Document:

Letter dated July 23, 2003 acknowledging termination of previous Supplement

 EXHIBIT 10.6 
  
 LETTER DATED JULY 23, 2003 ACKNOWLEDGING TERMINATION OF 
 PREVIOUS SUPPLEMENTAL COMPENSATION AGREEMENT BETWEEN 
 KREISLER MANUFACTURING CORPORATION 
 AND WALLACE KELLY (JULY 11, 2001) AND 
 NEW
SUPPLEMENTAL COMPENSATION AGREEMENT 
  
 July 23,
2003 
  
 Dear Wally, 
  
 This letter confirms our mutual understanding that the original agreement
dated July 11, 2001 is null and void. 
  
 The new agreement as
outlined below replaces the original supplemental agreement. 
  
 Wallace N. Kelly will receive $110,000.00 additional compensation on February 15, 2004 as a continuation bonus for his additional services including transitioning a new COO. 
  
 In consideration of this agreement Wallace N. Kelly will remain employed until February 1, 2004 unless the Company decides
to terminate his employment at an earlier date. Compensation and living expenses will continue at the current rate until termination. 
  
 If you are in agreement with the above terms and conditions please acknowledge by signing below. 
  
 Thank you. 
  
 Sincerely, 
  

	 By:
	 	 /s/ Edward L. Stern

	 	 	 Kreisler Manufacturing Corporation

	 	 	 CEO and President

		
	 Acknowledgement:
	 	 /s/ Wallace N. Kelly

	 	 	 On July 30, 2003<PAGE>
                                                                    Exhibit 10.3

                             ALLEGHENY ENERGY, INC.

                           2002 ANNUAL INCENTIVE PLAN

I.   PURPOSE OF THE INCENTIVE PLAN

          To attract and retain first quality managers in a competitive job
          market and to reward for attaining and exceeding specified annual
          corporate , business or service corporation group/function, and
          individual performance goals.

II.  ELIGIBILITY

          A prerequisite for participation in the Plan shall be an understanding
          of, and commitment to Allegheny Energy's:

          .    Management Plan and Policies

          .    Mission, Vision, Values, and Strategies

          Eligibility will be determined by the Management Review and Director
          Affairs Committee upon the recommendation of the CEO from among
          executives whose responsibilities can affect the performance of their
          units, and through unit performance, the performance of Allegheny
          Energy.

III. AWARDS

          Awards will reflect the importance of the participants to the
          organizational units and functions for which they are responsible.

          Awards will be paid for the achievement of specific measurable goals
          set for the individual and the organizational units/functions for
          which he or she is responsible.

          The Plan's goals will be:

          .    Determined and communicated annually

          .    A reasonable number for each participant

          The goals which the Board will set with the help of the Management
          Review and Director Affairs Committee will be consistent with
          Allegheny Energy's Mission, Vision, Values, and Strategies and will
          include such things as:

          .    Financial performance (return on equity, earnings, dividends)

          .    Customer satisfaction (cost, quality, and reliability of service)

<PAGE>

                                       2

III. AWARDS (continued)

          .    Cost and environmental consciousness (productivity, efficiency,
               availability and utilization of equipment) and conservation of
               resources

          .    Safety

          .    Leadership development

IV.  OVERALL LIMITATIONS ON AWARDS

          The Board of Directors shall not authorize any incentive payment if,
          in the Board's opinion, Allegheny's performance is less than
          satisfactory from the perspective of its stockholders.

V.   PERFORMANCE MEASURES

          Each year measures to evaluate participants' performance will be
          determined. They may vary among participants according to whether
          their principal responsibilities are to:

          .    Allegheny as a whole

          .    A Business or Division within a Business

          .    A Service Corporation Group or Function

          Each category of performance measure will carry appropriate weightings
          as shown on the 2002 Participant Performance Schedule. Examples of
          possible measures include:

          For Allegheny as a whole:

          .    Quantity and quality of annual earnings; return on equity;
               financial ratings; capital structure; dividend payout ratios; and
               total shareholder return

          .    Development of appropriate management succession, personnel
               relations and development, and programs to assure fair and
               non-discriminatory treatment of all employees

<PAGE>

                                       3

V.   PERFORMANCE MEASURES (continued)

          .    Productivity, cost control, efficient use of equipment, natural
               resources, and other environmental considerations

          .    Quality and reliability of customer service

          .    Safety

          .    Attainment of reasonable rates and maintenance of competitive
               position

          For Businesses, Divisions within Businesses, and Service Corporation
          Groups/Functions:

          .    Profitability

          .    Safety

          .    Productivity and efficiency, revenues, and administrative,
               operating, and maintenance expenditures

               .    Per employee, customer, and kwh

               .    Measured against previous year and peer companies

          .    Customer satisfaction (quality of service); outage rates, speedy
               restoration of service, customer complaints, employee courtesy,
               conservation, and demand-side management programs

          .    Cost of service; rate per kwh measured against past period,
               economic indices, and peer companies

          .    Community relations and relations with state and local
               governments and their agencies

          .    Completion of construction projects on time and within budget

          .    Adequacy of management development programs and programs to
               assure fair and non-discriminatory treatment of all employees

          .    Adequacy of planning and accuracy of forecasts

          .    Completion of assignments and projects on time and within budget

<PAGE>

                                       4

V.   PERFORMANCE MEASURES (continued)

          .    Availability, efficiency, and reliability of generating units and
               transmission systems

          .    Cost consciousness (avoidance of excessive staffing and waste of
               work space and receptivity to cost saving techniques)

          .    Minimizing adverse effects in the environment

          .    User satisfaction

          .    Adherence to Procurement Policy and success in buying (including
               minority vendor participation) material, equipment, and supplies
               at the best possible price

          For Individual Performance:

          .    Leadership
          .    Results Orientation
          .    Strategic Thinking
          .    Communication
          .    Teamwork
          .    Judgment
          .    Community or Industry Involvement

VI.  CALCULATION OF AWARDS

          Target Incentive Awards and Total Estimated Cost

          .    No awards will be paid for any year unless the Board of Directors
               finds that overall Corporate performance is satisfactory from the
               perspective of stockholders.

          .    Incentive awards will be based on Corporate, Business or Service
               Corporation Group/Function , and Individual Performance

          Performance Schedules

          .    The Performance Schedule describes ratings and weightings for
               each performance measure at all levels of performance

          .    As soon as practicable each year, Participant Performance
               Schedules for that year will be issued

<PAGE>

                                       5

VI.  CALCULATION OF AWARDS (continued)

          Performance Ratings

          .    Target performance represents the full and complete attainment of
               expectations in the performance area; it is rated 1.0

          .    Performance that is acceptable but does not fully meet
               expectations can earn a rating but, of course, less than 1.0

          .    Exceeding expectations can result in a performance rating as high
               as 2.00 for all participants

          .    Unacceptable individual performance will result in no award
               regardless of Corporate or Business/Service Corporation (Group or
               Function) Performance

          Weightings

          .    Weightings will be established each year for Corporate, Business,
               and Service Corporation Group/Function and Individual performance
               measures

          Calculation of Award

          .    A participant's award, if any, will be determined by multiplying
               the participant's assigned Target Incentive Award by his/her
               rounded total performance rating. Target Incentive Award is:

               .    calculated as Target Percentage x (2002 Annual Base Pay as
                    of 12/31/2002 + Lump Sums given through the 2002 Salary
                    Administration Program), or
               .    a fixed dollar amount for certain participants.

          The Management Review and Director Affairs Committee or the Board of
          Directors, at its discretion, may supplement or decrease any
          participant's calculated award to reflect extraordinary circumstances.

          The maximum funds available for 2002 awards will be an amount equal to
          1.5% of 2002 budgeted net income plus or minus 5% of any amount over
          or under 2002 budgeted net income for the System. In the event the
          maximum would otherwise be exceeded, all awards will be decreased pro
          rata.

<PAGE>

                                       6

VII. FORM AND TIMING OF PAYOUT

          Calculation of awards will be made as soon as practicable after the
          close of books for the year measured, but no award will be paid until
          it has been approved by the Management Review and Director Affairs
          Committee or the Board of Directors, as appropriate.

          Payment will be in current cash unless the Management Review and
          Director Affairs Committee or the Board at its discretion provides for
          deferral. The Management Review and Director Affairs Committee or the
          Board may also, at its discretion, make payment of awards in the form
          of stock in lieu of current cash.

VIII. TERMINATION AND TRANSFER PROVISIONS

          Termination Provisions

          .    Awards may at the discretion of the Management Review and
               Director Affairs Committee or the Board be calculated on the
               basis of a full year's performance and prorated to the number of
               whole months actually served, except in the case of voluntary
               termination (other than retirement after the second quarter of
               the year) or termination by the Company (with or without cause),
               in which case no award is made for year of termination

          Designation of "Organizational Unit" in cases of transfer

          .    Weighting will be based on the number of months participant was
               in each organizational unit

IX.  PLAN ADMINISTRATION

          Administration of the Plan is the responsibility of the Management
          Review and Director Affairs Committee of the Board of Directors.

          .    The Committee is responsible for review and administration of all
               Corporate wide goals and has final approval over these and other
               matters involving the Plan, including eligibility.

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