[Federal Register Volume 68, Number 223 (Wednesday, November 19, 2003)]
[Notices]
[Pages 65328-65330]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-28891]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27760]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

November 13, 2003.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission pursuant to provisions of the Act and rules 
promulgated under the Act. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendment(s) is/are available for public 
inspection through the Commission's Branch of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s) should submit their views in 
writing by December 8, 2003, to the Secretary, Securities and Exchange 
Commission, Washington, DC 20549-0609, and serve a copy on the relevant 
applicant(s) and/or declarant(s) at the address(es) specified below. 
Proof of service (by affidavit or, in the case of an attorney at law, 
by certificate) should be filed with the request. Any request for 
hearing should identify specifically the issues of facts or law that 
are disputed. A person who so requests will be notified of any hearing, 
if ordered, and will receive a copy of any notice or order issued in 
the matter. After December 8, 2003, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.

Allegheny Energy, Inc. (70-10179)

    Allegheny Energy, Inc. (``Allegheny''), a registered holding 
company, 10435 Downsville Pike, Hagerstown, Maryland 21740, has filed 
an application-declaration (``Application'') under sections 6(a), 7, 9, 
and 12(e) of the Act and rule 54 under the Act.
    Allegheny seeks authority to issue common stock and options to 
purchase common stock under Allegheny's Long-Term Incentive Plan 
(``LTIP''). Allegheny was previously authorized by order dated May 29, 
1998 (Holding Co. Act Release No. 26879), (``LTIP Order'') to issue and 
sell, through December 31, 2010, up to 10 million shares of its common 
stock, par value $1.25 per share (``Common Stock''), under the LTIP.
    Although the LTIP has not materially changed since it was approved 
by the Commission,\1\ the authorization to issue stock under the Plan 
has been undermined by Allegheny's current financial status. At the 
time of the LTIP Order, the criteria of rule 53 under the Act were 
satisfied by Allegheny, and, therefore, the Commission did not consider 
the effect of capitalization or earnings of any Allegheny exempt 
wholesale generator (``EWG'') or foreign utility company (``FUCO'') in 
granting its authorization. Allegheny no longer satisfies certain of 
the standards set forth in rule 53. Specifically, Allegheny's increased 
level of investments in EWGs and FUCOs, as described below, was 
conditioned on compliance with certain financing requirements that are 
currently not satisfied. Also, Allegheny's consolidated retained 
earnings have decreased over the four most recent quarterly periods, 
and Allegheny has reported operating losses attributable to EWG and 
FUCO investments in excess of the limitations set forth in rule 53(b).
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    \1\ Allegheny amended the LTIP in September 1998 to allow for 
the issuance of stock options as payments for Performance Awards in 
addition to payments in Common Stock and cash. Although the original 
LTIP provided for the issuance of stock options as payment for other 
awards, payments for Performance Awards were more limited. The LTIP 
Order, however, generally authorized Allegheny to issue both stock 
and stock options as payments for all awards under the LTIP. 
Allegheny, therefore, subsequently amended the LTIP to provide for 
the issuance of stock options as Performance Awards.
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    Allegheny, therefore, seeks authority to continue issuing Common 
Stock under the LTIP. Allegheny requests that the Commission authorize 
it to issue up to 8 million shares of Common Stock (decreased from 10 
million) under the LTIP through December 31, 2010. The stock would be 
issued according to the same terms and conditions set forth in the LTIP 
Order. As explained in that order, the LTIP was adopted by Allegheny in 
1998 to attract and retain key employees and directors and motivate 
performance.

I. Description of the LTIP

    The LTIP is administered by the Management Compensation and 
Development Committee (``Committee''), which may delegate to an 
executive officer the power to determine the employees (other than 
himself or herself) eligible to receive awards. The Committee may from 
time to time designate key employees and directors to participate in 
the LTIP for a particular year. As approved in the LTIP Order, the LTIP 
authorizes Allegheny to issue up to 10 million shares of Common Stock, 
subject to adjustments for recapitalizations or other changes to 
Allegheny's common shares. In this Application, Allegheny requests 
authority to issue up to 8 million shares of Common Stock under the 
LTIP. No participant in the LTIP may be granted more than 600,000 
shares (or rights or options in respect of more than 600,000 shares) in 
any calendar year. For purposes of this limit, shares subject to an 
award that is to be earned over a period of more than one calendar year 
will be allocated to the first calendar year in which these shares may 
be earned.

[[Page 65329]]

    The LTIP permits awards of options to purchase Allegheny Common 
Stock on terms and conditions as determined by the Committee. Stock 
options are issued at strike prices equal to the fair market value (as 
defined in the LTIP) of Allegheny Common Stock as of the date of the 
option grant. The terms of option awards are set forth in option award 
agreements. The Committee may award non-qualified stock options or 
incentive stock options (each as defined in the LTIP). No participant 
in the LTIP may receive incentive stock option awards under the LTIP or 
any other Allegheny compensation plan that would result in incentive 
stock options to purchase shares of Allegheny Common Stock with an 
aggregate fair market value of more than $100,000 first becoming 
exercisable by a participant in any one calendar year.
    Options awarded under the LTIP will terminate upon the first to 
occur of: (i) The option's expiration under the terms of the related 
option award agreement; (ii) termination of the award following 
termination of the participant's employment under the rules described 
in the next paragraph; and (iii) 10 years after the date of the option 
grant. The Committee may accelerate the exercise period of awarded 
options and may extend the exercise period of options granted to 
employees who have been terminated.
    In the event of the termination of employment of a participant in 
the LTIP, options not exercisable at the time of the termination will 
expire as of the date of the termination and exercisable options will 
expire 90 days from the date of termination. In the event of 
termination of a participant's employment due to retirement or 
disability, options not exercisable will expire as of the date of 
termination and exercisable options will expire one year after the date 
of termination. In the event of the death of a participant in the LTIP, 
all options not exercisable at the time of death will expire, and 
exercisable options will remain exercisable by the participant's 
beneficiary until the first to occur of one year from the time of death 
or, if applicable, one year from the date of the termination of the 
participant's employment due to retirement or disability.
    The Committee may establish dividend equivalent accounts with 
respect to awarded options. A participant's dividend equivalent account 
will be credited with notional amounts equal to dividends that would be 
payable on the shares for which the participant's options are 
exercisable, assuming that the shares were issued to the participant. 
The participant or other holder of the option will be entitled to 
receive cash from the dividend equivalent account at times and subject 
to terms and conditions that the Committee determines and provides in 
the applicable option award agreement. If an option terminates or 
expires prior to exercise, the dividend equivalent account related to 
the option will be concurrently eliminated and no payment in respect of 
the account will be made.
    The Committee may permit the exercise of options or the payment of 
applicable withholding taxes through tender of previously acquired 
shares of Allegheny Common Stock or through reduction in the number of 
shares issuable upon option exercise. The Committee may grant reload 
options to participants in the event that participants pay option 
exercise prices or withholding taxes by these methods.
    In the event of a change of control of Allegheny (as defined in the 
LTIP), unless provided to the contrary in the applicable option award 
agreement, all options outstanding on the date of the change in control 
will become immediately and fully exercisable.
    The Committee may grant shares of Common Stock on terms, conditions 
and restrictions as the Committee may determine. Restrictions, terms, 
and conditions may be based on performance standards, period of 
service, share ownership, or other criteria. Performance-based awards 
intended for federal income tax deductibility will be subject to 
performance targets with respect to operating income, return on 
investment, return on shareholders' equity, stock price appreciation, 
earnings before interest, taxes and depreciation/amortization, earnings 
per share, and/or growth in earnings per share. The terms of restricted 
stock awards will be set forth in award agreements.
    The participant will be an owner of restricted shares awarded to 
him or her under the LTIP. The shares may not be transferred, pledged, 
or assigned (other than by will or the laws of descent and distribution 
or to an inter vivos trust with respect to which the participant is 
treated as the owner under the internal revenue code) prior to the 
lapse of the applicable restrictions. A participant's restricted shares 
will be forfeited to Allegheny in the event that the participant ceases 
to be employed by Allegheny prior to the expiration of the applicable 
forfeiture period. The Committee may waive an award's forfeiture 
provisions under appropriate circumstances.
    In the event of a change of control of Allegheny (as defined in the 
LTIP), unless provided to the contrary in the applicable restricted 
stock award agreement, the restrictions applicable to all restricted 
stock awards will terminate fully on the date of the change of control.
    The Committee may grant performance awards, which will consist of a 
right to receive a payment that is either measured by the fair market 
value of a specified number of shares of Allegheny Common Stock, 
increases in the fair market value of Common Stock during an award 
period and/or consists of a fixed cash amount. Performance awards may 
be made in conjunction with or in addition to restricted stock awards. 
Award periods will be two or more years or other annual periods as 
determined by the Committee. The Committee may permit newly eligible 
participants to receive performance awards after an award period has 
commenced.
    The Committee establishes performance targets in connection with 
performance awards. In the case of awards intended to be deductible for 
federal income tax purposes, performance targets will relate to 
operating income, return on investment, return on shareholders' equity, 
stock price appreciation, earnings before interest, taxes and 
depreciation/amortization, earnings per share, and/or growth in 
earnings per share. The Committee prescribes formulas to determine the 
percentage of the awards to be earned based on the degree of attainment 
of award targets. Allegheny may make payments in respect of performance 
awards in the form of cash or shares of Allegheny Common Stock, or a 
combination of both.
    In the event of a participant's retirement during an award period, 
the participant will not receive a performance award unless otherwise 
determined by the Committee, in which case the participant will be 
entitled to a prorated portion of the award. In the event of the death 
or disability of a participant during an award period, the participant 
or his or her representative will be entitled to a prorated portion of 
the performance award. A participant will not be entitled to a 
performance award if his or her employment terminates prior to the 
conclusion of an award period, provided that the Committee may 
determine in its discretion to pay performance awards, including full 
(i.e., non-prorated) awards, to any participant whose employment is 
terminated. In the event of a change of control of Allegheny, all 
performance awards for all award

[[Page 65330]]

periods will immediately become payable to all participants and will be 
paid within 30 days after the change in control.
    The Committee may, unless the relevant award agreement otherwise 
specifies, cancel, rescind, or suspend an award in the event that the 
LTIP participant engages in competitive activity, discloses 
confidential information, solicits employees, customers, partners or 
suppliers of Allegheny, or undertakes any other action determined by 
the Committee to be detrimental to Allegheny.
    The LTIP contains provisions intended to ensure that certain 
restricted share awards and performance awards to ``covered employees'' 
under Section 162(m) of the Internal Revenue Code are exempt from the 
$1 million deduction limit contained in that section of the code. Those 
exemptive provisions, by their terms and under the applicable IRS 
regulations, expired as of May 14, 2003. Any pending, but unvested, 
awards issued under these provisions are unaffected by the provisions' 
expiration, but any future restricted stock or performance awards to 
covered employees will not eligible for the exemption from the Section 
162(m) limit unless the provisions are reapproved by the shareholders. 
Allegheny may seek stockholder reauthorization of the LTIP with respect 
to these provisions, but has no present intention to do so. Allegheny 
may choose alternative methods to compensate covered employees who 
would have received compensation under the terminated provisions of the 
LTIP had these provisions not terminated.
    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.

Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 03-28891 Filed 11-18-03; 8:45 am]
BILLING CODE 8010-01-M