 50,000 4.55% 31.4895 12/02/2009 264,827
- ---------------------------------------------------------------------------------------------------------------------
16,000 1.46% 30.1875 02/22/2009 81,241
Jay S. Pifer 50,000 4.55% 31.4895 12/02/2009 264,827
- ---------------------------------------------------------------------------------------------------------------------
12,000 1.09% 30.1875 02/22/2009 60,930
Richard J. Gagliardi 40,000 3.64% 31.4895 12/02/2009 211,861
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Options become exercisable three years after date of the grant.
(2) The Black-Scholes option pricing model was chosen to estimate the Grant Date
Present Value of the options set forth in this table. Allegheny Energy's use
of this model should not be construed as an endorsement of its accuracy of
valuing options. All stock option valuation models, including the Black-
Scholes model, require a prediction about the future movement of the stock
price. The following assumptions were made for purposes of calculating the
Grant Date Present Value: an option term of 10 years, volatility of 22.83%,
dividend yield at 5.83%, and interest rate of 6.25%. The real value of the
options in this table depends upon the actual performance of Allegheny
Energy's stock during the applicable period.
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
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.
Beginning February 1, 1996 the earnings include 50% of the actual award paid
under the Annual Incentive Plan and beginning January 1, 1999, include 100% of
the award actually paid under the Annual Incentive Plan. 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 13 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.
16
<PAGE> 20
The following table shows estimated maximum annual benefits payable to
participants in the Secured Benefit Plan 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 12 times the highest average monthly earnings and other salary
payments actually earned, whether or not payment is deferred, for any 36
consecutive months), 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
300,000......................... 90,000 120,000 150,000 165,000 172,500 180,000
400,000......................... 120,000 160,000 200,000 220,000 230,000 240,000
500,000......................... 150,000 200,000 250,000 275,000 287,500 300,000
600,000......................... 180,000 240,000 300,000 330,000 345,000 360,000
700,000......................... 210,000 280,000 350,000 385,000 402,500 420,000
800,000......................... 240,000 320,000 400,000 440,000 460,000 480,000
900,000......................... 270,000 360,000 450,000 495,000 517,500 540,000
1,000,000......................... 300,000 400,000 500,000 550,000 575,000 600,000
</TABLE>
- ---------------
(a) The earnings of Messrs. Noia, Skrgic, Pifer, Gagliardi and Morrell covered
by the plan correspond substantially to such amounts shown for them in the
annual compensation table. As of December 31, 1999, they had accrued 30, 35,
35, 21, and 3 1/2 years of credited service, respectively, under the
Retirement Plan. Pursuant to an agreement with Mr. Morrell, at the end of
ten years of employment with the Company, Mr. Morrell will be credited with
an additional eight years of service.
CHANGE IN CONTROL CONTRACTS
The Company has entered into Change in Control contracts with the named and
certain 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 if there is a Change in
Control, unless employment is terminated by the Company for Cause, Disability or
Retirement or by the employee for other than Good Reason (each as defined in the
Agreements), severance benefits payable to the employee will consist of a cash
payment equal to 2.99 times the employee's base annual salary and target
short-term incentive together with the Company maintaining existing benefits for
the employee and the employee's dependents for a period of three years. Each
Agreement expires on December 31, 2001 but is 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.
17
<PAGE> 21
PERFORMANCE GRAPH
The graph set forth below compares the Company's cumulative total
stockholder 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, 1995 and ending December 31, 1999, and assumes the
investment of $100 in each on December 31, 1994 and the reinvestment of all
dividends.
Five Year Comparison Graph
<TABLE>
<CAPTION>
ALLEGHENY ENERGY DOW JONES ELECTRICS S&P MIDCAP 400
---------------- ------------------- --------------
<S> <C> <C> <C>
Dec 94 100.00 100.00 100.00
Dec 95 141.00 132.00 131.00
Dec 96 158.00 133.00 156.00
Dec 97 180.00 168.00 206.00
Dec 98 202.00 192.00 246.00
Dec 99 166.00 162.00 282.00
</TABLE>
18
<PAGE> 22
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 director and each named
executive officer of the Company, and by all directors and executive officers of
the Company as a group as of March 15, 2000. 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
AE, INC. PERCENT
NAME COMMON STOCK OF CLASS
- ---- ------------ ------------
<S> <C> <C>
Eleanor Baum............................................. 3,600 .05% or less
William L. Bennett....................................... 4,370 "
Richard J. Gagliardi..................................... 17,127 "
Wendell F. Holland....................................... 1,927 "
Phillip E. Lint.......................................... 2,381 "
Frank A. Metz, Jr........................................ 4,364 "
Michael P. Morrell....................................... 12,138 "
Alan J. Noia............................................. 50,832 "
Jay S. Pifer............................................. 23,013 "
Steven H. Rice........................................... 4,697 "
Gunnar E. Sarsten........................................ 7,600 "
Peter J. Skrgic.......................................... 29,144 "
All directors and executive officers of the Company as a
group (19 persons)..................................... 205,966 .19%
</TABLE>
- ---------------
* Excludes the outside directors' accounts in the Deferred Stock Unit Plan
which, on March 1, 2000 were valued at the number of shares shown: Baum,
3,976; Bennett, 2,132; Holland, 1,982; Lint, 5,691; Metz, 4,260; Rice, 2,713
and Sarsten, 3,654.
Section 16(a) of the Securities 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 in 1999.
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 other means, 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.
It is important that proxies be returned promptly. Stockholders are,
therefore, urged to mark, date, sign and return the proxy immediately, or to
vote by telephone or via the Internet, as described in the Proxy Card. No
postage need be affixed if mailed in the enclosed envelope in the United States.
19
<PAGE> 23
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
13, 2000.
PLEASE MARK, DATE, SIGN AND RETURN THE ENCLOSED PROXY IMMEDIATELY. NO POSTAGE IS
NECESSARY IF MAILED IN THE ENCLOSED ENVELOPE IN THE UNITED STATES. PLEASE NOTE,
IN THE ALTERNATIVE YOU CAN VOTE BY TELEPHONE OR VIA THE INTERNET.
20
<PAGE> 24
PROXY
[LOGO ALLEGHENY ENERGY, INC.]
10435 DOWNSVILLE PIKE
HAGERSTOWN, MARYLAND 21740
PROXY FOR USE AT ANNUAL MEETING OF STOCKHOLDERS
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder hereby appoints Alan J. Noia, 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 Energy, Inc. to be held on the 11th
Floor of 270 Park Avenue, between 47th and 48th Street, New York, New York, on
May 11, 2000, at 9:30 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 other 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" ITEM 2 AND "AGAINST" ITEMS
3 AND 4.
This Proxy is Continued on the Reverse Side
PLEASE MARK, SIGN AND DATE ON THE REVERSE SIDE AND RETURN PROMPTLY.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
[PHONE] VOTE BY TELEPHONE OR INTERNET [COMPUTER]
QUICK *** EASY *** IMMEDIATE
YOUR VOTE IS IMPORTANT! -- YOU CAN VOTE IN ONE OF THREE WAYS:
1. TO VOTE BY PHONE: Call toll-free 1-800-840-1208 on a touch tone telephone 24
HOURS A DAY-7 DAYS A WEEK.
There is NO CHARGE to you for this call. - Have your proxy card in hand.
You will be asked to enter a Control Number, which is located in the box in
the lower right hand corner of this form.
OPTION 1: To vote as the Board of Directors recommends on ALL proposals,
press 1.
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
OPTION 2: If you choose to vote on each proposal separately, press 0. You
will hear these instructions:
Proposal 1 - To vote FOR ALL nominees, press 1;
to WITHHOLD FOR ALL nominees, press 9
To WITHHOLD FOR AN INDIVIDUAL nominee, Press 0 and listen to the instructions
Proposal 2 - To vote FOR, press 1; AGAINST, press 9; ABSTAIN, press 0.
WHEN ASKED, PLEASE CONFIRM BY PRESSING 1.
The instructions are the same for all remaining proposals.
OR
2. VOTE BY INTERNET: Follow the instructions at our Website Address:
http://www.eproxy.com/aye
OR
3. VOTE BY PROXY CARD: Mark, sign and date your proxy card and return promptly
in the enclosed envelope.
NOTE: If you vote by Internet or telephone,
THERE IS NO NEED TO MAIL BACK your Proxy Card.
THANK YOU FOR VOTING.
<PAGE> 25
Please mark
your votes as [X]
indicated by
this example.
10435 Downsville Pike
[LOGO ALLEGHENY ENERGY, INC.] Hagerstown, Maryland 21740
<TABLE>
<CAPTION>
WITHHOLD
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR ALL NOMINEES" IN ITEM 1. FOR for all
all nominees nominees
<S> <C> <C> <C>
Item 1 -- Election of the following nominees as Directors: [ ] [ ]
01 Wendell F. Holland
02 Gunnar E. Sarsten
To Withhold authority to vote for any nominee, write the name on the line below
________________________________________________________________________________
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" IN ITEM 2.
FOR AGAINST ABSTAIN
Item 2 -- Approval of appointment of PricewaterhouseCoopers LLP as independent [ ] [ ] [ ]
accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" IN ITEM 3.
FOR AGAINST ABSTAIN
Item 3 -- Shareholder proposal regarding global warming. [ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" IN ITEM 4.
FOR AGAINST ABSTAIN
Item 4 -- Shareholder proposal regarding golden parachutes. [ ] [ ] [ ]
</TABLE>
Will attend meeting [ ]
Signature(s)______________________________________________ Date___________, 2000
(Please sign your name(s) exactly as shown above).
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
1. Mark, sign and date your proxy card and return it promptly in the enclosed
envelope.
OR
2. Call toll free 1-800-840-1208 on a Touch Tone telephone and follow the
instructions on the reverse side. There is NO CHARGE to you for this call.
OR
3. Vote by Internet at our Internet Address: http://www.eproxy.com/aye
PLEASE VOTE
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
ADMISSION TICKET
ALLEGHENY ENERGY, INC.
2000 ANNUAL MEETING OF STOCKHOLDERS
Thursday, May 11, 2000
9:30 A.M.
270 Park Avenue
11th Floor
New York, NY
