SECURITIES AND EXCHANGE COMMISSION
(Release No. 35-27857; 70-10201)
Allegheny Energy, Inc.
Order Authorizing Amendments to Charter and Bylaws
June 15, 2004
Allegheny Energy, Inc. ("Allegheny"), a Greensburg, Pennsylvania, corporation and a registered holding company under the Public Utility Holding Company Act of 1935, as amended ("Act"), has filed this declaration ("Declaration") with the Securities and Exchange Commission ("Commission") under sections 6(a) and 12(e) of the Act and rules 54,62 and 65 under the Act. The Commission issued a notice of the Declaration on March 12, 2004 (Holding Co. Act Release No. 27813).
Allegheny requests authority to: (1) require simple majority voting on all matters to be submitted for stockholder approval and, specifically, to (a) amend its bylaws or charter to opt out of the Maryland Control Share Acquisition Act and (b) eliminate the application of provisions of the Maryland Business Combination Act to the extent these provisions require super-majority approval of certain business combinations; and (2) amend its charter to declassify the Board of Directors (items (1) and (2) are referred to below as the "Proposed Amendments").
I. Requested Authority
The Proposed Amendments cover matters related to stockholder rights that were proposed by Allegheny's management or stockholders and that were approved at the annual meeting of stockholders on May 13, 2004. Specifically, the Proposed Amendments include:
A. Simple Majority Vote Requirement
An Allegheny stockholder proposal that was approved will require simple majority approval for all matters submitted for stockholder approval. Allegheny will take the following specific actions to implement this proposal.
1. Exemption from Control Share Act
The Board will opt out of the Maryland Control Share Acquisition Act ("Control Share Act"), which will remove a super-majority stockholder vote requirement for the approval of control share voting rights. The Control Share Act provides that control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquiror, by officers or by directors who are employees of the corporation are excluded from shares entitled to vote on the matter. Control shares are voting shares of stock which, if aggregated with all other shares of stock owned by the acquirer or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within certain statutorily-defined ranges (one-tenth but less than one-third, one-third but less than a majority, and more than a majority of the voting power). The Control Share Act also does not apply to the voting rights of shares of stock if the acquisition of those shares has been approved or exempted by the charter or bylaws of the corporation or to shares acquired in a merger, consolidation, or share exchange in which the corporation is a party. Allegheny's charter and bylaws do not currently contain any approval or exemption from these provisions of Maryland law.
At the 2003 annual meeting of stockholders, a majority of stockholders voted in favor of eliminating super-majority voting requirements. In light of the level of stockholder support for this change, the Board's Nominating and Governance Committee reviewed the matter in January 2004 and recommended that the Board take action consistent with Maryland law to effect this change. Under Maryland law, opting out of the Control Share Act requires an amendment to either Allegheny's charter or its bylaws. Since the proposal to require majority voting on all matters submitted for a stockholder vote was approved by the stockholders, the Board intends to amend the bylaws or the charter to exempt Allegheny from the Control Share Act. The Board will also take appropriate actions necessary under Maryland law to require stockholder approval to opt back into the requirements of the Maryland Control Share Act.
2. Exemption from Business Combination Voting Requirements
The Board of Directors proposed to eliminate the application of certain provisions of the Maryland Business Combination Act to the extent these provisions require the concurrence of a greater proportion of votes than the affirmative vote of a majority of the votes entitled to be cast to approve certain business combinations.
Under Maryland law, "business combinations" between a Maryland corporation and an interested stockholder or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as: any person who beneficially owns 10% or more of the voting power of the corporation's shares or an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation. A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which he otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board.
After the five-year prohibition, any business combination between the Maryland corporation and an interested stockholder generally must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least: 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation and two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder. These super-majority vote requirements do not apply if the corporation's common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares.
The statute provides for various exemptions from the application of its provisions, including for business combinations that are exempted by the board of directors prior to the time that the interested stockholder becomes an interested stockholder. The Board has not granted any exemptions. Since the proposal to require simple majority voting on all matters submitted for a stockholder vote has been approved by the stockholders, the Board will take action consistent with Maryland law to remove the requirement of the two super-majority votes discussed above and instead provide that these business combinations may be approved by a majority of the votes entitled to be cast on the matter. The Board will also take all action necessary under Maryland law to require stockholder approval to opt back into the super-majority voting provisions of the Maryland Business Combination Act.
B. Declassification of the Board
An Allegheny stockholder proposed that each Allegheny director be elected annually, which would have the effect of declassifying the Board effective as of the 2005 annual meeting of stockholders. In July 1999, the Board made an election under Maryland law to subject Allegheny to provisions of the Maryland General Corporation Law that provide for a classified board. Under these provisions, the Board is currently divided into three classes of directors, with each class serving a three-year term and one class being elected each year. A majority of stockholders voted in favor of eliminating the classified board system at the 2001, 2002 and 2003 annual meetings of stockholders. In light of the level of stockholder support for this change, the Nominating and Governance Committee of the Board reviewed this matter in January 2004 and recommended to the Board that the classified board system be eliminated. The Board agreed with the recommendation. The Board intends to take all action required under Maryland law to declassify the Board and to take all further action necessary to implement the change so that the election of directors will be annualized beginning at the 2005 annual meeting of stockholders. The Board will also take all action necessary under Maryland law to require stockholder approval to opt back into the provisions of Maryland law to classify the Board.
II. Rule 54 Analysis
Allegheny does not satisfy the requirements of rule 53(a)(1). The Commission has authorized Allegheny to invest up to $2 billion in exempt wholesale generators ("EWGs") and foreign utility companies ("FUCOs") and found that this investment would not have either of the adverse effects set forth in rule 53(c).1 As of December 31, 2003, Allegheny's "aggregate investment," as defined in rule 53(a)(l), was approximately $234 million. Allegheny is, however, no longer in compliance with the revised financing conditions of its Financing Order and subsequent orders. As of September 30, 2003, Allegheny's common equity ratio was below 28 percent. As a result, Allegheny is no longer able to make any investments in EWGs and FUCOs, without further authorization from the Commission.
Allegheny currently complies with, and will comply with, rules 53(a)(2), 53(a)(3), and 53(a)(4). None of the circumstances described in 53(b)(1) have occurred. The circumstances described in rule 53(b)(2) and (b)(3) have occurred. And, the requirements of rule 53(c) are met.
Allegheny believes that the requested authorization will not have a substantial adverse impact upon the financial integrity of Allegheny nor its public utility company subsidiaries ("Operating Companies"). Allegheny maintains that the requested relief will not adversely affect the Operating Companies and their customers. The ratio of common equity to total capitalization of each of the Operating Companies will continue to be maintained at not less than 30 percent2 and will not be affected by the proposed transactions.
The fees, commissions and expenses incurred or to be incurred in connection with this Declaration will not exceed $10,000. Allegheny maintains that no state or federal regulatory agency, other than the Commission, has jurisdiction over the requested authority.
Due notice of the filing of this Declaration has been given in the manner prescribed in rule 23 under the Act, and no hearing has been requested of or ordered by the Commission. Based on the facts in the record, the Commission finds that the applicable standards of the Act and rules are satisfied and that no adverse findings are necessary.
IT IS ORDERED, under the applicable provisions of the Act and the rules under the Act, that the Declaration, as amended, be permitted to become effective immediately, subject to the terms and conditions prescribed in rule 24 under the Act.
For the Commission, by the Division of Investment Management, pursuant to delegated authority.
Margaret H. McFarland
|Home | Previous Page||