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Change in Control
 
 

EX-10.1 2 dex101.htm AMENDED AND RESTATED EMPLOYMENT AGREEMENT

Exhibit 10.1

AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) made as of this 9th day of July, 2009 (the “Effective Date”) between Allegheny Energy Service Corporation (“AESC”) for itself and as agent for its parent, Allegheny Energy, Inc. (“AEI”), the affiliates and subsidiaries of AESC and AEI, and any successors or assigns of any of the foregoing (the “AE Companies”), and Paul J. Evanson (the “Executive”).

WHEREAS, the Executive had entered into an Employment Agreement with AESC and AEI dated June 9, 2003, as amended effective February 18, 2004 (the “Original Agreement”), which was superseded by an Amended and Restated Employment Agreement with AESC and AEI dated July 26, 2007 (the “Prior Agreement”);

WHEREAS, AESC desires to procure the continued services of the Executive, and the Executive is willing to continue in the employment of AESC, upon the terms and subject to the conditions set forth in this Agreement; and

WHEREAS, AESC and AEI and the Executive desire to amend and restate the Prior Agreement as set forth herein;

NOW, THEREFORE, in consideration of the covenants contained herein, and for other good and valuable consideration, the parties hereto agree as follows:

1. Employment and Term.

(a) Employment. AESC hereby offers to employ the Executive, and the Executive hereby accepts such employment with AESC, for the Term set forth in Section 1(b) and on the terms and conditions set forth in this Agreement.

(b) Term. The term of the Executive’s employment under this Agreement shall commence on the Effective Date and, unless terminated earlier pursuant to Section 8, shall continue until June 15, 2011 (the “Term”).

2. Duties. During the Term as provided in Section 1(b) hereof, the Executive shall serve as Chairman of the Board of Directors of AEI (the “Board”), President and Chief Executive Officer of AEI and AESC, and shall, in his capacity as an officer, report to the Board. The Executive shall have overall charge of the business and affairs of the AE Companies. The Executive shall devote his best skill and substantially full time efforts (reasonable sick leave and vacations excepted) to the performance of his duties under this Agreement.

Nothing contained herein shall preclude the Executive from (i) serving on the board of directors of any business organization; (ii) engaging in charitable and community activities; (iii) participating in industry and trade organization activities; (iv) managing his and his family’s personal investments and affairs;

 

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and (v) delivering lectures, fulfilling speaking engagements or teaching at educational institutions; provided, that such activities do not materially interfere with the regular performance of his duties and responsibilities under this Agreement and do not violate his obligations under Section 10 of this Agreement.

3. Base Salary. For services performed by the Executive for the AE Companies pursuant to this Agreement during the Term, AESC shall pay the Executive a base salary (a “Base Salary”) at the rate of $1,200,000 per year. The Base Salary shall be payable in accordance with AESC’s regular payroll practices (but no less frequently than monthly). The Base Salary may be increased from time to time during the Term in the sole discretion of the Board; provided, however, that, at a minimum, Base Salary shall be increased (but not decreased) on each June 15 during the Term to reflect increases in the U.S. Department of Labor Consumer Price Index - U.S. City Average Index.

4. Annual Bonus. The Executive shall be eligible to receive incentive compensation (the “Annual Bonus Compensation”) in respect of the Company’s 2009 fiscal year and each succeeding fiscal year of the Company commencing during the Term. The target bonus opportunity for each such fiscal year shall be equal to 125% of the Base Salary as of the end of such fiscal year and the actual bonus paid for each such fiscal year may range from zero to 250% of the Base Salary as of the end of such fiscal year. The Annual Bonus Compensation shall be awarded under the Allegheny Energy, Inc. Annual Incentive Plan, as amended from time to time (the “AIP”), to the maximum extent permitted by that plan, with any excess component being awarded pursuant to a separate arrangement outside of that plan. The parameters of the award made under AIP shall be determined by the Board and substantially similar parameters shall apply with respect to any component of the Annual Bonus Compensation awarded outside the AIP. The Executive’s Annual Bonus Compensation for any year shall be payable in cash no later than March 15 of the next succeeding year. For purposes of this Agreement, the Executive’s “Target Bonus” as of any given date shall be a dollar amount equal to the Executive’s Base Salary as of such date multiplied by 1.25.

5. Performance-Based Equity Awards.

(a) Performance Award. AESC shall grant to the Executive an annual equity award (collectively, the “Equity Incentives”) in each of 2010 and 2011 with respect to AEI Common Stock, each such award having an initial grant date value of $8,400,000. A substantial portion of each Equity Incentive shall be performance-based. The Equity Incentives shall be granted under the Allegheny Energy, Inc. 2008 Long-Term Incentive Plan or such other equity-based incentive plan as may be adopted and approved hereafter by the AEI shareholders (the “LTIP”) and shall be evidenced by award agreements. Such grants shall be awarded effective as of the normal annual equity award grant date for annual awards to AEI employees generally in 2010 and 2011, as determined by

 

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the Board (the “Grant Date”) (but in no event later than February 28 of each such year).

(b) Performance Vesting Component. At least 50% of each Equity Incentive shall consist of performance shares or other performance-based equity awards subject to vesting based on performance objectives established by the Board at the time of grant of such Equity Incentive, and such performance objectives shall be disclosed to AEI’s stockholders. Such portion of each Equity Incentive may consist of performance-based shares similar in form to the performance-based shares awarded to the Executive in 2008 and 2009, which consisted of two components:

(i) 50% performance-based shares linked to the Company’s three-year total stockholder return; and

(ii) 50% performance-based shares linked to the average three-year corporate results under the Company’s annual incentive plan.

(c) Other Performance Component. The remainder of each Equity Incentive may consist of a performance award in any form permitted under the LTIP (including, but not limited to, stock options and stock appreciation rights), as determined by the Board in consultation with the Executive. Any stock options or stock appreciation rights granted as part of the Equity Incentives shall have a per share exercise price equal to the fair market value of the underlying shares as of the Grant Date (as determined in accordance with the LTIP) and the value of such stock options or rights for purposes of this Section 5 shall be based on the Black-Scholes valuation or other approved valuation methods used as of the Grant Date by AEI in valuing AEI employee option grants for purposes of AEI’s financial reporting obligations.

(d) Other Terms of Equity Incentives. Each Equity Incentive shall be subject to the terms set forth in this Agreement and such additional terms not inconsistent with this Agreement as shall be established by the Board in consultation with the Executive. The mix of incentives and the vesting and other material terms of the incentives under each Equity Incentive shall be no less favorable to the Executive than the mix and terms applicable to similar type incentives granted to other senior executives of AEI on or about the Grant Date of the relevant incentives under such Equity Incentive; provided, however, that the vesting of the Equity Incentives shall be subject to Section 8 and upon the occurrence of a Change in Control (as defined in Section 7(e)(iii)) the Equity Incentives shall become immediately vested (and, if such Equity Incentives include stock units, such stock units shall become immediately payable). The Equity Incentives granted pursuant to this Section 5, together with the equity awards granted to the Executive in February of 2008 and 2009

 

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pursuant to the terms of the Prior Agreement, shall hereinafter be referred collectively as the “Equity Awards”. With respect to any portion of an Equity Award granted in the form of performance shares or performance units, notwithstanding the application of any accelerated vesting provisions set forth in Section 8 below such portion of the Equity Award shall be subject to earning and performance measurement over the same period as is applicable to identical awards granted to other employees of the AE Companies at the time such Equity Award is granted.

6. Other Benefits. In addition to the compensation provided in Sections 3, 4, and 5 hereof, the Executive shall also be entitled to the following:

(a) Participation in Employee Benefit Plans. The Executive shall participate in each employee benefit plan maintained in force by the AE Companies, from time to time, in a manner and to an extent at least as favorable as then is available to the most favorably treated senior executives of the AE Companies under each of such plans; provided, that the Executive shall not participate in the Allegheny Energy, Inc. Supplemental Executive Retirement Plan or other nonqualified pension plans of the AE Companies. Such plans may include tax-qualified and disability, medical, group life insurance, supplemental life insurance coverage, business travel insurance, sick leave, and other retirement and welfare benefit plans, programs and arrangements. AESC represents that, as of the Effective Date, the Executive meets all eligibility criteria for participation in such plans.

(b) Fringe Benefits. In addition to the foregoing, the Executive shall be entitled to (i) an exclusive personal secretary and other assistance of his choosing; (ii) a country club and dining club membership; (iii) use, maintenance, insurance and repair of a company car; and (iv) other fringe benefits and other similar benefits no less favorable than those available to the most favorably treated senior executives of the AE Companies, except as previously agreed by the Executive.

(c) Benefit in Lieu of Pension. To continue to compensate the Executive for the significant pension benefits he ceased to accrue at his prior employer as a result of accepting employment with AESC, upon a termination of the Executive’s employment with AESC for any reason, the Executive shall be entitled to a cash payment equal to $66,667 for each month that the Executive was employed with AESC, subject to increase pursuant to Section 8(b)(v) (the “Pension Benefit”). For the avoidance of doubt, the Executive’s employment with AESC commenced on June 16, 2003.

 

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(d) Expense Reimbursement. AESC shall reimburse the Executive, within thirty (30) days after the submission of appropriate documentation by the Executive, for reasonable and necessary business expenses and disbursements incurred by him in the course of the performance of his duties under this Agreement. In order to be eligible for such reimbursement, the Executive shall submit such documentation no later than February 15th of the year following the year in which such expenses were incurred.

(e) Vacation. The Executive shall be entitled to vacation and paid time off during the initial and each successive year during the Term of at least five weeks per year or, if greater than five weeks per year, (i) the amount of vacation and paid time off available to the most favorably treated senior executive of the AE Companies or, (ii) such period as the Board shall approve, without reduction in salary or other benefits.

(f) Fees and Expenses. AESC will reimburse the Executive by December 31, 2009 for reasonable legal and other professional fees and out-of-pocket expenses incurred by the Executive in connection with the preparation and negotiation of this Agreement and any other related agreements.

7. Termination. Unless earlier terminated in accordance with the following provisions of this Section 7, AESC shall continue to employ the Executive and the Executive shall remain employed by AESC during the entire Term as set forth in Section 1(b). Section 8 hereof sets forth certain obligations of AESC in the event that the Executive’s employment hereunder is terminated.

(a) Death. Except to the extent otherwise expressly stated herein, including without limitation as provided in Section 8(a) with respect to certain payment obligations of AESC, this Agreement shall terminate immediately in the event of the Executive’s death.

(b) Termination by AESC or the Executive.

(i) In accordance with the procedures hereinafter set forth, AESC may terminate the Executive from his employment hereunder for Cause, Disability or otherwise and the Executive may resign from his employment hereunder for Good Reason or otherwise. Any termination of the Executive by AESC or resignation by the Executive shall be communicated by a Notice of Termination to the Executive (in the case of termination) or to AESC (in the case of the Executive’s resignation) given in accordance with Section 15 of this Agreement.

 

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(ii) During any period that the Executive fails to perform his full-time duties as a result of incapacity due to physical or mental illness, AESC shall continue to pay the Executive’s full Base Salary in accordance with Section 3 of this Agreement (reduced dollar-for-dollar by the amount of disability benefits, if any, paid to the Executive in accordance with any disability policy or program of AESC), together with all compensation and benefits payable to the Executive under the terms of any compensation or benefit plan, program or arrangement maintained by AESC during such period, until the Executive’s employment is terminated for Disability pursuant to this Section 7(b).

(iii) If the Executive intends to resign his employment with the Company hereunder for any reason other than a resignation for Good Reason, the Executive shall provide a Notice of Termination to AESC at least one-hundred eighty (180) days in advance of the proposed effective date of such resignation.

(iv) The Executive may not be terminated for Cause unless the Executive shall be granted the opportunity for a hearing before the Board, such hearing to be held within 15 days after the Executive’s receipt of a Notice of Termination if the Executive requests such hearing within 10 days after receipt of such Notice. If the Executive is furnished written notice by the Board within 10 days after such hearing confirming that, in its judgment, grounds for termination for Cause exist on the basis set forth in the original Notice of Termination, the Executive shall, subject to Section 7(c), thereupon be terminated for Cause.

(c) Dispute Concerning Termination. If within fifteen (15) days after any Notice of Termination is given (or, in the case of any purported termination of the Executive’s employment for Cause, within ten days after the notice from the Board described in the last sentence of Section 7(b)(iv)), or, if later, prior to the Date of Termination (as determined without regard to this Section 7(c)), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be extended until the date on which the dispute is finally resolved, either by mutual written agreement of the parties or by a final judgment, order or decree of an arbitrator or a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided, however, that (i) the Date of Termination shall be extended by a notice of dispute given by Executive only if such notice is given in good faith and the Executive pursues the resolution of such dispute with reasonable diligence; and (ii) in the event of an extension in the Date of Termination pursuant to this Section 7(c),

 

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the Executive shall be under no obligation to continue to perform any duties beyond the Date of Termination set forth in the original Notice of Termination.

(d) Compensation During Dispute. If a purported termination occurs and the Date of Termination is extended in accordance with Section 7(c) hereof, AESC shall continue to pay the Executive the full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, Base Salary), shall continue the Executive as a participant in all compensation, benefit and insurance plans in which the Executive was participating when the notice giving rise to the dispute was given, and shall continue vesting of all equity awards (including, without limitation, the Equity Awards) until the Date of Termination, as determined in accordance with Section 7(c) hereof. Amounts paid under this Section 7(d) are in addition to all other amounts due under this Agreement (other than the Executive’s Accrued Obligations) and shall not be offset against or reduce any other amounts due under this Agreement. However, if such dispute is resolved in favor of the AE Companies, the Executive shall return to the AE Companies, and reimburse the AE Companies for, all amounts of cash compensation and equity compensation that the Executive received, became vested in or retained, and all proceeds relating to any equity compensation that the Executive realized (on a pre-tax basis), but which the Executive would not have been able to receive, become vested in, retained or realized absent the triggering and application of Sections 7(c) and 7(d).

(e) Definitions. For purposes of this Agreement, the following terms shall have the meanings set forth below:

(i) “Accrued Obligations” shall mean, as of the Date of Termination, the sum of (A) the Executive’s Base Salary under Section 3 through the Date of Termination to the extent not theretofore paid, (B) to the extent not theretofore paid, the amount of any bonus, incentive compensation, deferred compensation and other cash compensation earned and accrued by the Executive as of the Date of Termination under the terms of any compensation and benefits plans, programs or arrangements maintained in force by AESC, and (C) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive, in accordance with AESC policy, as of the Date of Termination to the extent not theretofore paid.

(ii) “Cause” shall mean either of the following:

(A) the Executive’s engaging in willful gross misconduct or willful gross neglect in connection with the Executive’s employment, which misconduct or neglect is

 

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committed in bad faith or without reasonable belief that such misconduct or neglect is in the best interests of the AE Companies and which causes material economic harm to the AE Companies; or

(B) the conviction of the Executive of a felony involving theft or moral turpitude, or a guilty or nolo contendere plea by the Executive with respect to such a felony.

(iii) “Change in Control” shall mean the first to occur of any of the following events:

(A) Any “person” (as defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), excluding for this purpose, (i) any of the AE Companies, or (ii) any employee benefit plan of AEI or any of the AE Companies, or any person or entity organized, appointed or established by AEI or any of the AE Companies for or pursuant to the terms of any such plan which acquires beneficial ownership of voting securities of AEI, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of AEI representing more than 20% of the combined voting power of AEI’s then outstanding securities; provided, however, that no Change in Control will be deemed to have occurred as a result of a change in ownership percentage resulting solely from an acquisition of securities by AEI; or

(B) Persons who, as of the Effective Date constitute the Board (the “Incumbent Directors”) cease for any reason, including without limitation, as a result of a tender offer, proxy contest, merger or similar transaction, to constitute at least a majority thereof, provided that any person becoming a director of AEI subsequent to the Effective Date shall be considered an Incumbent Director if such person’s election or nomination for election was approved by a vote of at least two-thirds ( 2/3) of the Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board or other actual or threatened solicitation of proxies or consents by or on behalf of a “person” (as defined in Sections 13(d) and 14(d) of the Exchange Act) other than

 

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the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director; or

(C) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of AEI (a “Business Combination”), in each case, unless, following such Business Combination, all or substantially all of the individuals and entities who were the beneficial owners of outstanding voting securities of AEI immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the company resulting from such Business Combination (including, without limitation, a company which, as a result of such transaction, owns AEI or all or substantially all of AEI’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the outstanding voting securities of AEI; or

(D) Approval by the stockholders of AEI of a complete liquidation or dissolution of AEI.

(iv) “Date of Termination” shall mean (A) if the Executive’s employment is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that Executive shall not have returned to the full-time performance of Executive’s duties during such thirty (30) day period), and (B) if the Executive’s employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination by AESC, shall not be less than thirty (30) days (except in the case of a termination for Cause) nor more than sixty (60) days and, in the case of a termination by the Executive, shall not be less than one-hundred eighty (180) days nor more than two-hundred forty (240) days (or, in the case of a resignation solely for Good Reason, not less than fifteen (15) nor more than sixty (60) days), respectively, from the date such Notice of Termination is given).

(v) “Disability” shall be deemed the reason for the termination of the Executive’s employment, if, as a result of the Executive’s incapacity due to physical or mental illness,

 

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Executive shall have been absent from the full-time performance of the Executive’s duties with the AE Companies for a period of six (6) consecutive months, AESC shall have given the Executive a Notice of Termination for Disability, and, within thirty (30) days after such Notice of Termination is given, the Executive shall not have returned to the full-time performance of the Executive’s duties. At any time and from time to time, upon reasonable request by AESC, the Executive shall submit to reasonable medical examination for the purpose of determining the existence, nature and extent of any such Disability.

(vi) “Good Reason” shall mean, without the Executive’s written consent:

(A) Any (x) failure to continue to employ the Executive as Chief Executive Officer of AEI and AESC, the material diminution in the Executive’s title or duties in such position, or the assignment to the Executive of any duties inconsistent in any material respect with the Executive’s authority, duties, responsibilities or reporting relationship in such position as contemplated by Section 2 of this Agreement (including changes resulting from a transaction immediately after which the Executive is not the Chief Executive Officer of the ultimate majority parent company of the businesses of the AE Companies following the transaction), excluding any isolated and inadvertent action not taken in bad faith and which is remedied by the AESC within ten (10) days after receipt of notice thereof given by the Executive, (y) failure to nominate the Executive for reelection to the Board or a failure by the Board to appoint and continue the Executive as Chairman of the Board during his service on the Board or (z) a removal of the Executive from the Board or the position of Chairman of the Board (including changes resulting from a Change in Control immediately after which the Executive is not the Chairman of the ultimate majority parent company of the businesses of the AE Companies following the Change in Control); provided, however, that notwithstanding clauses (y) or (z), neither the removal of or resignation by the Executive as a member of the Board due to the Executive’s failure to receive majority support in a shareholder election, other than an election following a Change in Control subsequent to the Effective Date, nor the removal of Executive from the role of Chairman of the Board as required by any applicable law, regulation or stock exchange rule or any shareholder resolution adopted after

 

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receiving a majority shareholder vote (other than any such resolution adopted in connection with, or as a result of, a Change in Control) shall constitute Good Reason;

(B) Any failure by AESC to comply with any of the provisions of Sections 3, 4, 5, 6, 12 or 21 of this Agreement, other than an isolated and inadvertent failure not committed in bad faith and which is remedied by AESC within ten (10) days after receipt of notice thereof given by the Executive, or any material breach of the representations and warranties set forth in Section 11;

(C) The Executive being required to relocate to a principal place of employment which is more than fifty (50) miles from Greensburg, Pennsylvania;

(D) Any purported termination by AESC of the Executive’s employment otherwise than as expressly permitted by this Agreement; or

(E) The failure of AESC to obtain the assumption in writing of its obligation to perform this Agreement as required pursuant to Section 14.

(vii) “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

8. Obligations of AESC Upon Termination. Subject to the delayed payment requirement set forth in Section 13, in the event of a termination of the Executive’s employment with AESC the Executive or his beneficiaries, heirs or estate shall be entitled to the rights, benefits and payments set forth below.

(a) Termination by AESC for Cause or Termination by Executive without Good Reason, Death or Disability. In the event of a termination of the Executive’s employment by AESC for Cause or Disability, a termination by the Executive without Good Reason, or in the event this Agreement terminates pursuant to Section 7(a) by reason of the death of the Executive:

(i) AESC shall pay all Accrued Obligations to the Executive, or to his beneficiaries, heirs or estate in the event of the Executive’s death, in a lump sum in cash within thirty (30) days of the Date of Termination.

 

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(ii) The Executive, or his beneficiaries, heirs or estate in the event of the Executive’s death, shall be entitled to receive all benefits accrued by him as of the Date of Termination under all benefit plans and qualified and nonqualified retirement, pension, 401(k) and similar plans and arrangements of AESC and AEI, in such manner and at such time as are provided under the terms of such plans and arrangements.

(iii) If the termination of employment is by reason of the Executive’s death or Disability, all stock options and other equity awards (including, without limitation, the Equity Awards) shall vest on the Date of Termination (and all options shall thereupon become fully exercisable and any stock units shall thereupon become payable), and all stock options granted to the Executive shall continue to be exercisable for the then remaining term applicable under such stock options (determined as if the Executive’s employment with AESC had not terminated).

(iv) If the termination of employment results from the Executive’s resignation other than for Good Reason (a “Qualifying Retirement”), (v) the Equity Award granted in 2008 shall vest in full on the Date of Termination, (w) the Equity Award granted in 2009 will be deemed to have vested with respect to 25% of the shares covered by each component of such Equity Award as of each of September 15, 2009, December 15, 2009, March 15, 2010 and June 15, 2010, to the extent that the Date of Termination occurs on or after such date, (x) the Equity Award granted in 2010 will be deemed to have vested with respect to 25% of the shares or units covered by each component of such Equity Award as of each of September 15, 2010, December 15, 2010, March 15, 2011 and June 15, 2011, to the extent that the Date of Termination occurs on or after such date, (y) any stock options (other than options granted pursuant to the 2011 Equity Award) granted to the Executive which are or become vested as of the Date of Termination shall continue to be exercisable for the then remaining term applicable under such stock options (determined as if the Executive’s employment with AESC had not terminated) and (z) the Equity Award granted in 2011 will be deemed to have vested on a pro rata basis consistent with the ordinary retirement provisions of the Company’s equity awards and any options granted pursuant to the 2011 Equity Award shall continue to be exercisable for the then remaining term applicable under such stock options (determined as if the Executive’s employment with AESC had not terminated).

(v) If the termination of employment is by reason of the Executive’s death or Disability or a Qualifying Retirement, the

 

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Executive, or his beneficiaries, heirs or estate in the event of the Executive’s death, shall be entitled to receive a lump sum cash payment equal to the Executive’s Target Bonus for the year of the Executive’s death, Disability or a Qualifying Retirement, pro rated for the number of days in such year that the Executive was employed with AESC, promptly, but not later than the 15th day of the third calendar month following the Date of Termination.

(vi) AESC shall pay the Executive or his beneficiaries, heirs or estate a lump sum cash payment equal to the Pension Benefit promptly, but not later than the 15th day of the third calendar month following the Date of Termination.

(b) Termination by AESC without Cause or Termination by the Executive for Good Reason. If (x) the Executive’s employment is terminated by AESC other than for Cause (i.e., without Cause), death or Disability; or (y) the Executive terminates employment with Good Reason:

(i) AESC shall pay to the Executive all Accrued Obligations in a lump sum in cash within thirty (30) days of the Date of Termination.

(ii) The Executive shall be entitled to receive all benefits accrued by him as of the Date of Termination under all benefit plans and qualified and nonqualified retirement, pension, 401(k) and similar plans and arrangements of AESC, in such manner and at such time as are provided under the terms of such plans and arrangements.

(iii) AESC shall pay to the Executive a lump sum amount equal the sum of the Executive’s Base Salary (as in effect immediately prior to the Date of Termination, determined without regard to any decrease resulting in Good Reason) plus the Executive’s Target Bonus promptly, but not later than the 15th day of the third calendar month following the Date of Termination.

(iv) For the period from the Date of Termination through the first anniversary of the Date of Termination, AESC shall either (A) arrange to provide the Executive and his dependents, at AESC’s cost, with life, disability, medical and dental coverage, whether insured or not insured, providing substantially similar benefits to those which the Executive and his dependents were receiving immediately prior to the Date of Termination, or (B) in lieu of providing such coverage, pay to the Executive no less frequently than quarterly in advance an amount

 

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which, after taxes, is sufficient for the Executive to purchase equivalent benefits coverage referred to in clause (A).

(v) AESC shall pay the Executive a lump sum cash payment equal to the Pension Benefit calculated as if the Executive had been employed through the end of the Term promptly, but not later than the 15th day of the third calendar month following the Date of Termination.

(vi) All stock options and other equity awards including, without limitation, the Equity Awards and the equity awards granted under the Original Agreement (but excluding the Equity Award granted in 2011), shall vest on the Date of Termination (and all options shall thereupon become fully exercisable and all stock units shall thereupon become payable), and all stock options granted to the Executive that are or become vested as of the Date of Termination shall continue to be exercisable for the then remaining term applicable under such stock options (determined as if the Executive’s employment with AESC had not terminated); provided, however, that if the Date of Termination occurs after the date of grant of the 2011 Equity Award, the 2011 Equity Award shall vest on the same basis as if the Executive had remained employed through June 30, 2011 and such 2011 Equity Award had vested on a pro rata basis through such date consistent with the ordinary retirement provisions of the Company’s equity awards (providing Executive six month’s vesting for any performance shares and four month’s vesting for any options granted under the 2011 Equity Award) and any options granted pursuant to the 2011 Equity Award shall continue to be exercisable for the then remaining term applicable under such stock options (determined as if the Executive’s employment with AESC had not terminated).

(vii) The Executive shall be entitled to receive a lump sum cash payment equal to the Executive’s Target Bonus for the year of the Executive’s termination, pro rated for the number of days in such year that the Executive was employed with AESC, promptly, but not later than the 15th day of the third calendar month following the Date of Termination.

(c) Termination Following Expiration of the Term. In the event of a termination of the Executive’s employment with AESC for any reason upon or following the expiration date of the Term set forth in Section 1(b), in lieu of any amounts or benefits provided under clauses (a) or (b) above:

 

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(i) AESC shall pay or provide to the Executive the amounts or benefits described in clauses (i), (ii) and (vii) of Section 8(b).

(ii) AESC shall pay the Executive a lump sum cash payment equal to the Pension Benefit promptly, but not later than the 15th day of the third calendar month following the Date of Termination.

(iii) Unless the Executive is terminated for Cause, the Equity Awards (other than the Equity Award granted in 2011) shall vest in full and all options that are or become vested as of the termination of the Executive’s employment with AESC shall continue to be exercisable for the then remaining term applicable under such stock options (determined as if the Executive’s employment with AESC had not terminated); provided, however, that the Equity Award granted in 2011 shall vest on a pro rata basis consistent with the ordinary retirement provisions of the Company’s equity awards (with such pro rata vesting being calculated from and including January of 2011 with respect to any performance shares granted pursuant to the 2011 Equity Award and from the date of grant with respect to any stock options granted pursuant to the 2011 Equity Award) any options granted pursuant to the 2011 Equity Award shall continue to be exercisable for the then remaining term applicable under such stock options (determined as if the Executive’s employment with AESC had not terminated).

9. No Mitigation. AESC agrees that the Executive is not required to seek other employment or to attempt in any way to reduce any amounts payable to the Executive by AESC hereunder. Further, the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation earned by the Executive as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by the Executive to AESC, or otherwise.

10. Covenants. In exchange for the remuneration outlined above, in addition to providing services for the AE Companies as set forth in this Agreement, the Executive agrees to the following covenants:

(a) Confidential Information. The Executive acknowledges that all Confidential Information shall at all times remain the property of the AE Companies. In this Agreement “Confidential Information” means all information including, but not limited to, proprietary information and/or trade secrets, and all information disclosed to the Executive or known by the Executive as a consequence of or through the Executive’s employment, which is not generally known to the public or in the industry

 

15


in which the AE Companies are or may become engaged, about the AE Companies’ businesses, products, processes, and services, including, but not limited to, information relating to research, development, computer program designs, computer data, flow charts, source or object codes, products or services under development, pricing and pricing strategies, marketing and selling strategies, power generating, servicing, purchasing, accounting, engineering, costs and costing strategies, sources of supply, customer lists, customer requirements, business methods or practices, training and training programs, and the documentation thereof. It will be presumed that information supplied to the AE Companies from outside sources is Confidential Information unless and until it is designated otherwise.

The Executive will safeguard, to the extent possible in the performance of his work for the AE Companies, all documents and things that contain or embody Confidential Information. Except in the course of the Executive’s duties to the AE Companies or as may be compelled by law or appropriate legal process, the Executive will not, during his employment by the AE Companies, or permanently thereafter, directly or indirectly use, divulge, disseminate, disclose, lecture upon, or publish any Confidential Information, without having first obtained written permission from the AE Companies to do so.

(b) Employment with Conflicting Organizations. During his employment by the AE Companies, the Executive will not work with or advise any person(s) conducting a business similar to the business conducted by the AE Companies, except as part of the Executive’s duties assigned by the AE Companies.

(c) Noncompetition. For a period of one (1) year after termination of the Executive’s employment with the AE Companies for any reason, whether terminated by the Executive or by the AE Companies for Cause or without Cause, the Executive will not accept employment from or aid or render services, directly or indirectly, to any Conflicting Organization unless AESC provides the Executive with its prior, express written consent.

The Executive acknowledges that his education and experience enable him to obtain employment in many different areas of endeavor and to work for different types of employers, so it will not be necessary for the Executive to violate the provisions of this Section to remain economically viable.

Conflicting Organization” means the following organizations, their subsidiaries and affiliates, and their respective successors and assigns:

 

 

 

FirstEnergy Corporation

 

16


 

 

American Electric Power, Inc.

 

 

 

Exelon Corporation

 

 

 

PPL, Inc.

 

 

 

Constellation Energy Group, Inc.

 

 

 

Potomac Electric and Power Company

 

 

 

Dominion Resources, Inc.

 

 

 

DQE, Inc.

Notwithstanding the foregoing, the provisions of this Section 10(c) and of Section 10(d) shall not apply following any breach of AESC’s obligations under Section 8 or Section 12 which remains uncured for more than ten (10) days after notice is received from the Executive of such breach.

(d) Nonsolicitation. The Executive agrees that, during his employment with AESC and for a period of two (2) years following the termination of his employment with AESC, whether terminated by the Executive or by the AE Companies with Cause or without Cause, he shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of the AE Companies to leave the AE Companies for any reason whatsoever, or hire or solicit the services of any employee of the AE Companies, unless AESC provides the Executive with its prior written consent.

(e) Reformation to Applicable Law. It is the intention of the parties that the provisions of this Section 10 shall be enforceable to the fullest extent permissible by law. If any of the provisions in this Section 10 are hereafter construed to be invalid or unenforceable in any jurisdiction, the same shall not affect the remainder of the provisions in this Section 10 or the enforceability therein in any other jurisdiction where such provisions shall be given full effect. If any provision of this Section 10 shall be deemed unenforceable, in whole or in part, this Section 10 shall be deemed to be amended to delete or modify the offending part so as to alter this Section 10 to render it valid and enforceable.

(f) Enforcement. The Executive acknowledges that valid consideration has been received, that the provisions of this Section 10 are reasonable, that they are the result of arm’s-length negotiations between the parties, that in the event of a violation of the provisions contained herein, the AE Companies’ damages would be difficult to ascertain, and that the legal remedy available to the AE Companies for any breach of this

 

17


Section 10 on the part of the Executive will be inadequate. Therefore, the Executive expressly acknowledges and agrees that in the event of any threatened or actual breach of this Section 10, the AE Companies shall be entitled to specific enforcement of this Section 10 through injunctive or other equitable relief in a court with appropriate jurisdiction.

(g) Return of Confidential Information. Upon termination of the Executive’s employment, for whatever reason, or upon request by the AE Companies, the Executive will deliver to the AE Companies all Confidential Information including, but not limited to, the originals and all copies of notes, sketches, drawings, specifications, memoranda, correspondence and documents, records, notebooks, computer systems, computer disks and computer tapes and other repositories of Confidential Information then in the Executive’s possession or under the Executive’s control, whether prepared by the Executive or by others.

11. Representations and Warranties.

(a) AESC represents and warrants that:

(i) AESC and AEI are fully authorized by action of the Board (and of any other person or body whose action is required) to enter into this Agreement and to perform their obligations hereunder; and upon the execution and delivery of this Agreement by the parties, this Agreement shall be the valid and binding obligation of AESC and AEI, enforceable against AESC and AEI in accordance with its terms.

(ii) AEI shall at all times keep authorized and in reserve, and shall keep available, solely for issuance and delivery upon the exercise of all AEI stock options awarded to the Executive, the shares of AEI Common Stock issuable upon the exercise of the stock options, and upon issuance, such shares shall be duly and validly authorized, issued and outstanding, fully paid, nonassessable and free and clear of all pledges, liens, encumbrances, adverse claims, preemptive rights, redemption rights, rights of first refusal, rights of first offer, and other restrictions (other than arising under federal or state securities or “blue sky” laws).

(iii) Each of AESC and AEI are corporations duly organized, validly existing and in good standing under the laws of the State of Maryland and have full corporate power and authority to conduct their business as proposed to be conducted.

(iv) The execution and delivery by AESC and AEI of this Agreement and the consummation of the transactions

 

18


contemplated hereby will not result in the violation of any law, statute, rule, regulation, order, writ, injunction, judgment or decree of any court or governmental authority to or by which either of them is bound, or of any provision of the Certificate of Incorporation or By-Laws of either of them, and will not conflict with, or result in a breach or violation of, any of the terms or provisions of, or constitute (with due notice or lapse of time or both) a default under, any agreement or instrument to which either of them is a party or by which either of them is bound or to which any of either of their properties or assets is subject, nor result in the creation or imposition of any lien upon any of the properties or assets of either of them. Neither AESC nor AEI is subject to any restriction which would prohibit either of them from entering into or performing its obligations under this Agreement.

(v) The issuance of the shares issuable upon any exercise of stock options or any payment of stock units, as contemplated by this Agreement, the Original Agreement and the Prior Agreement and the applicable award agreements, is in compliance with or exempt from the registration requirements of, the Securities Act of 1933, and any applicable registration or qualification requirements of the state securities or “blue sky” laws of any applicable State or other U.S. jurisdiction.

(vi) All terms relating to the equity awards granted prior to the date of this Agreement under the Allegheny Energy, Inc. 1998 Long-Term Incentive Plan or the LTIP are in compliance with terms of the respective plan pursuant to which such awards were granted. All terms relating to the Equity Awards, as set forth herein and as shall be set forth in the award agreements, will be in compliance with the LTIP.

(vii) AEI currently has directors and officers liability insurance coverage policies for an aggregate of $90 million for the period from December 1, 2006 to November 30, 2007, the terms and conditions of which are set forth in such policies. All such policies are in full force and effect, all premiums due and payable under such policies have been paid, and AEI is otherwise in compliance with the terms of such policies. To AEI’s knowledge, there has been no threatened termination of such policies.

(b) The Executive represents and warrants that, except as previously disclosed to AESC, he is not subject to any employment agreement or non-competition agreement, that could subject any of the AE Companies to any future liability or obligation to any third party as a result of the execution of this Agreement and the Executive’s continuing to serve in the positions with AESC and AEI as described above.

 

19


12. Indemnification.

(a) AESC agrees that (i) if the Executive is made a party, or is threatened to be made a party, to any threatened or actual action, suit or proceeding, whether civil, criminal, administrative, investigative, appellate or other (each, a “Proceeding”) by reason of the fact that he is or was a director, officer, employee, agent, manager, consultant or representative of any of the AE Companies or is or was serving at the request of any of the AE Companies as a director, officer, member, employee, agent, manager, consultant or representative of another entity or (ii) if any claim, demand, request, investigation, dispute, controversy, threat, discovery request or request for testimony or information (each, a “Claim”) is made, or threatened to be made, that arises out of or relates to the Executive’s service in any of the foregoing capacities, then the Executive shall promptly be indemnified and held harmless by AESC to the fullest extent legally permitted or authorized by AESC’s or AEI’s certificate of incorporation, bylaws or Board resolutions or, if greater, by the laws of the State of Maryland, against any and all costs, expenses, liabilities and losses (including, without limitation, attorney’s fees, judgments, interest, expenses of investigation, penalties, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) incurred or suffered by the Executive in connection therewith, and such indemnification shall continue as to the Executive even if he has ceased to be a director, member, employee, agent, manager, consultant or representative of AESC or other entity and shall inure to the benefit of the Executive’s heirs, executors and administrators. AESC shall advance to the Executive all costs and expenses incurred by him in connection with any such Proceeding or Claim within 15 days after receiving written notice requesting such an advance. Such notice shall include, to the extent required by applicable law, an undertaking by the Executive to repay the amount advanced if he is ultimately determined not to be entitled to indemnification against such costs and expenses.

(b) Neither the failure of any of the AE Companies (including the Board, independent legal counsel or stockholders) to have made a determination in connection with any request for indemnification or advancement under Section 12(a) that the Executive has satisfied any applicable standard of conduct, nor a determination by AESC (including the Board, independent legal counsel or stockholders) that the Executive has not met any applicable standard of conduct, shall create a presumption that the Executive has not met an applicable standard of conduct.

(c) During the Term of Employment and for a period of six years thereafter, AEI shall keep in place a directors and officers’ liability insurance policy (or policies) providing comprehensive coverage to the Executive equal to at least the greater of (i) $25,000,000 per year and (ii)

 

20


the coverage that AEI provides for any other present or former senior executive or director of AEI.

13. Withholding and Special Terms Relating to Payments and Benefits Subject to IRC Section 409A.

(a) AESC shall be entitled to withhold from payments due hereunder any required federal, state or local withholding or other taxes.

(b) Notwithstanding any other provision of this Agreement to the contrary, in the event, and to the extent that, the provision or reimbursement of costs incurred in connection with any post-termination welfare benefits provided under this Agreement results in the deferral of compensation within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) because the benefits are outside the scope of Section 1.409A-1(b)(9)(v) of the Treasury Regulations and result in the deferral of compensation within the meaning of Section 409A of the Code, then the reimbursement or provision of such benefits shall be subject to the requirements of Section 1.409A-3(i)(1)(iv) of the Treasury Regulations, and (1) reimbursements or benefits shall be provided only during the applicable period specified in the Agreement, (2) the amount of expenses eligible for reimbursement or the benefits provided in kind during a particular calendar year shall not affect the expenses eligible for reimbursement or the in kind benefits to be provided in any other calendar year, (3) the reimbursement of any eligible expense shall be made on or before December 31 of the year following the year in which the expense was incurred provided reasonable documentation of such expense is submitted to the Company within ninety (90) days after the date any such expense was incurred, and (4) the Executive’s right to reimbursement or the provision of in-kind benefits shall not be subject to liquidation or exchange for another benefit.

(c) Notwithstanding any other provision of this Agreement to the contrary, if the Executive is a Specified Employee on the effective date of the Executive’s Separation from Service and, due to the failure of an amount or other benefit that is payable under this Agreement on account of such Separation from Service (other than a Separation from Service as a result of the Executive’s death) to qualify for any of the exemptions from the definition of nonqualified deferred compensation available under Section 1.409A-1(b) of the Treasury Regulations, the Company reasonably determines that such amount or other benefit, constitutes nonqualified deferred compensation that will subject the Executive to “additional tax” under Section 409A(a)(1)(B) of the Code with respect to the payment of such amount or the provision of such benefit if paid or provided at the time specified in the Agreement, then the payment or provision thereof shall be postponed to the first business day after the six-month anniversary of the date of Executive’s Separation from Service or,

 

21


if earlier, the date of the Executive’s death (the “Delayed Payment Date”). In the event that this Section 13(c) requires a delay of more than one payment, such payments shall be accumulated and paid in a single lump sum on the Delayed Payment Date.

(d) For purposes of this Agreement, (x) the term “Specified Employee” shall mean a “specified employee” of the Company within the meaning of Section 409A(a)(2)(B)(i) of the Code, as reasonably determined by the Company, and (y) the term “Separation from Service” shall mean the date that the Executive has a “separation from service” from the Company within the meaning of Section 409A(a)(2)(A)(i) of the Code, as reasonably determined by the Company.

(e) Notwithstanding any other provision in this Agreement to the contrary, none of the payments described in Section 6(c), 8(a)(v), 8(a)(vi), 8(b)(iii), 8(b)(v), 8(b)(vii) or 8(c)(ii) shall be made prior to the date of the Executive’s Separation from Service.

(f) The parties agree that the terms and provisions of this Agreement shall be interpreted and construed to avoid subjecting the Executive to “additional tax” under Section 409A(a)(1)(B) of the Code.

(g) The Company and the Executive may agree to take other actions to avoid the imposition of additional tax on the Executive under Section 409A(a)(1)(B) of the Code at such time and in such manner as permitted under Section 409A of the Code.

14. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the beneficiaries, heirs and representatives of the Executive and the successors and assigns of AESC. AESC shall require any successor (whether direct or indirect, by purchase, merger, reorganization, consolidation, acquisition of property or stock, liquidation, or otherwise) to all or a majority of its assets or AEI’s assets, by agreement in form and substance satisfactory to the Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that AESC and AEI would be required to perform this Agreement if no such succession had taken place. Regardless of whether such agreement is executed, this Agreement shall be binding upon any successor of AESC and AEI in accordance with the operation of law and such successor shall be deemed “AESC” and/or AEI for purposes of this Agreement.

15. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand or mailed within the continental United States by first class certified mail, return receipt requested, postage prepaid, addressed as follows:

(a) the Board or AESC to:

 

22


Allegheny Energy, Inc.

800 Cabin Hill Drive

Greensburg, PA 15601

Attn: General Counsel

(b) to the Executive, to:

Paul J. Evanson

The address on file with the records of AESC

Addresses may be changed by written notice sent to the other party at the last recorded address of that party.

16. No Assignment. Except as provided in Section 14 in the case of AEI and AESC or by will or the laws of descent and distribution in the case of the Executive, this Agreement is not assignable by any party and no payment to be made hereunder shall be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or other charge.

17. Execution in Counterparts. This Agreement will be executed by the parties hereto in two or more counterparts, each of which shall be deemed to be an original, but all such counterparts shall constitute one and the same instrument, and all signatures need not appear on any one counterpart.

18. Arbitration. Except as otherwise provided herein, all disputes and claims relating directly or indirectly to this Agreement shall be settled by arbitration at New York, New York in accordance with the Federal Arbitration Act and the Commercial Arbitration Rules of the American Arbitration Association. The arbitrator shall be selected by agreement of the parties or, if they do not agree on an arbitrator within thirty (30) days after one party has notified the other of its desire to have the question settled by arbitration, then the arbitrator shall be selected pursuant to the procedures of the American Arbitration Association. The determination reached in such arbitration shall be final and binding on all parties. Any arbitration award or judgment may be entered in any court of competent jurisdiction. This agreement to arbitrate shall survive any termination or expiration of this Agreement. Notwithstanding the foregoing, claims for equitable or injunctive relief will not be subject to arbitration. Notwithstanding any provision of this Agreement to the contrary, the Executive shall be entitled to seek specific performance of the Executive’s right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. Costs of arbitration or litigation including, without limitation, attorneys’ fees of both parties shall be borne by AESC, except that each party shall bear its own costs if the arbitrator or court determines that the claims or defenses of the Executive were substantially without merit.

 

23


19. Jurisdiction and Governing Law. For all conflicts arising out of this Agreement, each party agrees to submit to the laws of the State of New York and applicable federal law without regard to conflicts of laws principles.

20. Severability. If any provision of this Agreement shall be adjudged by any court of competent jurisdiction to be invalid or unenforceable for any reason, such judgment shall not affect, impair or invalidate the remainder of this Agreement.

21. Liability of AEI. AEI shall be jointly and severally liable with AESC with respect to all obligations of AESC under this Agreement.

22. Prior Understandings. This Agreement embodies the entire understanding of the parties hereto, and supersedes all other oral or written agreements or understandings between them regarding the subject matter hereof. Other than Section 10(e), no change, alteration or modification hereof may be made except in writing, signed by each of the parties hereto. The headings in this Agreement are for convenience of reference only and shall not be construed as part of this Agreement or to limit or otherwise affect the meaning hereof.

23. Remedies Cumulative; No Waiver. No remedy conferred upon either party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder or now or hereafter existing at law or in equity. No delay or omission by either party in exercising any right, remedy or power hereunder or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by such party from time to time and as often as may be deemed expedient or necessary by such party in such party’s sole discretion.

24. Survival of Provisions. Notwithstanding anything in this Agreement to the contrary, the following provisions of this Agreement shall survive the termination of this Agreement: (x) Sections 7(c), 7(d), 8(a) and 9 to the extent that the provisions of such sections are relevant to a termination of the Executive’s employment that has occurred prior to the expiration of the Term; (y) Section 8(c), 9, 10, 11, 12, 13, 14, 16, 18, 19, 20, 21, 22 and 23; and (z) any other terms and provisions of this Agreement that by their nature extend beyond the termination of this Agreement.

25. Executive Acknowledgment. The Executive hereby acknowledges that he has read and understands the provisions of this Agreement, that he has been given the opportunity for his legal counsel to review this Agreement, that the provisions of this Agreement are reasonable and that he has received a copy of this Agreement.

 

24


IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written.

 

Allegheny Energy, Inc.

By:

 

/s/ H. Furlong Baldwin

Name:

 

H. Furlong Baldwin

Title:

 

Chairman, Management Compensation and Development Committee

Allegheny Energy Service Corporation

By:

 

/s/ H. Furlong Baldwin

Name:

 

H. Furlong Baldwin

Title:

 

Board Member

By:

 

/s/ Paul J. Evanson

Name:

 

Paul J. Evanson

 

25

 
 
 
 
 
 
 

EX-10.1 2 l32484aexv10w1.htm EX-10.1

Exhibit 10.1

ALLEGHENY ENERGY SERVICE CORPORATION
EXECUTIVE SEVERANCE PLAN

(Effective as of July 10, 2008)


 

TABLE OF CONTENTS

 

 

 

 

 

 

 

Page

 

ARTICLE I PURPOSE AND TERM OF PLAN

 

 

1

 

 

 

 

 

 

Section 1.1 Purpose of the Plan

 

 

1

 

Section 1.2 Term and Effect of the Plan

 

 

1

 

 

 

 

 

 

ARTICLE II DEFINITIONS

 

 

2

 

 

 

 

 

 

Section 2.1 “AE Companies”

 

 

2

 

Section 2.2 “Allegheny”

 

 

2

 

Section 2.3 “Average Annual Incentive Payment”

 

 

2

 

Section 2.4 “Base Salary”

 

 

2

 

Section 2.5 “Board”

 

 

2

 

Section 2.6 “Cause”

 

 

2

 

Section 2.7 “Change in Control Termination”

 

 

2

 

Section 2.8 “Code”

 

 

3

 

Section 2.9 “Committee”

 

 

3

 

Section 2.10 “Common Stock”

 

 

3

 

Section 2.11 “Company”

 

 

3

 

Section 2.12 “Effective Date”

 

 

3

 

Section 2.13 “Eligible Employee”

 

 

3

 

Section 2.14 “Employee”

 

 

3

 

Section 2.15 “Employer”

 

 

3

 

Section 2.16 “ERISA”

 

 

3

 

Section 2.17 “Exchange Act”

 

 

3

 

Section 2.18 “Good Reason Resignation”

 

 

3

 

Section 2.19 “Involuntary Termination”

 

 

4

 

Section 2.20 “Participant”

 

 

4

 

Section 2.21 “Permanent Disability”

 

 

4

 

Section 2.22 “Plan”

 

 

4

 

Section 2.23 “Plan Administrator”

 

 

4

 

Section 2.24 “Release”

 

 

4

 

Section 2.25 “Severance Benefits”

 

 

4

 

Section 2.26 “Successor”

 

 

4

 

Section 2.27 “Target Bonus”

 

 

4

 

Section 2.28 “Termination Date”

 

 

5

 

Section 2.29 “Tier 1 Employee”

 

 

5

 

Section 2.30 “Tier 2 Employee”

 

 

5

 

 

 

 

 

 

ARTICLE III PARTICIPATION AND ELIGIBILITY FOR BENEFITS

 

 

6

 

 

 

 

 

 

Section 3.1 Participation

 

 

6

 

Section 3.2 Conditions

 

 

6

 

 

 

 

 

 

ARTICLE IV DETERMINATION OF SEVERANCE BENEFITS

 

 

8

 

 

 

 

 

 

Section 4.1 Amount of Severance Benefits Upon Involuntary Termination or Good Reason Resignation

 

 

8

 

Section 4.2 Other Terminations

 

 

9

 

i


 

TABLE OF CONTENTS
(continued)

 

 

 

 

 

 

 

Page

 

Section 4.3 Termination for Cause

 

 

9

 

Section 4.4 Reduction of Severance Benefits

 

 

10

 

Section 4.5 Reimbursement of Legal Fees and Costs

 

 

10

 

 

 

 

 

 

ARTICLE V METHOD AND DURATION OF PAYMENT OF SEVERANCE BENEFITS

 

 

11

 

 

 

 

 

 

Section 5.1 Method of Payment

 

 

11

 

Section 5.2 Termination of Eligibility for Benefits

 

 

11

 

 

 

 

 

 

ARTICLE VI COVENANTS

 

 

12

 

 

 

 

 

 

Section 6.1 General

 

 

12

 

Section 6.2 Confidential Information

 

 

12

 

Section 6.3 Employment with Conflicting Organizations

 

 

12

 

Section 6.4 Non-Competition

 

 

12

 

Section 6.5 Non-Solicitation

 

 

13

 

Section 6.6 Return of Confidential Information

 

 

13

 

Section 6.7 Cooperation

 

 

13

 

Section 6.8 Non-Disparagement

 

 

14

 

Section 6.9 Equitable Relief

 

 

14

 

Section 6.10 Survival of Provisions

 

 

15

 

 

 

 

 

 

ARTICLE VII PLAN ADMINISTRATION; DUTIES OF THE COMPANY, THE COMMITTEE AND THE PLAN ADMINISTRATOR; AND CLAIMS

 

 

16

 

 

 

 

 

 

Section 7.1 Authority and Duties

 

 

16

 

Section 7.2 Payment

 

 

16

 

Section 7.3 Discretion

 

 

16

 

Section 7.4 Claims Administration

 

 

16

 

 

 

 

 

 

ARTICLE VIII AMENDMENT, TERMINATION AND DURATION

 

 

18

 

 

 

 

 

 

Section 8.1 Amendment, Suspension and Termination

 

 

18

 

Section 8.2 Duration

 

 

18

 

 

 

 

 

 

ARTICLE IX MISCELLANEOUS

 

 

19

 

 

 

 

 

 

Section 9.1 Nonalienation of Benefits

 

 

19

 

Section 9.2 Notices

 

 

19

 

Section 9.3 Successors

 

 

19

 

Section 9.4 Other Payments

 

 

19

 

Section 9.5 No Mitigation

 

 

19

 

Section 9.6 No Contract of Employment

 

 

19

 

Section 9.7 Severability of Provisions

 

 

19

 

Section 9.8 Heirs, Assigns, and Personal Representatives

 

 

19

 

Section 9.9 Headings and Captions

 

 

20

 

Section 9.10 Gender and Number

 

 

20

 

Section 9.11 Unfunded Plan

 

 

20

 

ii


 

TABLE OF CONTENTS
(continued)

 

 

 

 

 

 

 

Page

 

Section 9.12 Payments to Incompetent Persons

 

 

20

 

Section 9.13 Lost Payees

 

 

20

 

Section 9.14 Controlling Law

 

 

20

 

Section 9.15 Code Section 409A Compliance

 

 

20

 

 

 

 

 

 

SCHEDULE A ELIGIBLE EMPLOYEES

 

 

A-1

 

 

 

 

 

 

SCHEDULE B RELEASE AGREEMENT

 

 

B-1

 

 

 

 

 

 

SCHEDULE C ADDITIONAL BENEFITS

 

 

C-1

 

iii


 

ARTICLE I

PURPOSE AND TERM OF PLAN

     Section 1.1 Purpose of the Plan. The purpose of the Plan is to provide Eligible Employees with certain severance benefits as set forth in the Plan in the event the Eligible Employee’s employment with the AE Companies is terminated due to an Involuntary Termination or a Good Reason Resignation. The Plan is not intended to be an “employee pension benefit plan” or “pension plan” within the meaning of section 3(2) of ERISA. Rather, this Plan is intended to be a “welfare benefit plan” within the meaning of section 3(1) of ERISA and to meet the descriptive requirements of a plan constituting a “severance pay plan” within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations, section 2510.3-2(b). Accordingly, the benefits paid by the Plan are not deferred compensation for purposes of ERISA and no Employee shall have a vested right to such benefits.

     Section 1.2 Term and Effect of the Plan. The Plan generally shall be effective as of the Effective Date and shall supersede any prior plan, program, policy, or agreement under which the AE Companies provided severance benefits prior to the Effective Date of the Plan. Notwithstanding the foregoing, the Plan shall not: (i) apply to any Employee who is subject to an existing employment or severance agreement pursuant to which the Company or any of the other AE Companies has arranged to provide severance benefits to the Employee until the term of such agreement expires (or, if earlier, such date as the Employee executes an acknowledgement that the Plan supersedes such agreement); or (ii) supersede any plan, program, policy or agreement pursuant to which the Company or any of the other AE Companies has arranged to provide severance benefits to an Employee in connection with the occurrence of a change in control. Further, the Plan shall not be construed so as to supersede any prior or existing plan, program, policy or agreement (or any portion of such prior arrangement) pursuant to which an Eligible Employee accrued benefits other than severance benefits. The Plan shall continue until terminated pursuant to Article VIII of the Plan.

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ARTICLE II

DEFINITIONS

     Section 2.1 AE Companies” shall mean the Company, Allegheny, the affiliates and subsidiaries of Allegheny and the Company, and any successor or assigns of any of the foregoing.

     Section 2.2 Allegheny” shall mean Allegheny Energy, Inc., the Company’s parent, and any successor to all or a major portion of the assets or business of Allegheny Energy, Inc.

     Section 2.3 Average Annual Incentive Payment” shall mean the average of the actual annual incentive payments paid to the Participant pursuant to the annual bonus or incentive program of the AE Companies as in effect from time to time for each of the full and completed fiscal years (up to a maximum of three full and completed fiscal years) immediately preceding the Participant’s Termination Date. For a Participant who has not been employed long enough to receive any annual bonus or incentive payment from the AE Companies for a full and completed fiscal year, Average Annual Incentive Payment shall be deemed to be: (i) 50% of the Participant’s Base Salary for a Tier 1 Employee; and (ii) 30% of the Participant’s Base Salary for a Tier 2 Employee.

     Section 2.4 Base Salary” shall mean the annual base salary in effect as of the Participant’s Termination Date.

     Section 2.5 Board” shall mean the Board of Directors of Allegheny, or any successor thereto.

     Section 2.6 Cause” shall mean an Eligible Employee’s: (i) conviction of, or plea of guilty or nolo contendere to, (A) a felony, or (B) a lesser crime or offense which, in the reasonable opinion of the Company, could adversely affect the business or reputation of the AE Companies; (ii) repeated failure to follow specific lawful directions of the Board or any officer to whom he reports; (iii) willful misconduct, fraud, embezzlement, or dishonesty either in connection with his duties to the AE Companies or which otherwise causes damage or, in the reasonable opinion of the Company, is likely to cause damage, to the AE Companies; (iv) failure to perform a substantial part of his duties following notice and a reasonable opportunity to cure (if such failure is capable of cure); (v) material violation of any policy, procedure, or guideline of the AE Companies following notice and a reasonable opportunity to cure (if such violation is capable of cure); (vi) abuse of alcohol or legal drugs which has a significant effect on his ability to perform his duties or the Eligible Employee’s use of illegal drugs; or (vii) violation of any applicable confidentiality, non-competition, non-solicitation, or non-disparagement covenants relating to the AE Companies (including, without limitation, the covenants set forth in Article VI). The Committee, in its sole and absolute discretion, shall determine Cause.

     Section 2.7 Change in Control Termination” shall mean an Eligible Employee’s termination of employment that occurs in connection with a change in control and that results in the Employee receiving severance payments or other benefits under the Allegheny Energy Service Corporation Executive Change in Control Severance Plan or any other plan, program,

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agreement or arrangement on account of such change in control. For purposes of this Section, the term “change in control” shall have the meaning as defined in the Allegheny Energy Service Corporation Executive Change in Control Severance Plan or such other plan, program, agreement or arrangement, as applicable.

     Section 2.8 Code” shall mean the Internal Revenue Code of 1986, as amended.

     Section 2.9 Committee” shall mean the Management Compensation and Development Committee of the Board or such other committee appointed by the Board to assist the Company in making determinations required under the Plan in accordance with its terms. The Committee may delegate all or a portion of its authority under the Plan to an individual or another committee.

     Section 2.10 Common Stock” shall mean the Common Stock of Allegheny.

     Section 2.11 Company” shall mean Allegheny Energy Service Corporation and any successor to all or a major portion of the assets or business of Allegheny Energy Service Corporation.

     Section 2.12 Effective Date” shall mean July 10, 2008.

     Section 2.13 Eligible Employee” shall mean any Employee who is employed by the AE Companies as a Vice President or in a more senior position and who is designated for participation in the Plan by the Committee or, pursuant to authority delegated to him by the Committee, the Company’s Chief Executive Officer. The Employees who have been designated as Eligible Employees are set forth in Schedule A as amended and updated by the Company from time to time.

     Section 2.14 Employee” shall mean a person who receives salary, wages or commissions from the AE Companies that are subject to withholding for the purposes of federal income and employment taxes. The term Employee shall not include an independent contractor or any other person who the Committee or its designee determines is not subject to withholding for purposes of federal income and employment taxes, regardless of any contrary governmental or judicial determination relating to such employment or withholding tax status.

     Section 2.15 Employer” shall mean the Company or any of the AE Companies with respect to which this Plan has been adopted.

     Section 2.16 ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, and regulations thereunder.

     Section 2.17 Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

     Section 2.18 Good Reason Resignation” shall mean an Eligible Employee’s written resignation within 60 days of the occurrence of any reduction in the Eligible Employee’s then-current annual Base Salary or Target Bonus without the Eligible Employee’s consent, unless such events are fully corrected by the Company within ten days following receipt of written notice

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from the Eligible Employee; provided, however, that a uniform percentage reduction in the annual Base Salary or Target Bonus of all Employees employed as a Vice President or in a more senior position of less than 5% shall not constitute a basis for a Good Reason Resignation.

     Section 2.19 Involuntary Termination” shall mean an Eligible Employee’s termination of employment initiated by the AE Companies for any reason other than Cause as provided under and subject to the conditions of Article III. Involuntary Termination does not include a termination of employment due to a Permanent Disability or death.

     Section 2.20 Participant” shall mean any Eligible Employee who meets the requirements of Article III and thereby becomes eligible for benefits under the Plan.

     Section 2.21 Permanent Disability” shall mean that an Employee has a permanent and total incapacity from engaging in any employment for the Employer for physical or mental reasons. A “Permanent Disability” shall be deemed to exist: (i) if the Employee meets the requirements for disability benefits under the Employer’s long-term disability plan; (ii) if the Employee is not covered by a long-term disability plan of the Employer, the Employee satisfies the requirements to receive disability benefits under the Social Security law then in effect; or (iii) if the Employee is designated with an inactive employment status at the end of a disability or medical leave.

     Section 2.22 Plan” shall mean the Allegheny Energy Service Corporation Executive Severance Plan as set forth herein, and as the same may from time to time be amended.

     Section 2.23 Plan Administrator” shall mean the individual(s) appointed by the Committee to administer the terms of the Plan as set forth herein and if no individual is appointed by the Committee to serve as the Plan Administrator for the Plan, the Plan Administrator shall be the Company’s Vice President who is responsible for human resources. Notwithstanding the preceding sentence, in the event the Plan Administrator is entitled to Severance Benefits under the Plan, the Committee or its delegate shall act as the Plan Administrator for purposes of administering the terms of the Plan with respect to the Plan Administrator. The Plan Administrator may delegate all or any portion of its authority under the Plan to any other person(s).

     Section 2.24 Release” shall mean a release and discharge of the AE Companies and all affiliated persons and entities from any and all claims, demands and causes of action, other than as to amounts or benefits due to the Participant under any qualified employee retirement plan of the AE Companies, which shall be substantially in the form attached hereto as Schedule B.

     Section 2.25 Severance Benefits” shall mean the severance benefits that a Participant is eligible to receive pursuant to Article IV.

     Section 2.26 Successor” shall mean any other corporation or unincorporated entity or group of corporations or unincorporated entities which acquires ownership, directly or indirectly, through merger, consolidation, purchase or otherwise, of all or substantially all of the assets of the Company or Allegheny.

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     Section 2.27 Target Bonus” shall mean the Participant’s annual target bonus opportunity under Allegheny’s Annual Incentive Plan (or any other such successor plan or arrangement).

     Section 2.28 Termination Date” shall mean the date on which the active employment of the Eligible Employee by the AE Companies is severed for any reason.

     Section 2.29 Tier 1 Employee” shall mean an Eligible Employee who is designated as such by the Company, in its sole discretion.

     Section 2.30 Tier 2 Employee” shall mean an Eligible Employee who is designated as such by the Company, in its sole discretion.

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ARTICLE III

PARTICIPATION AND ELIGIBILITY FOR BENEFITS

     Section 3.1 Participation. Each Eligible Employee in the Plan who incurs an Involuntary Termination or a Good Reason Resignation (other than an Involuntary Termination or Good Reason Resignation that constitutes a Change in Control Termination) and who satisfies the conditions of Section 3.02 shall be eligible to receive the Severance Benefits described in the Plan. An Eligible Employee shall not be eligible to receive any other severance benefits from the AE Companies on account of an Involuntary Termination or a Good Reason Resignation, unless otherwise provided in the Plan.

     Section 3.2 Conditions.

          (a) Eligibility for any Severance Benefits is expressly conditioned on: (i) an Eligible Employee’s written acknowledgment and agreement to comply with the confidentiality, non-competition, non-solicitation, and non-disparagement provisions in Article VI during and after the Eligible Employee’s employment with the AE Companies; (ii) to the extent requested by the Company, execution of a written acknowledgement and agreement that this Plan supersedes an existing arrangement that provides severance benefits to the Eligible Employee and/or that the Eligible Employee is no longer entitled to receive severance benefits pursuant to a prior arrangement that has expired; (iii) execution by the Participant of a Release in the form provided by the Company within 60 days following the Participant’s Termination Date (or such shorter period of time specified in the Release); and (iv) execution by the Participant of a written agreement that authorizes the deduction of amounts owed to the Company prior to the payment of any Severance Benefits (or in accordance with any other schedule as the Committee may, in its sole discretion, determine to be appropriate); provided, that such deduction is not in violation of Code section 409A.

          (b) If the Committee determines, in its sole discretion, that the Participant has not fully complied with any of the terms of the Release, the Committee may deny Severance Benefits not yet in pay status or discontinue the payment of the Participant’s Severance Benefits and may require the Participant, by providing written notice of such repayment obligation to the Participant, to repay any portion of the Severance Benefits already received under the Plan. If the Committee notifies a Participant that repayment of all or any portion of the Severance Benefits received under the Plan is required, such amounts shall be repaid within 30 calendar days of the date the written notice is sent. Any remedy under this paragraph (b) shall be in addition to, and not in place of, any other remedy, including injunctive relief, that the AE Companies may have.

          (c) An Eligible Employee who experiences a termination of employment that is not an Involuntary Termination or a Good Reason Resignation shall not be eligible to receive Severance Benefits under the Plan. Specifically, and without limiting the foregoing, an Eligible Employee shall not be eligible to receive Severance Benefits upon the Eligible Employee’s: (i) voluntary resignation or retirement (other than a voluntary resignation or retirement that constitutes a Good Reason Resignation); (ii) Change in Control Termination; (iii) resignation of employment (other than a Good Reason Resignation) before the job-end date specified by the

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Employer or while the Employer still desires the Eligible Employee’s services; (iv) termination for Cause; (v) termination due to death or Permanent Disability; or (vi) failure to return to work within six months of the onset of an approved leave of absence, other than a military leave and/or as otherwise required by applicable statute. Further, an Eligible Employee shall not be eligible to receive Severance Benefits upon his termination of employment if the Eligible Employee receives severance benefits pursuant to another plan, policy, program or arrangement providing benefits upon a termination of employment.

          (d) Except as otherwise set forth herein, the Committee has the sole discretion to determine an Eligible Employee’s eligibility to receive Severance Benefits.

          (e) An Eligible Employee returning from approved military leave shall be eligible for Severance Benefits if: (i) he or she is eligible for reemployment under the provisions of the Uniformed Services Employment and Reemployment Rights Act; (ii) his or her pre-military leave job is eliminated; and (iii) the Employer’s circumstances are changed so as to make reemployment in another position impossible or unreasonable, or re-employment would create an undue hardship for the Employer. If the Eligible Employee returning from military leave qualifies for Severance Benefits, his or her Severance Benefits will be calculated as if he or she had remained continuously employed from the date he or she began his or her military leave. The Eligible Employee must also satisfy any other relevant conditions for payment, including execution of a Release.

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ARTICLE IV

DETERMINATION OF SEVERANCE BENEFITS

     Section 4.1 Amount of Severance Benefits Upon Involuntary Termination or Good Reason Resignation. The Severance Benefits to be provided to a Participant who incurs an Involuntary Termination or a Good Reason Resignation and who satisfies the conditions of Section 3.02 shall be as follows:

          (a) Salary and Bonus Severance. Participants shall receive salary and bonus severance as follows:

               (i) Tier 1 Employees shall receive salary and bonus severance equal to 200% of the sum of (A) the Tier 1 Employee’s Base Salary, plus (B) the Tier 1 Employee’s Average Annual Incentive Payment (with both Base Salary and Average Annual Incentive Payment being determined without regard to any decrease in such Base Salary or Average Annual Incentive Payment that would constitute a basis for a Good Reason Resignation).

               (ii) Tier 2 Employees shall receive salary and bonus severance equal to 100% of the sum of (A) the Tier 2 Employee’s Base Salary, plus (B) the Tier 2 Employee’s Average Annual Incentive Payment (with both Base Salary and Average Annual Incentive Payment being determined without regard to any decrease in such Base Salary or Average Annual Incentive Payment that would constitute a basis for a Good Reason Resignation).

               (iii) Both Tier 1 and Tier 2 Employees shall receive a pro-rata bonus amount for the year of termination equal to the product of the Participant’s Average Annual Incentive Payment and a fraction, the numerator of which is the number of days during which the Participant was employed in the current fiscal year through the Participant’s Termination Date, and the denominator of which is 365.

          (b) Benefit Coverage Premiums. Participants shall receive a lump sum amount equal to $30,000 for a Tier 1 Employee and $20,000 for a Tier 2 Employee to reimburse Participants for premiums to continue medical and dental coverage under the benefit plans of the AE Companies or, if coverage is unavailable under the benefit plans of the AE Companies, to purchase it from an independent third-party.

          (c) Stock Options. The shares of Common Stock covered by any option granted to a Participant under the terms of the Allegheny Energy, Inc. 1998 Long-Term Incentive Plan (the “1998 LTIP”) or the Allegheny Energy, Inc. 2008 Long-Term Incentive Plan (the “2008 LTIP”) and held by the Participant as of the Participant’s Termination Date shall vest on a pro-rated basis in an amount equal to: (i) the total number of shares covered by the option multiplied by a fraction, the numerator of which is the number of full months of the Participant’s employment with the AE Companies commencing on the date of grant of the option (as determined under the applicable option award agreement) and ending on the Participant’s Termination Date and the denominator of which is the number of months of employment with the AE Companies necessary for a Participant to become fully vested in the option (as determined by the terms of the applicable option grant agreement), less (ii) the number of shares

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covered by the option that are already vested as of the Participant’s Termination Date. Further, all shares of Common Stock covered by an option granted to a Participant under the terms of the 1998 LTIP or the 2008 LTIP that are vested as of the Participant’s Termination Date (including those shares of Common Stock that become vested by operation of this Section 4.01(c)) shall remain exercisable until the earlier of the close of business of the day immediately prior to the date the option expires (as determined under the applicable option award agreement) or the three-year anniversary of the Participant’s Termination Date. In addition to the option vesting provisions described in this Section 4.01(c), a Participant’s options shall be subject to the special vesting conditions, if any, described in Schedule C.

          (d) Performance Awards. A Participant shall be eligible to receive a pro-rated share of any outstanding award of performance shares of Common Stock granted to a Participant in accordance with the terms of the 2008 LTIP (a “Performance Award”). This pro-rated share of any Performance Award shall be calculated by multiplying: (i) the Performance Award the Participant would have earned for the full performance period based on the performance of the AE Companies as determined at the end of the applicable performance period by (ii) a fraction, the numerator of which is the number of full months of the Participant’s participation in the 2008 LTIP during the applicable performance period for the Performance Award and the denominator of which is the total number of months in the applicable performance period for the Performance Award.

          (e) SERP Credit. A Participant shall participate in the Supplemental Executive Retirement Plan (the “SERP”) on the terms and conditions set forth therein except that if the Participant has five years of service under the SERP on the Participant’s Termination Date, the Participant shall vest in his SERP benefit (based on “years of service” and “compensation” (as those terms are defined in the SERP) accrued by the Participant up through the Participant’s Termination Date). In addition to the benefit described in this Section 4.01(e), the Participant shall also receive such additional SERP benefit, if any, described in Schedule C.

          (f) The provisions of this Plan may provide for payments to the Participant under certain compensation or bonus plans of the AE Companies under circumstances where such plans would not otherwise provide for payment thereof. It is the specific intention of the Company that the provisions of this Plan shall supersede any provisions to the contrary in such plans, to the extent permitted by applicable law, and such plans shall be deemed to have been amended to correspond with this Plan without further action by the Company or the Board.

     Section 4.2 Other Terminations. If the Eligible Employee’s employment terminates on account of a reason other than an Involuntary Termination or a Good Reason Resignation or the Eligible Employee does not otherwise satisfy the conditions of Section 3.02, the Eligible Employee shall not be entitled to receive Severance Benefits under this Plan and shall be entitled only to those benefits (if any) as may be available under the Company’s then-existing benefit plans and policies at the time of such termination.

     Section 4.3 Termination for Cause. If any Eligible Employee’s employment terminates on account of termination by the Company for Cause, the Eligible Employee shall not be entitled to receive Severance Benefits under this Plan and shall be entitled only to those benefits that are legally required to be provided to the Eligible Employee. Notwithstanding any

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other provision of the Plan to the contrary, if the Committee determines that an Eligible Employee engaged in conduct that constituted Cause at any time prior to the Eligible Employee’s Termination Date, any Severance Benefits payable to the Eligible Employee under Section 4.01 shall immediately cease, and the Eligible Employee shall be required to return any Severance Benefits paid to the Eligible Employee prior to such determination. If the Company has offset other payments owed to the Eligible Employee under any other plan or program, it may, in its sole discretion, waive its repayment right solely with respect to the amount of the offset so credited.

     Section 4.4 Reduction of Severance Benefits. The Plan Administrator reserves the right to make deductions in accordance with applicable law for any monies owed to the AE Companies by the Participant or the value of the property of the AE Companies that the Participant has retained in his or her possession; provided, however, that no such deduction shall be made in violation of Code section 409A.

     Section 4.5 Reimbursement of Legal Fees and Costs. All costs and expenses (including court and arbitration costs and reasonable legal fees and expenses that reflect common practice with respect to the matters involved) incurred by a Participant as a result of any claim, action or proceeding arising out of the Plan or the contesting, disputing or enforcing of any provision, right or obligation under the Plan shall be paid, or reimbursed to the Participant if the Participant is the prevailing party on any material claim with respect to the Plan.

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ARTICLE V

METHOD AND DURATION OF PAYMENT OF SEVERANCE BENEFITS

     Section 5.1 Method of Payment.

          (a) Payment of Cash Severance Benefits. The Severance Benefits described in Sections 4.01(a) and (b) to which a Participant is entitled shall be paid to the Participant in a single lump sum payment six months after the Participant’s Termination Date. Payment shall be made by mailing to the last address provided by the Participant to the Company or such other reasonable method as determined by the Plan Administrator.

          (b) Payment of Performance Award Severance Benefits. The Performance Award benefit described in Section 4.01(d) shall be paid upon the completion of the applicable performance period for the Performance Award, but in no event later than two and one-half months thereafter.

          (c) Payment of SERP Severance Benefits. The SERP benefit described in Section 4.01(e) shall be payable on the later of (i) six months after the Participant’s Termination Date, or (ii) the date the Participant reaches age 55.

          (d) Other. All payments of Severance Benefits are subject to applicable federal, state and local taxes and withholdings. In the event of the Participant’s death prior to payment being made, the amount of such payment shall be paid to the Participant’s estate. In no event will interest be credited on the unpaid balance for which a Participant may become eligible.

     Section 5.2 Termination of Eligibility for Benefits. All Eligible Employees shall cease to be eligible to participate in the Plan, and the payment of all Severance Benefits shall cease upon the occurrence of the earlier of: (i) subject to Article VIII, termination or modification of the Plan; or (ii) completion of payment to the Participant of the Severance Benefits for which the Participant is eligible under Article IV. Further, notwithstanding anything in the Plan to the contrary, the Committee shall have the right to cease the payment of all Severance Benefits and to recover payments previously made to the Participant should the Participant at any time breach the Participant’s undertakings under the terms of the Plan (including, without limitation, a determination that the Participant engaged in conduct that constitutes Cause), the Release the Participant executed to obtain the Severance Benefits under the Plan, or the covenants set forth in Article VI.

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ARTICLE VI

COVENANTS

     Section 6.1 General. Upon the Eligible Employee’s execution of the written acknowledgment and agreement referred to in Section 3.02, the Eligible Employee shall be subject to the covenants described in this Article VI during the Eligible Employee’s period of employment with the AE Companies and at any time thereafter (except to the extent the duration of a covenant extending after an Eligible Employee’s termination of employment is specifically limited as described below).

     Section 6.2 Confidential Information. The Eligible Employee acknowledges that all Confidential Information (as defined below) shall at all times remain the property of the AE Companies. For purposes of this Plan, “Confidential Information” means all information including, but not limited to, proprietary information and/or trade secrets, and all information disclosed to the Eligible Employee or known by the Eligible Employee as a consequence of or through the Eligible Employee’s employment, which is not generally known to the public or in the industry in which the AE Companies are or may become engaged, about the AE Companies’ businesses, products, processes, and services, including, but not limited to, information relating to research, development, computer program designs, computer data, flow charts, source or object codes, products or services under development, pricing and pricing strategies, marketing and selling strategies, power generating, servicing, purchasing, accounting, engineering, costs and costing strategies, sources of supply, customer lists, customer requirements, business methods or practices, training and training programs, and the documentation thereof. It will be presumed that information supplied to the AE Companies from outside sources is Confidential Information unless and until it is designated otherwise.

     The Eligible Employee will safeguard, to the extent possible in the performance of his work for the AE Companies, all documents and things that contain or embody Confidential Information. Except in the course of the Eligible Employee’s duties to the AE Companies or as may be compelled by law or appropriate legal process, the Eligible Employee will not, during his employment by the AE Companies, or permanently thereafter, directly or indirectly use, divulge, disseminate, disclose, lecture upon, or publish any Confidential Information, without having first obtained written permission from the AE Companies to do so.

     Section 6.3 Employment with Conflicting Organizations. During an Eligible Employee’s employment with the AE Companies, the Eligible Employee shall not work with or advise any person(s) conducting a business conducted by the AE Companies, except as part of the Eligible Employee’s duties assigned by the AE Companies.

     Section 6.4 Non-Competition. For a period of one year after termination of the Eligible Employee’s employment with the AE Companies for any reason, whether the termination is initiated by the AE Companies or the Eligible Employee, the Eligible Employee will not accept employment from or aid or render services, directly or indirectly, to any Conflicting Organization (as defined below) unless the Company provides the Eligible Employee with its prior, express written consent. For purposes of the Plan, “Conflicting Organization

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means the following organizations, their subsidiaries and affiliates, and their respective successors and assigns:

 

 

FirstEnergy Corporation

 

 

 

American Electric Power, Inc.

 

 

 

Exelon Corporation

 

 

 

PPL Corporation

 

 

 

Constellation Energy Group, Inc.

 

 

 

Pepco Holdings, Inc.

 

 

 

Dominion Resources, Inc.

 

 

 

DQE, Inc.

     Notwithstanding the foregoing, the Participant shall not be subject to the requirements of this Section 6.04 if the Company or any of the AE Companies materially breach their obligations under the Plan.

     Section 6.5 Non-Solicitation. The Eligible Employee agrees that, during his employment with the AE Companies and for a period of two years following the termination of his employment, whether the termination is initiated by the Company or the Eligible Employee, he shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of the AE Companies to leave the AE Companies for any reason whatsoever, or hire or solicit the services of any employee of the AE Companies, unless the Company provides the Eligible Employee with its prior, express written consent. Notwithstanding the foregoing, the Participant shall not be subject to the requirements of this Section 6.05 if the Company or any of the AE Companies materially breach their obligations under the Plan.

     Section 6.6 Return of Confidential Information. Upon termination of the Eligible Employee’s employment, for whatever reason, whether the termination is initiated by the Company or the Eligible Employee, or upon request by the AE Companies, the Eligible Employee will deliver to the AE Companies all Confidential Information including, but not limited to, the originals and all copies of notes, sketches, drawings, specifications, memoranda, correspondence and documents, records, notebooks, computer systems, computer disks and computer tapes and other repositories of Confidential Information then in the Eligible Employee’s possession or under the Eligible Employee’s control, whether prepared by the Eligible Employee or by others.

     Section 6.7 Cooperation. If the Eligible Employee’s employment with the AE Companies is terminated, following the Termination Date, the Eligible Employee agrees to reasonably cooperate with the AE Companies and their counsel in connection with any matter that arises from or relates to the Eligible Employee’s relationship with the AE Companies by

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providing information, reviewing documents, answering questions, or appearing as a witness in connection with any administrative proceeding, investigation, or litigation; provided, that such cooperation will not interfere with the Eligible Employee’s commitment and responsibilities with any subsequent employer. The AE Companies will pay the Eligible Employee’s reasonable expenses, including travel, incurred in connection with such cooperation.

     Section 6.8 Non-Disparagement. Each of the Eligible Employee and the Company (for purposes hereof, the Company shall mean only the executive officers and directors of the AE Companies and not any other employees) agrees not to make any statements that disparage the other party, or in the case of the AE Companies, their respective affiliates, employees, officers, directors, products, or services. Notwithstanding the foregoing, statements made in the course of sworn testimony in administrative, judicial, or arbitral proceedings (including, without limitation, depositions in connection with such proceedings) shall not be subject to this Section 6.08.

     Section 6.9 Equitable Relief.

          (a) By participating in the Plan, the Eligible Employee acknowledges that the restrictions contained in this Article VI are reasonable and necessary to protect the legitimate interests of the AE Companies, that the Company would not have established this Plan in the absence of such restrictions, and that any violation of any provision of this Article VI will result in irreparable injury to the AE Companies. By agreeing to participate in the Plan, the Eligible Employee represents that his or her experience and capabilities are such that the restrictions contained in this Article VI will not prevent the Eligible Employee from obtaining employment or otherwise earning a living at the same general level of economic benefit as is currently the case.

          (b) The Eligible Employee agrees that the AE Companies shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as an equitable accounting of all earnings, profits, and other benefits arising from any violation of this Article VI, which rights shall be cumulative and in addition to any other rights or remedies to which the AE Companies may be entitled. It is the intention of the parties that the provisions of this Article VI shall be enforceable to the fullest extent permissible by law. If any of the provisions in this Article VI are hereafter construed to be invalid or unenforceable in any jurisdiction, the same shall not affect the remainder of the provisions in this Article VI or the enforceability therein in any other jurisdiction where such provisions shall be given full effect. If any provision of this Article VI shall be deemed unenforceable, in whole or in part, this Article VI shall be deemed to be amended to delete or modify the offending part so as to alter this Article VI to render it valid and enforceable.

          (c) The Eligible Employee irrevocably and unconditionally: (i) agrees that any suit, action, or other legal proceeding arising out of this Article VI, including without limitation, any action commenced by the AE Companies for preliminary and permanent injunctive relief or other equitable relief, may be brought in the United States District Court for the Western District of Pennsylvania, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Pennsylvania; (ii) consents to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding; (iii) waives any right to a jury trial; and (iv) waives any objection which the Eligible Employee may have to the

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laying of venue of any such suit, action or proceeding in any such court. Eligible Employees also irrevocably and unconditionally consent to the service of any process, pleadings, notices or other papers in a manner permitted by the notice provisions of Section 9.02.

     Section 6.10 Survival of Provisions. The obligations contained in this Article VI shall survive the termination of an Eligible Employee’s employment with the AE Companies and shall be fully enforceable thereafter.

15


 

ARTICLE VII

PLAN ADMINISTRATION; DUTIES OF THE COMPANY, THE COMMITTEE AND
THE PLAN ADMINISTRATOR; AND CLAIMS

     Section 7.1 Authority and Duties. It shall be the duty of the Plan Administrator, on the basis of information supplied to it by the Company and the Committee, to properly administer the Plan. The Plan Administrator shall have the full power, authority, and discretion to construe, interpret, and administer the Plan, to make factual determinations, to correct deficiencies therein, and to supply omissions. All decisions, actions, and interpretations of the Plan Administrator shall be final, binding, and conclusive upon the parties, subject only to determinations by the Plan Administrator, with respect to denied claims for Severance Benefits. The Plan Administrator may adopt such rules and regulations and may make such decisions as it deems necessary or desirable for the proper administration of the Plan. The Plan Administrator shall be a “named fiduciary” within the meaning of ERISA.

     Section 7.2 Payment. Payments of Severance Benefits to Participants shall be made in such amount as determined by the Committee under Article IV, from the Company’s general assets, in accordance with the terms of the Plan, as directed by the Committee.

     Section 7.3 Discretion. Any decisions, actions or interpretations to be made under the Plan by the Board, the Committee and the Plan Administrator, acting on behalf of either, shall be made in each of their respective sole discretion, not in any fiduciary capacity and need not be uniformly applied to similarly situated individuals and such decisions, actions or interpretations shall be final, binding and conclusive upon all parties. As a condition of participating in the Plan, the Eligible Employee acknowledges that all decisions and determinations of the Board, the Committee, and the Plan Administrator shall be final and binding on the Eligible Employee, his or her beneficiaries, and any other person having or claiming an interest under the Plan on his or her behalf; provided, however, that the Eligible Employee shall have the right to challenge any such decisions and determinations in accordance with the claims and appeals procedures set forth in Section 7.04 and applicable law.

     Section 7.4 Claims Administration.

          (a) Each Participant under this Plan may contest only the calculation and administration of the Severance Benefits awarded by completing and filing with the Plan Administrator a written request for review in the manner specified by the Plan Administrator. No claim or appeal is permissible as to a Participant’s eligibility for or amount of Severance Benefits or as to whether a Participant’s termination constitutes an Involuntary Termination or a Good Reason Resignation, which are decisions made solely within the discretion of the Company, and the Committee acting on behalf of the Company. No person may bring an action for any alleged wrongful denial of Plan benefits in a court of law unless the claims procedures described in this Article VII are exhausted and a final determination is made by the Plan Administrator. If the terminated Participant or interested person challenges a decision by the Plan Administrator, a review by the court of law will be limited to the facts, evidence and issues presented to the Plan Administrator during the claims procedure set forth in this Article VII. Facts and evidence that become known to the terminated Participant or other interested person

16


 

after having exhausted the claims procedure must be brought to the attention of the Plan Administrator for reconsideration. Issues not raised with the Plan Administrator will be deemed waived.

          (b) Before the date on which payment of Severance Benefits commence, each such application must be supported by such information as the Plan Administrator deems relevant and appropriate. In the event that any claim relating to the administration of Severance Benefits is denied in whole or in part, the terminated Participant or his or her beneficiary (the “Claimant”) whose claim has been so denied shall be notified of such denial in writing by the Plan Administrator within 90 days after the receipt of the claim for benefits. This period may be extended an additional 90 days if the Plan Administrator determines such extension is necessary and the Plan Administrator provides notice of extension to the Claimant prior to the end of the initial 90-day period. The notice advising of the denial shall specify the following: (i) the reason or reasons for denial; (ii) make specific reference to the Plan provisions on which the determination was based; (iii) describe any additional material or information necessary for the Claimant to perfect the claim (explaining why such material or information is needed); and (iv) describe the Plan’s review procedures and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring a civil action under section 502(a) of ERISA following an adverse benefit determination on review.

          (c) A Claimant whose claim has been denied shall file with the Plan Administrator a notice of appeal of the denial. Such notice shall be filed within 60 calendar days of notification by the Plan Administrator of the denial of a claim, shall be made in writing, and shall set forth all of the facts upon which the appeal is based. Appeals not timely filed shall be barred. The Plan Administrator shall consider the merits of the Claimant’s written presentations, the merits of any facts or evidence in support of the denial of benefits, and such other facts and circumstances as the Plan Administrator shall deem relevant.

          (d) The Plan Administrator shall render a determination upon the appealed claim which determination shall be accompanied by a written statement as to the reasons therefore. The determination shall be communicated to the Claimant within 60 days of the Claimant’s request for review, unless the Plan Administrator determines that special circumstances require an extension of time for processing the claim. In such case, the Plan Administrator shall notify the Claimant of the need for an extension of time to render its decision prior to the end of the initial 60-day period, and the Plan Administrator shall have an additional 60-day period to make its determination. The determination so rendered shall be binding upon all parties. If the determination is adverse to the Claimant, the notice shall: (i) provide the reason or reasons for denial; (ii) make specific reference to the Plan provisions on which the determination was based; (iii) include a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the Claimant’s claim for benefits; and (iv) state that the Claimant has the right to bring an action under section 502(a) of ERISA.

17


 

ARTICLE VIII

AMENDMENT, TERMINATION AND DURATION

     Section 8.1 Amendment, Suspension and Termination.

          (a) Except as otherwise provided in paragraph (b) hereof, the Board or its delegee shall have the right, at any time and from time to time, to amend, suspend, or terminate the Plan in whole or in part, for any reason or without reason, and without either the consent of or the prior notification to any Eligible Employee, by a formal written action. No such amendment shall give the Company the right to recover any amount paid to a Participant prior to the date of such amendment or to cause the cessation of Severance Benefits already approved for a Participant who has executed a Release as required under Section 3.02 (except as otherwise contemplated by the terms of the Plan).

          (b) Any amendment, modification or termination of the Plan undertaken pursuant to paragraph (a) hereof that (i) reduces or eliminates Plan benefits, (ii) terminates the participation of one or more Eligible Employees, or (iii) modifies the notice provisions of this Section 8.01(b), shall be effective 12 months (or such longer period as determined by the Board or its delegee) after the date that each affected Eligible Employee is provided written notice of such amendment, modification or termination.

     Section 8.2 Duration. Unless terminated sooner by the Board or its delegee, the Plan shall continue in full force and effect until termination of the Plan pursuant to Section 8.01; provided, however, that after the termination of the Plan, if any Participant terminated employment on account of an Involuntary Termination or a Good Reason Resignation prior to the termination of the Plan and is still receiving Severance Benefits under the Plan, the Plan shall remain in effect until all of the obligations of the Company are satisfied with respect to such Participant.

18


 

ARTICLE IX

MISCELLANEOUS

     Section 9.1 Nonalienation of Benefits. None of the payments, benefits or rights of any Participant shall be subject to any claim of any creditor of any Participant, and, in particular, to the fullest extent permitted by law, all such payments, benefits and rights shall be free from attachment, garnishment (if permitted under applicable law), trustee’s process, or any other legal or equitable process available to any creditor of such Participant. No Participant shall have the right to alienate, anticipate, commute, plead, encumber or assign any of the benefits or payments that he may expect to receive, continently or otherwise, under this Plan.

     Section 9.2 Notices. All notices and other communications required hereunder shall be in writing and shall be delivered personally or mailed by registered or certified mail, return receipt requested, or by overnight express courier service. In the case of the Participant, mailed notices shall be addressed to him or her at the home address which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to the Plan Administrator.

     Section 9.3 Successors. Any Successor to the Company or Allegheny shall assume the obligations under this Plan and expressly agree to perform the obligations under this Plan.

     Section 9.4 Other Payments. Except as otherwise provided in this Plan, no Participant shall be entitled to any cash payments or other severance benefits under any of the Company’s then current severance pay policies for a termination that is covered by this Plan for the Participant.

     Section 9.5 No Mitigation. Except as otherwise set forth in the Plan, Participants shall not be required to mitigate the amount of any Severance Benefits provided for in this Plan by seeking other employment or otherwise, nor shall the amount of any Severance Benefits provided for herein be reduced by any compensation earned by other employment or otherwise, except if the Participant is re-employed by the AE Companies, in which case Severance Benefits shall cease.

     Section 9.6 No Contract of Employment. Neither the establishment of the Plan, nor any modification thereof, nor the creation of any fund, trust or account, nor the payment of any benefits shall be construed as giving any Eligible Employee or any person whosoever, the right to be retained in the service of the AE Companies, and all Eligible Employees shall remain subject to discharge to the same extent as if the Plan had never been adopted.

     Section 9.7 Severability of Provisions. If any provision of this Plan shall be held invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions had not been included.

     Section 9.8 Heirs, Assigns, and Personal Representatives. This Plan shall be binding upon the heirs, executors, administrators, successors and assigns of the parties, including each Participant, present and future.

19


 

     Section 9.9 Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.

     Section 9.10 Gender and Number. Where the context admits: words in any gender shall include any other gender, and, except where otherwise clearly indicated by context, the singular shall include the plural, and vice-versa.

     Section 9.11 Unfunded Plan. The Plan shall not be funded. No Participant shall have any right to, or interest in, any assets of the AE Companies that may be applied by the AE Companies to the payment of Severance Benefits.

     Section 9.12 Payments to Incompetent Persons. Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipting therefore shall be deemed paid when paid to such person’s guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Company, the Committee and all other parties with respect thereto.

     Section 9.13 Lost Payees. A benefit shall be deemed forfeited if the Plan Administrator is unable to locate a Participant to whom Severance Benefits are due. Such Severance Benefits shall be reinstated if application is made by the Participant for the forfeited Severance Benefits while this Plan is in operation.

     Section 9.14 Controlling Law. This Plan shall be construed and enforced according to the laws of the Commonwealth of Pennsylvania without regard to the application of choice of law rules to the extent not superseded by Federal law.

     Section 9.15 Code Section 409A Compliance. This Plan is intended to comply with the requirements of Code section 409A and its related regulations and guidance. Notwithstanding anything in the Plan to the contrary, distributions may only be made under the Plan upon an event and in a manner permitted by Code section 409A or an applicable exemption. If a payment is not made by the designated payment date under the Plan, the payment shall be made by December 31 of the calendar year in which the designated payment date occurs. To the extent that any provision of the Plan would cause a conflict with the requirements of Code section 409A, or would cause the administration of the Plan to fail to satisfy the requirements of Code section 409A, such provision shall be deemed null and void to the extent permitted by applicable law. All payments to be made upon a termination of employment under this Plan may only be made upon a “separation from service” (as that term is defined under Code section 409A and its related regulations and guidance). For purposes of Code section 409A, any right to receive a particular payment or a series of installment payments under this Plan shall be treated as a right to receive separate (or a series of separate) payments. Any right to receive a reimbursement or in-kind benefit provided under the Plan shall be made or provided in accordance with the requirements of Code section 409A, including, where applicable, the requirement that: (i) any reimbursement shall be for expenses incurred during the Participant’s lifetime (or during a shorter period of time specified in this Plan); (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar

20


 

year; (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred; and (iv) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

21

 
 
 
 
 
 
 
 
 
 

EX-10.2 3 l32484aexv10w2.htm EX-10.2

Exhibit 10.2

ALLEGHENY ENERGY SERVICE CORPORATION
EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN

(Effective as of July 10, 2008)

 


 

 

 

 

 

 

 

 

 

 

ARTICLE I

 

PURPOSE AND TERM OF PLAN

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

Section 1.1

 

Purpose of the Plan

 

 

1

 

 

 

Section 1.2

 

Term and Effect of the Plan

 

 

1

 

 

 

 

 

 

 

 

 

 

ARTICLE II

 

DEFINITIONS

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

Section 2.1

 

“AE Companies”

 

 

2

 

 

 

Section 2.2

 

“Allegheny”

 

 

2

 

 

 

Section 2.3

 

“Base Salary”

 

 

2

 

 

 

Section 2.4

 

“Board”

 

 

2

 

 

 

Section 2.5

 

“Cause”

 

 

2

 

 

 

Section 2.6

 

“Change in Control”

 

 

2

 

 

 

Section 2.7

 

“Change in Control Termination”

 

 

3

 

 

 

Section 2.8

 

“Code”

 

 

3

 

 

 

Section 2.9

 

“Committee”

 

 

3

 

 

 

Section 2.10

 

“Company”

 

 

3

 

 

 

Section 2.11

 

“Effective Date”

 

 

4

 

 

 

Section 2.12

 

“Eligible Employee”

 

 

4

 

 

 

Section 2.13

 

“Employee”

 

 

4

 

 

 

Section 2.14

 

“Employer”

 

 

4

 

 

 

Section 2.15

 

“ERISA”

 

 

4

 

 

 

Section 2.16

 

“Exchange Act”

 

 

4

 

 

 

Section 2.17

 

“Good Reason Resignation”

 

 

4

 

 

 

Section 2.18

 

“Involuntary Termination”

 

 

5

 

 

 

Section 2.19

 

“Outstanding Voting Securities”

 

 

5

 

 

 

Section 2.20

 

“Participant”

 

 

5

 

 

 

Section 2.21

 

“Permanent Disability”

 

 

5

 

 

 

Section 2.22

 

“Plan”

 

 

5

 

 

 

Section 2.23

 

“Plan Administrator”

 

 

5

 

 

 

Section 2.24

 

“Release”

 

 

5

 

 

 

Section 2.25

 

“Severance Benefits”

 

 

5

 

 

 

Section 2.26

 

“Successor”

 

 

6

 

 

 

Section 2.27

 

“Target Bonus”

 

 

6

 

 

 

Section 2.28

 

“Termination Date”

 

 

6

 

 

 

Section 2.29

 

“Tier 1 Employee”

 

 

6

 

 

 

Section 2.30

 

“Tier 2 Employee”

 

 

6

 

 

 

 

 

 

 

 

 

 

ARTICLE III

 

PARTICIPATION AND ELIGIBILITY FOR BENEFITS

 

 

7

 

 

 

 

 

 

 

 

 

 

 

 

Section 3.1

 

Participation

 

 

7

 

 

 

Section 3.2

 

Conditions

 

 

7

 

 

 

 

 

 

 

 

 

 

ARTICLE IV

 

DETERMINATION OF SEVERANCE BENEFITS

 

 

9

 

 

 

 

 

 

 

 

 

 

 

 

Section 4.1

 

Amount of Severance Benefits Upon Change in Control Termination

 

 

9

 

 

 

Section 4.2

 

Other Terminations

 

 

10

 

 

 

Section 4.3

 

Termination for Cause

 

 

10

 

 

 

Section 4.4

 

Reduction of Severance Benefits

 

 

10

 

i


 

TABLE OF CONTENTS
(continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page

 

 

 

Section 4.5

 

Reimbursement of Legal Fees and Costs

 

 

11

 

 

 

 

 

 

 

 

 

 

ARTICLE V

 

METHOD AND DURATION OF PAYMENT OF SEVERANCE BENEFITS

 

 

12

 

 

 

 

 

 

 

 

 

 

 

 

Section 5.1

 

Method of Payment

 

 

12

 

 

 

Section 5.2

 

Termination of Eligibility for Benefits

 

 

12

 

 

 

 

 

 

 

 

 

 

ARTICLE VI

 

COVENANTS

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

Section 6.1

 

General

 

 

13

 

 

 

Section 6.2

 

Confidential Information

 

 

13

 

 

 

Section 6.3

 

Employment with Conflicting Organizations

 

 

13

 

 

 

Section 6.4

 

Non-Competition

 

 

13

 

 

 

Section 6.5

 

Non-Solicitation

 

 

14

 

 

 

Section 6.6

 

Return of Confidential Information

 

 

14

 

 

 

Section 6.7

 

Cooperation

 

 

14

 

 

 

Section 6.8

 

Non-Disparagement

 

 

15

 

 

 

Section 6.9

 

Equitable Relief

 

 

15

 

 

 

Section 6.10

 

Survival of Provisions

 

 

16

 

 

 

 

 

 

 

 

 

 

ARTICLE VII

 

PLAN ADMINISTRATION; DUTIES OF THE COMPANY, THE COMMITTEE AND THE PLAN ADMINISTRATOR; AND CLAIMS

 

 

17

 

 

 

 

 

 

 

 

 

 

 

 

Section 7.1

 

Authority and Duties

 

 

17

 

 

 

Section 7.2

 

Payment

 

 

17

 

 

 

Section 7.3

 

Discretion

 

 

17

 

 

 

Section 7.4

 

Claims Administration

 

 

17

 

 

 

 

 

 

 

 

 

 

ARTICLE VIII

 

AMENDMENT, TERMINATION AND DURATION

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

Section 8.1

 

Amendment, Suspension and Termination

 

 

19

 

 

 

Section 8.2

 

Duration

 

 

19

 

 

 

 

 

 

 

 

 

 

ARTICLE IX

 

MISCELLANEOUS

 

 

20

 

 

 

 

 

 

 

 

 

 

 

 

Section 9.1

 

Nonalienation of Benefits

 

 

20

 

 

 

Section 9.2

 

Notices

 

 

20

 

 

 

Section 9.3

 

Successors

 

 

20

 

 

 

Section 9.4

 

Other Payments

 

 

20

 

 

 

Section 9.5

 

No Mitigation

 

 

20

 

 

 

Section 9.6

 

No Contract of Employment

 

 

20

 

 

 

Section 9.7

 

Severability of Provisions

 

 

20

 

 

 

Section 9.8

 

Heirs, Assigns, and Personal Representatives

 

 

20

 

 

 

Section 9.9

 

Headings and Captions

 

 

21

 

 

 

Section 9.10

 

Gender and Number

 

 

21

 

 

 

Section 9.11

 

Unfunded Plan

 

 

21

 

 

 

Section 9.12

 

Payments to Incompetent Persons

 

 

21

 

 

 

Section 9.13

 

Lost Payees

 

 

21

 

ii


 

TABLE OF CONTENTS
(continued)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Page

 

Section 9.14 Controlling Law

 

 

21

 

Section 9.15 Code Section 409A Compliance

 

 

21

 

 

SCHEDULE A

 

ELIGIBLE EMPLOYEES

 

 

A-1

 

 

 

 

 

 

 

 

SCHEDULE B

 

RELEASE AGREEMENT

 

 

B-1

 

 

 

 

 

 

 

 

SCHEDULE C

 

ADDITIONAL BENEFITS

 

 

C-1

 

 

 

 

 

 

 

 

SCHEDULE D

 

TAX INDEMNITY

 

 

D-1

 

iii


 

ARTICLE I

PURPOSE AND TERM OF PLAN

     Section 1.1 Purpose of the Plan. The purpose of the Plan is to provide Eligible Employees with certain severance benefits as set forth in the Plan in the event the Eligible Employee’s employment with the AE Companies is terminated due to a Change in Control Termination. The Plan is not intended to be an “employee pension benefit plan” or “pension plan” within the meaning of section 3(2) of ERISA. Rather, this Plan is intended to be a “welfare benefit plan” within the meaning of section 3(1) of ERISA and to meet the descriptive requirements of a plan constituting a “severance pay plan” within the meaning of regulations published by the Secretary of Labor at Title 29, Code of Federal Regulations, section 2510.3-2(b). Accordingly, the benefits paid by the Plan are not deferred compensation for purposes of ERISA and no Employee shall have a vested right to such benefits.

     Section 1.2 Term and Effect of the Plan. The Plan generally shall be effective as of the Effective Date and shall supersede any prior plan, program, policy, or agreement under which the AE Companies provided severance benefits in connection with the occurrence of a change in control (however such term is defined in such other plan, program, policy, or agreement); provided, however that the Plan shall not apply to any Employee who is subject to an existing change in control agreement until the term of such agreement expires (or, if earlier, such date as the Employee executes an acknowledgement that the Plan supersedes such agreement). Further, the Plan shall not be construed so as to supersede any prior or existing plan, program, policy or agreement (or any portion of such prior arrangement) pursuant to which an Eligible Employee accrued benefits other than severance benefits. The Plan shall continue until terminated pursuant to Article VIII of the Plan.

C-1


 

ARTICLE II

DEFINITIONS

     Section 2.1 AE Companies” shall mean the Company, Allegheny, the affiliates and subsidiaries of Allegheny and the Company, and any successor or assigns of any of the foregoing.

     Section 2.2 Allegheny” shall mean Allegheny Energy, Inc., the Company’s parent and any successor to all or a major portion of the assets or business of Allegheny Energy, Inc.

     Section 2.3 Base Salary” shall mean the annual base salary in effect as of the Participant’s Termination Date.

     Section 2.4 Board” shall mean the Board of Directors of Allegheny, or any successor thereto.

     Section 2.5 Cause” shall mean an Eligible Employee’s: (i) conviction of, or plea of guilty or nolo contendere to, (A) a felony, or (B) a lesser crime or offense which, in the reasonable opinion of the Company, could adversely affect the business or reputation of the AE Companies; (ii) repeated failure to follow specific lawful directions of the Board or any officer to whom he reports; (iii) willful misconduct, fraud, embezzlement, or dishonesty either in connection with his duties to the AE Companies or which otherwise causes damage or, in the reasonable opinion of the Company, is likely to cause damage, to the AE Companies; (iv) failure to perform a substantial part of his duties following notice and a reasonable opportunity to cure (if such failure is capable of cure); (v) material violation of any policy, procedure, or guideline of the AE Companies following notice and a reasonable opportunity to cure (if such violation is capable of cure); (vi) abuse of alcohol or legal drugs which has a significant effect on his ability to perform his duties or the Eligible Employee’s use of illegal drugs; or (vii) violation of any applicable confidentiality, non-competition, non-solicitation, or non-disparagement covenants relating to the AE Companies (including, without limitation, the covenants set forth in Article VI). The Committee, in its sole and absolute discretion, shall determine Cause.

     Section 2.6 Change in Control” shall mean the occurrence of any of the following events:

          (a) Any “person” (as defined in Sections 13(d) and 14(d) of the Exchange Act), excluding for this purpose, (i) any of the AE Companies, or (ii) any employee benefit plan of the AE Companies, or any person or entity organized, appointed or established by the AE Companies for or pursuant to the terms of any such plan which acquires beneficial ownership of voting securities of Allegheny, is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly of securities of Allegheny representing more than 20% of the combined voting power of Allegheny’s then Outstanding Voting Securities; provided, however, that no Change in Control will be deemed to have occurred as a result of a change in ownership percentage resulting solely from an acquisition of securities by Allegheny;

          (b) Persons who, as of the Effective Date constitute the Board (the “Incumbent Directors”) cease for any reason, including without limitation, as a result of a tender

2


 

offer, proxy contest, merger or similar transaction, to constitute at least a majority thereof, provided that any person becoming a director of Allegheny subsequent to the Effective Date shall be considered an Incumbent Director if such person’s election or nomination for election was approved by a vote of at least two-thirds of the Incumbent Directors; but provided further, that any such person whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of members of the Board or other actual or threatened solicitation of proxies or consents by or on behalf of a “person” (as defined in Sections 13(d) and 14(d) of the Exchange Act) other than the Board, including by reason of agreement intended to avoid or settle any such actual or threatened contest or solicitation, shall not be considered an Incumbent Director;

          (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of Allegheny (a “Business Combination”); in each case, unless, following such Business Combination, all or substantially all of the individuals and entities who were the beneficial owners of Outstanding Voting Securities of Allegheny immediately prior to such Business Combination beneficially own, directly or indirectly, more than 60% of the combined voting power of the then-Outstanding Voting Securities entitled to vote generally in the election of directors, as the case may be, of the company resulting from such Business Combination (including, without limitation, a company which, as a result of such transaction, owns Allegheny or all or substantially all of Allegheny’s assets either directly or through one or more subsidiaries); or

          (d) Approval by the stockholders of Allegheny of a complete liquidation or dissolution of Allegheny.

     Section 2.7 Change in Control Termination” shall mean an Eligible Employee’s Involuntary Termination or Good Reason Resignation that occurs within the 24-month period following a Change in Control; provided, however, that if, before the occurrence of a Change in Control, an Eligible Employee is terminated or resigns and such termination or resignation would have otherwise constituted a Change in Control Termination but for the fact that it occurred before the Change in Control, the Change in Control occurs, and such termination or event giving rise to the resignation (i) was undertaken at the request of a third party who has taken steps reasonably calculated to effect the Change in Control, or (ii) otherwise arose in connection with or in anticipation of the Change in Control then, for all purposes of the Plan, such termination or resignation shall constitute a Change in Control Termination.

     Section 2.8 Code” shall mean the Internal Revenue Code of 1986, as amended.

     Section 2.9 Committee” shall mean the Management Compensation and Development Committee of the Board or such other committee appointed by the Board to assist the Company in making determinations required under the Plan in accordance with its terms. The Committee may delegate all or a portion of its authority under the Plan to an individual or another committee.

     Section 2.10 Company” shall mean Allegheny Energy Service Corporation and any successor to all or a major portion of the assets or business of Allegheny Energy Service Corporation.

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     Section 2.11 Effective Date” shall mean July 10, 2008.

     Section 2.12 Eligible Employee” shall mean any Employee who is employed by the AE Companies as a Deputy General Counsel, Vice President or in a more senior position and who is designated for participation in the Plan by the Committee or, pursuant to authority delegated to him by the Committee, the Company’s Chief Executive Officer. The Employees who have been designated as Eligible Employees are set forth in Schedule A, as amended and updated by the Company from time to time.

     Section 2.13 Employee” shall mean a person who receives salary, wages or commissions from the AE Companies that are subject to withholding for the purposes of federal income and employment taxes. The term Employee shall not include an independent contractor or any other person who the Committee or its designee determines is not subject to withholding for purposes of federal income and employment taxes, regardless of any contrary governmental or judicial determination relating to such employment or withholding tax status.

     Section 2.14 Employer” shall mean the Company or any of the AE Companies with respect to which this Plan has been adopted.

     Section 2.15 ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended, and regulations thereunder.

     Section 2.16 Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

     Section 2.17 Good Reason Resignation” shall mean an Eligible Employee’s written resignation within 60 days of the occurrence of:

          (a) any reduction in the Eligible Employee’s then-current annual Base Salary or Target Bonus without the Eligible Employee’s consent, unless such events are fully corrected by the Company within ten days following receipt of written notice from the Eligible Employee;

          (b) any reduction in the Eligible Employee’s then-current long-term incentive annual opportunity without the Eligible Employee’s consent (such determination as to whether a reduction has occurred to be made by an independent third-party executive compensation consulting organization (as selected by the Committee) using generally accepted methodologies and reasonable assumptions including, without limitation, fair value principles such as those identified in Statement of Financial Accounting Standards No. 123, Share-Based Payment, annualizing the value of such awards over the frequency of their grant and disregarding special retention or sign on grants), unless such events are fully corrected by the Company within ten days following receipt of written notice from the Eligible Employee;

          (c) a material diminution in the Eligible Employee’s responsibilities, duties or authority; provided, however, that the fact the Company, following a Change in Control, is a subsidiary or division of another entity, rather than a public company, shall not, by itself, be deemed to result in a material diminution in the Employee’s responsibilities, duties or authority under this clause; provided, further, that a change in reporting relationship shall not, by itself, be

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deemed to result in a material diminution in the Eligible Employee’s responsibilities, duties or authority under this clause; or

          (d) the relocation of the Eligible Employee’s principal place of employment to a location that is outside both: (i) a 50-mile radius from the Eligible Employee’s principal place of employment before the relocation; and (ii) the service territory of the AE Companies (as such service territory exists immediately before the Change in Control).

     Section 2.18 Involuntary Termination” shall mean an Eligible Employee’s termination of employment initiated by the AE Companies for any reason other than Cause as provided under and subject to the conditions of Article III. Involuntary Termination does not include a termination of employment due to a Permanent Disability or death.

     Section 2.19 Outstanding Voting Securities” shall mean the outstanding voting securities of Allegheny entitled to vote generally in the election of Allegheny’s directors.

     Section 2.20 Participant” shall mean any Eligible Employee who meets the requirements of Article III and thereby becomes eligible for benefits under the Plan.

     Section 2.21 Permanent Disability” shall mean that an Employee has a permanent and total incapacity from engaging in any employment for the Employer for physical or mental reasons. A “Permanent Disability” shall be deemed to exist: (i) if the Employee meets the requirements for disability benefits under the Employer’s long-term disability plan; (ii) if the Employee is not covered by a long-term disability plan of the Employer, the Employee satisfies the requirements to receive disability benefits under the Social Security law then in effect; or (iii) if the Employee is designated with an inactive employment status at the end of a disability or medical leave.

     Section 2.22 Plan” shall mean the Allegheny Energy Service Corporation Executive Change in Control Plan, as set forth herein, and as the same may from time to time be amended.

     Section 2.23 Plan Administrator” shall mean the individual(s) appointed by the Committee to administer the terms of the Plan as set forth herein and if no individual is appointed by the Committee to serve as the Plan Administrator for the Plan, the Plan Administrator shall be the Company’s Vice President who is responsible for human resources. Notwithstanding the preceding sentence, in the event the Plan Administrator is entitled to Severance Benefits under the Plan, the Committee or its delegate shall act as the Plan Administrator for purposes of administering the terms of the Plan with respect to the Plan Administrator. The Plan Administrator may delegate all or any portion of its authority under the Plan to any other person(s).

     Section 2.24 Release” shall mean a release and discharge of the AE Companies and all affiliated persons and entities from any and all claims, demands and causes of action, other than as to amounts or benefits due to the Participant under any qualified employee retirement plan of the AE Companies, which shall be substantially in the form attached hereto as Schedule B.

     Section 2.25 Severance Benefits” shall mean the severance benefits that a Participant is eligible to receive pursuant to Article IV.

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     Section 2.26 Successor” shall mean any other corporation or unincorporated entity or group of corporations or unincorporated entities which acquires ownership, directly or indirectly, through merger, consolidation, purchase or otherwise, of all or substantially all of the assets of the Company or Allegheny.

     Section 2.27 Target Bonus” shall mean the Participant’s annual target bonus opportunity under Allegheny’s Annual Incentive Plan (or any other such successor plan or arrangement).

     Section 2.28 Termination Date” shall mean the date on which the active employment of the Eligible Employee by the AE Companies is severed due to a Change in Control Termination.

     Section 2.29 Tier 1 Employee” shall mean an Eligible Employee who is designated as such by the Company, in its sole discretion.

     Section 2.30 Tier 2 Employee” shall mean an Eligible Employee who is designated as such by the Company, in its sole discretion.

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ARTICLE III

PARTICIPATION AND ELIGIBILITY FOR BENEFITS

     Section 3.1 Participation. Each Eligible Employee in the Plan who incurs a Change in Control Termination and who satisfies the conditions of Section 3.02 shall be eligible to receive the Severance Benefits described in the Plan. An Eligible Employee shall not be eligible to receive any other severance benefits from the AE Companies on account of a Change in Control Termination, unless otherwise provided in the Plan.

     Section 3.2 Conditions.

          (a) Eligibility for any Severance Benefits is expressly conditioned on: (i) an Eligible Employee’s written acknowledgment and agreement to comply with the confidentiality, non-competition, non-solicitation, and non-disparagement provisions in Article VI during and after the Eligible Employee’s employment with the AE Companies; (ii) to the extent requested by the Company, execution of a written acknowledgement and agreement that this Plan supersedes an existing arrangement that provides severance benefits to the Eligible Employee upon the occurrence of a change in control and/or that the Eligible Employee is no longer entitled to receive severance benefits upon the occurrence of a change in control pursuant to a prior arrangement that has expired; (iii) execution by the Participant of a Release in the form provided by the Company within 60 days following the Participant’s Termination Date (or such shorter period of time specified in the Release); and (iv) execution by the Participant of a written agreement that authorizes the deduction of amounts owed to the Company prior to the payment of any Severance Benefits (or in accordance with any other schedule as the Committee may, in its sole discretion, determine to be appropriate); provided, that such deduction is not in violation of Code section 409A.

          (b) If the Committee determines, in its sole discretion, that the Participant has not fully complied with any of the terms of the Release, the Committee may deny Severance Benefits not yet in pay status or discontinue the payment of the Participant’s Severance Benefits and may require the Participant, by providing written notice of such repayment obligation to the Participant, to repay any portion of the Severance Benefits already received under the Plan. If the Committee notifies a Participant that repayment of all or any portion of the Severance Benefits received under the Plan is required, such amounts shall be repaid within 30 calendar days of the date the written notice is sent. Any remedy under this paragraph (b) shall be in addition to, and not in place of, any other remedy, including injunctive relief, that the AE Companies may have.

          (c) An Eligible Employee who experiences a termination of employment that is not a Change in Control Termination shall not be eligible to receive Severance Benefits under the Plan. Specifically, and without limiting the foregoing, an Eligible Employee shall not be eligible to receive Severance Benefits upon the Eligible Employee’s: (i) voluntary resignation or retirement (other than a voluntary resignation or retirement that constitutes a Good Reason Resignation); (ii) resignation of employment (other than a Good Reason Resignation) before the job-end date specified by the Employer or while the Employer still desires the Eligible Employee’s services; (iv) termination for Cause; (v) termination due to death or Permanent

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Disability; or (vi) failure to return to work within six months of the onset of an approved leave of absence, other than a military leave and/or as otherwise required by applicable statute. Further, an Eligible Employee shall not be eligible to receive Severance Benefits upon his termination of employment if the Eligible Employee receives severance benefits pursuant to another plan, policy, program or arrangement providing benefits upon a termination of employment; provided, however, that if an Eligible Employee terminated employment and received severance benefits under any other plan, program, agreement, or arrangement (including, without limitation, the Allegheny Energy Service Corporation Executive Severance Plan) before the occurrence of a Change in Control, a Change in Control occurs, and it is later determined that the Participant’s termination constituted a Change in Control Termination, the Participant shall be eligible for Severance Benefits under the Plan subject to the Participant’s satisfaction of the Plan’s other eligibility requirements and subject to offset as described in Section 4.01(f).

          (d) Except as otherwise set forth herein, the Committee has the sole discretion to determine an Eligible Employee’s eligibility to receive Severance Benefits.

          (e) An Eligible Employee returning from approved military leave shall be eligible for Severance Benefits if: (i) he or she is eligible for reemployment under the provisions of the Uniformed Services Employment and Reemployment Rights Act; (ii) his or her pre-military leave job is eliminated; and (iii) the Employer’s circumstances are changed so as to make reemployment in another position impossible or unreasonable, or re-employment would create an undue hardship for the Employer. If the Eligible Employee returning from military leave qualifies for Severance Benefits, his or her Severance Benefits will be calculated as if he or she had remained continuously employed from the date he or she began his or her military leave. The Eligible Employee must also satisfy any other relevant conditions for payment, including execution of a Release.

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ARTICLE IV

DETERMINATION OF SEVERANCE BENEFITS

     Section 4.1 Amount of Severance Benefits Upon Change in Control Termination. The Severance Benefits to be provided to a Participant who incurs a Change in Control Termination and who satisfies the conditions of Section 3.02 shall be as follows:

          (a) Salary and Bonus Severance. Participants shall receive salary and bonus severance as follows:

               (i) Tier 1 Employees shall receive salary and bonus severance equal to 300% of the sum of (A) the Tier 1 Employee’s Base Salary, plus (B) the Tier 1 Employee’s Target Bonus (with both Base Salary and Target Bonus being determined without regard to any decrease in such Base Salary or Target Bonus that would constitute a basis for a Good Reason Resignation).

               (ii) Tier 2 Employees shall receive salary and bonus severance equal to 200% of the sum of (A) the Tier 2 Employee’s Base Salary, plus (B) the Tier 2 Employee’s Target Bonus (with both Base Salary and Target Bonus being determined without regard to any decrease in such Base Salary or Target Bonus that would constitute a basis for a Good Reason Resignation);

               (iii) Both Tier 1 and Tier 2 Employees shall receive a pro-rata bonus amount for the fiscal year containing the Participant’s Termination Date equal to the product of (A) the annual incentive bonus that the Participant would have received under Allegheny’s Annual Incentive Plan (or any other such successor plan or arrangement) had the Participant continued to be employed through the end of the fiscal year containing the Participant’s Termination Date (such annual incentive bonus to be determined without regard to any decrease in the Participant’s Target Bonus resulting in a Good Reason Resignation), and (B) a fraction, the numerator of which is the number of days during which the Participant was employed by the AE Companies during the current fiscal year through and including the Participant’s Termination Date and the denominator of which is 365.

          (b) Benefit Coverage Premiums. Participants shall receive a lump sum payment equal to $60,000 for a Tier 1 Employee and $40,000 for a Tier 2 Employee to reimburse Participants for premiums to continue medical and dental coverage under the benefit plans of the AE Companies or, if coverage is unavailable under the benefit plans of the AE Companies, to purchase it from an independent third-party.

          (c) Relocation Payments. The Participant shall not be required to repay any relocation payments or benefits received from the Company in accordance with the relocation policy of the Company or otherwise, and shall be entitled to receive promptly any other amounts due to the Participant in respect of any relocation benefits.

          (d) SERP Credit. Participants shall participate in the Supplemental Executive Retirement Plan (the “SERP”) on the terms and conditions set forth therein except that: (i) if a Participant is not already vested in his SERP benefit, the Participant shall be fully vested in his

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SERP benefit; and (ii) a Participant’s SERP benefit shall be based upon his “years of service” and “compensation” (as those terms are defined in the SERP) accrued by the Participant up through the Participant’s Termination Date except that a Tier 1 Employee shall be credited with three additional years of service under the SERP and a Tier 2 Employee shall be credited with two additional years of service under the SERP. In addition to the benefit described in this Section 4.01(d), the Participant shall also receive such additional SERP benefit, if any, described in Schedule C.

          (e) Tax Indemnity. The provisions of Schedule D hereto shall apply with respect to any Excise Tax (as defined therein) imposed on the Participant.

          (f) Offset for Other Severance Benefits. If a Participant received severance benefits under another plan, program, agreement or arrangement (including, without limitation, the Allegheny Energy Service Corporation Executive Severance Plan), but is eligible for Severance Benefits from the Plan in accordance with the last sentence of Section 3.02(c), the Participant’s Severance Benefits shall be reduced (but not below zero) by the amount of the severance benefits received under such other plan, program, agreement, or arrangement.

          (g) The provisions of this Plan may provide for payments to the Participant under certain compensation or bonus plans of the AE Companies under circumstances where such plans would not otherwise provide for payment thereof. It is the specific intention of the Company that the provisions of this Plan shall supersede any provisions to the contrary in such plans, to the extent permitted by applicable law, and such plans shall be deemed to be have been amended to correspond with this Plan without further action by the Company or the Board.

     Section 4.2 Other Terminations. If the Eligible Employee’s employment terminates on account of a reason other than a Change in Control Termination or the Eligible Employee does not otherwise satisfy the conditions of Section 3.02, the Eligible Employee shall not be entitled to receive Severance Benefits under this Plan and shall be entitled only to those benefits (if any) as may be available under the Company’s then-existing benefit plans and policies at the time of such termination.

     Section 4.3 Termination for Cause. If any Eligible Employee’s employment terminates on account of termination by the Company for Cause, the Eligible Employee shall not be entitled to receive Severance Benefits under this Plan and shall be entitled only to those benefits that are legally required to be provided to the Eligible Employee. Notwithstanding any other provision of the Plan to the contrary, if the Committee determines that an Eligible Employee engaged in conduct that constituted Cause at any time prior to the Eligible Employee’s Termination Date, any Severance Benefits payable to the Eligible Employee under Section 4.01 shall immediately cease, and the Eligible Employee shall be required to return any Severance Benefits paid to the Eligible Employee prior to such determination. If the Company has offset other payments owed to the Eligible Employee under any other plan or program, it may, in its sole discretion, waive its repayment right solely with respect to the amount of the offset so credited.

     Section 4.4 Reduction of Severance Benefits. The Plan Administrator reserves the right to make deductions in accordance with applicable law for any monies owed to the AE

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Companies by the Participant or the value of the property of the AE Companies that the Participant has retained in his or her possession; provided, however, that no such deduction shall be made in violation of Code section 409A.

     Section 4.5 Reimbursement of Legal Fees and Costs. All costs and expenses (including court and arbitration costs and reasonable legal fees and expenses that reflect common practice with respect to the matters involved) incurred by a Participant as a result of any claim, action or proceeding arising out of the Plan or the contesting, disputing or enforcing of any provision, right or obligation under the Plan shall be paid, or reimbursed to the Participant if the Participant is the prevailing party on any material claim with respect to the Plan.

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ARTICLE V

METHOD AND DURATION OF PAYMENT OF SEVERANCE BENEFITS

     Section 5.1 Method of Payment.

          (a) Payment of Cash Severance Benefits. The Severance Benefits described in Sections 4.01(a) and (b) to which a Participant is entitled shall be paid to the Participant in a single lump sum payment six months after the Participant’s Termination Date or, if later in the case of the pro-rata bonus described in Section 4.01(a)(iii), the payment date specified in Allegheny’s Annual Incentive Plan (or any other such successor plan or arrangement). Payment shall be made by mailing to the last address provided by the Participant to the Company or such other reasonable method as determined by the Plan Administrator.

          (b) Payment of SERP Severance Benefits. The SERP benefit described in Section 4.01(d) shall be payable on the later of (i) six months after the Participant’s Termination Date, or (ii) the date the Participant reaches age 55.

          (c) Payment of Tax Indemnity. The Severance Benefits described in Section 4.01(e) shall be paid in accordance with the terms of Schedule D.

          (d) Other. All payments of Severance Benefits are subject to applicable federal, state and local taxes and withholdings. In the event of the Participant’s death prior to payment being made, the amount of such payment shall be paid to the Participant’s estate. In no event will interest be credited on the unpaid balance for which a Participant may become eligible.

     Section 5.2 Termination of Eligibility for Benefits. All Eligible Employees shall cease to be eligible to participate in the Plan, and the payment of all Severance Benefits shall cease upon the occurrence of the earlier of: (i) subject to Article VIII, termination or modification of the Plan; or (ii) completion of payment to the Participant of the Severance Benefits for which the Participant is eligible under Article IV. Further, notwithstanding anything in the Plan to the contrary, the Committee shall have the right to cease the payment of all Severance Benefits and to recover payments previously made to the Participant should the Participant at any time breach the Participant’s undertakings under the terms of the Plan (including, without limitation, a determination that the Participant engaged in conduct that constitutes Cause), the Release the Participant executed to obtain the Severance Benefits under the Plan, or the covenants set forth in Article VI.

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ARTICLE VI

COVENANTS

     Section 6.1 General. Upon the Eligible Employee’s execution of the written acknowledgment and agreement referred to in Section 3.02, the Eligible Employee shall be subject to the covenants described in this Article VI during the Eligible Employee’s period of employment with the AE Companies and at any time thereafter (except to the extent the duration of a covenant extending after an Eligible Employee’s termination of employment is specifically limited as described below).

     Section 6.2 Confidential Information. The Eligible Employee acknowledges that all Confidential Information (as defined below) shall at all times remain the property of the AE Companies. For purposes of this Plan, “Confidential Information” means all information including, but not limited to, proprietary information and/or trade secrets, and all information disclosed to the Eligible Employee or known by the Eligible Employee as a consequence of or through the Eligible Employee’s employment, which is not generally known to the public or in the industry in which the AE Companies are or may become engaged, about the AE Companies’ businesses, products, processes, and services, including, but not limited to, information relating to research, development, computer program designs, computer data, flow charts, source or object codes, products or services under development, pricing and pricing strategies, marketing and selling strategies, power generating, servicing, purchasing, accounting, engineering, costs and costing strategies, sources of supply, customer lists, customer requirements, business methods or practices, training and training programs, and the documentation thereof. It will be presumed that information supplied to the AE Companies from outside sources is Confidential Information unless and until it is designated otherwise.

     The Eligible Employee will safeguard, to the extent possible in the performance of his work for the AE Companies, all documents and things that contain or embody Confidential Information. Except in the course of the Eligible Employee’s duties to the AE Companies or as may be compelled by law or appropriate legal process, the Eligible Employee will not, during his employment by the AE Companies, or permanently thereafter, directly or indirectly use, divulge, disseminate, disclose, lecture upon, or publish any Confidential Information, without having first obtained written permission from the AE Companies to do so.

     Section 6.3 Employment with Conflicting Organizations. During an Eligible Employee’s employment with the AE Companies, the Eligible Employee shall not work with or advise any person(s) conducting a business conducted by the AE Companies, except as part of the Eligible Employee’s duties assigned by the AE Companies.

     Section 6.4 Non-Competition. For a period of one year after termination of the Eligible Employee’s employment with the AE Companies for any reason, whether the termination is initiated by the AE Companies or the Eligible Employee, the Eligible Employee will not accept employment from or aid or render services, directly or indirectly, to any Conflicting Organization (as defined below) unless the Company provides the Eligible Employee with its prior, express written consent. For purposes of the Plan, “Conflicting Organization

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means the following organizations, their subsidiaries and affiliates, and their respective successors and assigns:

 

 

FirstEnergy Corporation

 

 

 

American Electric Power, Inc.

 

 

 

Exelon Corporation

 

 

 

PPL Corporation

 

 

 

Constellation Energy Group, Inc.

 

 

 

Pepco Holdings, Inc.

 

 

 

Dominion Resources, Inc.

 

 

 

DQE, Inc.

     Notwithstanding the foregoing, the Participant shall not be subject to the requirements of this Section 6.04 if the Company or any of the AE Companies materially breach their obligations under the Plan.

     Section 6.5 Non-Solicitation. The Eligible Employee agrees that, during his employment with the AE Companies and for a period of two years following the termination of his employment, whether the termination is initiated by the Company or the Eligible Employee, he shall not, directly or indirectly, solicit or induce, or attempt to solicit or induce, any employee of the AE Companies to leave the AE Companies for any reason whatsoever, or hire or solicit the services of any employee of the AE Companies, unless the Company provides the Eligible Employee with its prior, express written consent. Notwithstanding the foregoing, the Participant shall not be subject to the requirements of this Section 6.05 if the Company or any of the AE Companies materially breach their obligations under the Plan.

     Section 6.6 Return of Confidential Information. Upon termination of the Eligible Employee’s employment for whatever reason, whether the termination is initiated by the Company or the Eligible Employee, or upon request by the AE Companies, the Eligible Employee will deliver to the AE Companies all Confidential Information including, but not limited to, the originals and all copies of notes, sketches, drawings, specifications, memoranda, correspondence and documents, records, notebooks, computer systems, computer disks and computer tapes and other repositories of Confidential Information then in the Eligible Employee’s possession or under the Eligible Employee’s control, whether prepared by the Eligible Employee or by others.

     Section 6.7 Cooperation. If the Eligible Employee’s employment with the AE Companies is terminated, following the Termination Date, the Eligible Employee agrees to reasonably cooperate with the AE Companies and their counsel in connection with any matter that arises from or relates to the Eligible Employee’s relationship with the AE Companies by providing information, reviewing documents, answering questions, or appearing as a witness in

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connection with any administrative proceeding, investigation, or litigation; provided, that such cooperation will not interfere with the Eligible Employee’s commitment and responsibilities with any subsequent employer. The AE Companies will pay the Eligible Employee’s reasonable expenses, including travel, incurred in connection with such cooperation.

     Section 6.8 Non-Disparagement. Each of the Eligible Employee and the Company (for purposes hereof, the Company shall mean only the executive officers and directors of the AE Companies and not any other employees) agrees not to make any statements that disparage the other party, or in the case of the AE Companies, their respective affiliates, employees, officers, directors, products, or services. Notwithstanding the foregoing, statements made in the course of sworn testimony in administrative, judicial, or arbitral proceedings (including, without limitation, depositions in connection with such proceedings) shall not be subject to this Section 6.08.

     Section 6.9 Equitable Relief.

          (a) By participating in the Plan, the Eligible Employee acknowledges that the restrictions contained in this Article VI are reasonable and necessary to protect the legitimate interests of the AE Companies, that the Company would not have established this Plan in the absence of such restrictions, and that any violation of any provision of this Article VI will result in irreparable injury to the AE Companies. By agreeing to participate in the Plan, the Eligible Employee represents that his or her experience and capabilities are such that the restrictions contained in this Article VI will not prevent the Eligible Employee from obtaining employment or otherwise earning a living at the same general level of economic benefit as is currently the case.

          (b) The Eligible Employee agrees that the AE Companies shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as an equitable accounting of all earnings, profits, and other benefits arising from any violation of this Article VI, which rights shall be cumulative and in addition to any other rights or remedies to which the AE Companies may be entitled. It is the intention of the parties that the provisions of this Article VI shall be enforceable to the fullest extent permissible by law. If any of the provisions in this Article VI are hereafter construed to be invalid or unenforceable in any jurisdiction, the same shall not affect the remainder of the provisions in this Article VI or the enforceability therein in any other jurisdiction where such provisions shall be given full effect. If any provision of this Article VI shall be deemed unenforceable, in whole or in part, this Article VI shall be deemed to be amended to delete or modify the offending part so as to alter this Article VI to render it valid and enforceable.

          (c) The Eligible Employee irrevocably and unconditionally: (i) agrees that any suit, action, or other legal proceeding arising out of this Article VI, including without limitation, any action commenced by the AE Companies for preliminary and permanent injunctive relief or other equitable relief, may be brought in the United States District Court for the Western District of Pennsylvania, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Pennsylvania; (ii) consents to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding; (iii) waives any right to a jury trial; and (iv) waives any objection which the Eligible Employee may have to the laying of venue of any such suit, action or proceeding in any such court. Eligible Employees

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also irrevocably and unconditionally consent to the service of any process, pleadings, notices or other papers in a manner permitted by the notice provisions of Section 9.02.

     Section 6.10 Survival of Provisions. The obligations contained in this Article VI shall survive the termination of an Eligible Employee’s employment with the AE Companies and shall be fully enforceable thereafter.

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ARTICLE VII

PLAN ADMINISTRATION; DUTIES OF THE COMPANY, THE COMMITTEE AND
THE PLAN ADMINISTRATOR; AND CLAIMS

     Section 7.1 Authority and Duties. It shall be the duty of the Plan Administrator, on the basis of information supplied to it by the Company and the Committee, to properly administer the Plan. The Plan Administrator shall have the full power, authority, and discretion to construe, interpret, and administer the Plan, to make factual determinations, to correct deficiencies therein, and to supply omissions. All decisions, actions, and interpretations of the Plan Administrator shall be final, binding, and conclusive upon the parties, subject only to determinations by the Plan Administrator, with respect to denied claims for Severance Benefits. The Plan Administrator may adopt such rules and regulations and may make such decisions as it deems necessary or desirable for the proper administration of the Plan. The Plan Administrator shall be a “named fiduciary” within the meaning of ERISA.

     Section 7.2 Payment. Payments of Severance Benefits to Participants shall be made in such amount as determined by the Committee under Article IV, from the Company’s general assets, in accordance with the terms of the Plan, as directed by the Committee.

     Section 7.3 Discretion. Any decisions, actions or interpretations to be made under the Plan by the Board, the Committee and the Plan Administrator, acting on behalf of either, shall be made in each of their respective sole discretion, not in any fiduciary capacity and need not be uniformly applied to similarly situated individuals and such decisions, actions or interpretations shall be final, binding and conclusive upon all parties. As a condition of participating in the Plan, the Eligible Employee acknowledges that all decisions and determinations of the Board, the Committee, and the Plan Administrator shall be final and binding on the Eligible Employee, his or her beneficiaries, and any other person having or claiming an interest under the Plan on his or her behalf; provided, however, that the Eligible Employee shall have the right to challenge any such decisions and determinations in accordance with the claims and appeals procedures set forth in Section 7.04 and applicable law.

     Section 7.4 Claims Administration.

          (a) Each Participant under this Plan may contest only the calculation and administration of the Severance Benefits awarded by completing and filing with the Plan Administrator a written request for review in the manner specified by the Plan Administrator. No claim or appeal is permissible as to a Participant’s eligibility for or amount of Severance Benefits or as to whether a Participant’s termination constitutes a Change in Control Termination, which are decisions made solely within the discretion of the Company, and the Committee acting on behalf of the Company. No person may bring an action for any alleged wrongful denial of Plan benefits in a court of law unless the claims procedures described in this Article VII are exhausted and a final determination is made by the Plan Administrator. If the terminated Participant or interested person challenges a decision by the Plan Administrator, a review by the court of law will be limited to the facts, evidence and issues presented to the Plan Administrator during the claims procedure set forth in this Article VII. Facts and evidence that become known to the terminated Participant or other interested person after having exhausted the

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claims procedure must be brought to the attention of the Plan Administrator for reconsideration. Issues not raised with the Plan Administrator will be deemed waived.

          (b) Before the date on which payment of Severance Benefits commence, each such application must be supported by such information as the Plan Administrator deems relevant and appropriate. In the event that any claim relating to the administration of Severance Benefits is denied in whole or in part, the terminated Participant or his or her beneficiary (the “Claimant”) whose claim has been so denied shall be notified of such denial in writing by the Plan Administrator within 90 days after the receipt of the claim for benefits. This period may be extended an additional 90 days if the Plan Administrator determines such extension is necessary and the Plan Administrator provides notice of extension to the Claimant prior to the end of the initial 90-day period. The notice advising of the denial shall specify the following: (i) the reason or reasons for denial; (ii) make specific reference to the Plan provisions on which the determination was based; (iii) describe any additional material or information necessary for the Claimant to perfect the claim (explaining why such material or information is needed); and (iv) describe the Plan’s review procedures and the time limits applicable to such procedures, including a statement of the Claimant’s right to bring a civil action under section 502(a) of ERISA following an adverse benefit determination on review.

          (c) A Claimant whose claim has been denied shall file with the Plan Administrator a notice of appeal of the denial. Such notice shall be filed within 60 calendar days of notification by the Plan Administrator of the denial of a claim, shall be made in writing, and shall set forth all of the facts upon which the appeal is based. Appeals not timely filed shall be barred. The Plan Administrator shall consider the merits of the Claimant’s written presentations, the merits of any facts or evidence in support of the denial of benefits, and such other facts and circumstances as the Plan Administrator shall deem relevant.

          (d) The Plan Administrator shall render a determination upon the appealed claim which determination shall be accompanied by a written statement as to the reasons therefore. The determination shall be communicated to the Claimant within 60 days of the Claimant’s request for review, unless the Plan Administrator determines that special circumstances require an extension of time for processing the claim. In such case, the Plan Administrator shall notify the Claimant of the need for an extension of time to render its decision prior to the end of the initial 60-day period, and the Plan Administrator shall have an additional 60-day period to make its determination. The determination so rendered shall be binding upon all parties. If the determination is adverse to the Claimant, the notice shall: (i) provide the reason or reasons for denial; (ii) make specific reference to the Plan provisions on which the determination was based; (iii) include a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the Claimant’s claim for benefits; and (iv) state that the Claimant has the right to bring an action under section 502(a) of ERISA.

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ARTICLE VIII

AMENDMENT, TERMINATION AND DURATION

     Section 8.1 Amendment, Suspension and Termination.

          (a) Except as otherwise provided in paragraphs (b) and (c) hereof, the Board or its delegee shall have the right, at any time and from time to time, to amend, suspend, or terminate the Plan in whole or in part, for any reason or without reason, and without either the consent of or the prior notification to any Eligible Employee, by a formal written action. No such amendment shall give the Company the right to recover any amount paid to a Participant prior to the date of such amendment or to cause the cessation of Severance Benefits already approved for a Participant who has executed a Release as required under Section 3.02 (except as otherwise contemplated by the terms of the Plan).

          (b) Any amendment, modification or termination of the Plan undertaken pursuant to paragraph (a) hereof that reduces or eliminates Plan benefits, terminates the participation of one or more Eligible Employees, or modifies the notice provisions of this Section 8.01(b), shall be effective 12 months (or such longer period as determined by the Board or its delegee) after the date that each affected Eligible Employee is provided written notice of such amendment, modification or termination.

          (c) Notwithstanding the foregoing, the Plan may not be amended, modified or terminated in any respect that reduces or eliminates Plan benefits, terminates the participation of one or more Eligible Employees, or modifies the notice provisions of Section 8.01(b) (i) during the 24-month period following a Change in Control, with respect to that Change in Control, or (ii) before the occurrence of a Change in Control if the Change in Control subsequently occurs and such amendment, modification or termination (A) was undertaken at the request of a third party who has taken steps reasonably calculated to effect the Change in Control, or (B) otherwise arose in connection with or in anticipation of the Change in Control.

     Section 8.2 Duration. Unless terminated sooner by the Board or its delegee, the Plan shall continue in full force and effect until termination of the Plan pursuant to Section 8.01; provided, however, that after the termination of the Plan, if any Participant terminated employment on account of an Involuntary Termination or a Good Reason Resignation prior to the termination of the Plan and is still receiving Severance Benefits under the Plan, the Plan shall remain in effect until all of the obligations of the Company are satisfied with respect to such Participant.

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ARTICLE IX

MISCELLANEOUS

     Section 9.1 Nonalienation of Benefits. None of the payments, benefits or rights of any Participant shall be subject to any claim of any creditor of any Participant, and, in particular, to the fullest extent permitted by law, all such payments, benefits and rights shall be free from attachment, garnishment (if permitted under applicable law), trustee’s process, or any other legal or equitable process available to any creditor of such Participant. No Participant shall have the right to alienate, anticipate, commute, plead, encumber or assign any of the benefits or payments that he may expect to receive, continently or otherwise, under this Plan.

     Section 9.2 Notices. All notices and other communications required hereunder shall be in writing and shall be delivered personally or mailed by registered or certified mail, return receipt requested, or by overnight express courier service. In the case of the Participant, mailed notices shall be addressed to him or her at the home address which he or she most recently communicated to the Company in writing. In the case of the Company, mailed notices shall be addressed to the Plan Administrator.

     Section 9.3 Successors. Any Successor to the Company or Allegheny shall assume the obligations under this Plan and expressly agree to perform the obligations under this Plan.

     Section 9.4 Other Payments. Except as otherwise provided in this Plan, no Participant shall be entitled to any cash payments or other severance benefits under any of the Company’s then current severance pay policies for a termination that is covered by this Plan for the Participant.

     Section 9.5 No Mitigation. Except as otherwise set forth in the Plan, Participants shall not be required to mitigate the amount of any Severance Benefits provided for in this Plan by seeking other employment or otherwise, nor shall the amount of any Severance Benefits provided for herein be reduced by any compensation earned by other employment or otherwise, except if the Participant is re-employed by the AE Companies, in which case Severance Benefits shall cease.

     Section 9.6 No Contract of Employment. Neither the establishment of the Plan, nor any modification thereof, nor the creation of any fund, trust or account, nor the payment of any benefits shall be construed as giving any Eligible Employee or any person whosoever, the right to be retained in the service of the AE Companies, and all Eligible Employees shall remain subject to discharge to the same extent as if the Plan had never been adopted.

     Section 9.7 Severability of Provisions. If any provision of this Plan shall be held invalid or unenforceable by a court of competent jurisdiction, such invalidity or unenforceability shall not affect any other provisions hereof, and this Plan shall be construed and enforced as if such provisions had not been included.

     Section 9.8 Heirs, Assigns, and Personal Representatives. This Plan shall be binding upon the heirs, executors, administrators, successors and assigns of the parties, including each Participant, present and future.

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     Section 9.9 Headings and Captions. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan.

     Section 9.10 Gender and Number. Where the context admits: words in any gender shall include any other gender, and, except where otherwise clearly indicated by context, the singular shall include the plural, and vice-versa.

     Section 9.11 Unfunded Plan. The Plan shall not be funded. No Participant shall have any right to, or interest in, any assets of the AE Companies that may be applied by the AE Companies to the payment of Severance Benefits.

     Section 9.12 Payments to Incompetent Persons. Any benefit payable to or for the benefit of a minor, an incompetent person or other person incapable of receipting therefore shall be deemed paid when paid to such person’s guardian or to the party providing or reasonably appearing to provide for the care of such person, and such payment shall fully discharge the Company, the Committee and all other parties with respect thereto.

     Section 9.13 Lost Payees. A benefit shall be deemed forfeited if the Plan Administrator is unable to locate a Participant to whom Severance Benefits are due. Such Severance Benefits shall be reinstated if application is made by the Participant for the forfeited Severance Benefits while this Plan is in operation.

     Section 9.14 Controlling Law. This Plan shall be construed and enforced according to the laws of the Commonwealth of Pennsylvania without regard to the application of choice of law rules to the extent not superseded by Federal law.

     Section 9.15 Code Section 409A Compliance. This Plan is intended to comply with the requirements of Code section 409A and its related regulations and guidance. Notwithstanding anything in the Plan to the contrary, distributions may only be made under the Plan upon an event and in a manner permitted by Code section 409A or an applicable exemption. If a payment is not made by the designated payment date under the Plan, the payment shall be made by December 31 of the calendar year in which the designated payment date occurs. To the extent that any provision of the Plan would cause a conflict with the requirements of Code section 409A, or would cause the administration of the Plan to fail to satisfy the requirements of Code section 409A, such provision shall be deemed null and void to the extent permitted by applicable law. All payments to be made upon a termination of employment under this Plan may only be made upon a “separation from service” (as that term is defined under Code section 409A and its related regulations and guidance). For purposes of Code section 409A, any right to receive a particular payment or a series of installment payments under this Plan shall be treated as a right to receive separate (or a series of separate) payments. Any right to receive a reimbursement or in-kind benefit provided under the Plan shall be made or provided in accordance with the requirements of Code section 409A, including, where applicable, the requirement that: (i) any reimbursement shall be for expenses incurred during the Participant’s lifetime (or during a shorter period of time specified in this Plan); (ii) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar

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year; (iii) the reimbursement of an eligible expense will be made on or before the last day of the calendar year following the year in which the expense is incurred; and (iv) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

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SCHEDULE D

TAX INDEMNITY

          (a) In the event it shall be determined that any payment, award, benefit or distribution (including any acceleration) by the AE Companies or any entity (or its affiliates), which effectuates a transaction described in Code section 280G(b)(2)(A)(i) to or for the benefit of an Eligible Employee (whether pursuant to the terms of the Plan or otherwise, but determined without regard to any additional payments required under this Schedule D) (a “Payment”), would be subject to the excise tax imposed by Code section 4999 or any interest or penalties are incurred with respect to such excise tax by the Eligible Employee (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Eligible Employee shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Eligible Employee of all taxes, including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Taxes imposed upon the Gross-Up Payment, the Eligible Employee retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. For purposes of this Schedule D, the Eligible Employee shall be deemed to pay federal, state and local income taxes at the highest marginal rate of taxation for the calendar year in which the Gross-Up Payment is to be made, taking into account the maximum reduction in federal income taxes which could be obtained from the deduction of state and local income taxes.

          (b) Notwithstanding the foregoing, the Gross-Up Payment described in paragraph (a) shall not be paid to the Eligible Employee if the aggregate Parachute Value (as defined below) of all Payments does not exceed 110% of the Safe Harbor Amount (as defined below). The “Parachute Value” of a Payment is the present value as of the date of the Change in Control of the portion of the Payment that constitutes a “parachute payment” under Code section 280G(b)(2), as determined by the Accounting Firm (as defined in paragraph (d)) in accordance with Code section 280G(b)(2). The “Safe Harbor Amount” is the maximum dollar amount of payments in the nature of compensation that are contingent on a change in control (as described in Code section 280G) and that may be paid or distributed to the Eligible Employee without imposition of the Excise Tax.

          (c) In the event that the AE Companies do not pay a Gross-Up Payment as a result of paragraph (b), the aggregate present value of the Payments under the Plan (or, if applicable, other Payments outside of the Plan) shall be reduced (but not below zero) to the Reduced Amount. The “Reduced Amount” shall be an amount expressed in present value which maximizes the aggregate present value of Payments without causing any Payment to be subject to the Excise Tax, determined in accordance with Code section 280G(d)(4). Notwithstanding the foregoing, if the aggregate present value of the Payments are reduced pursuant to this paragraph (c) and it is later determined that the Parachute Value exceeds 110% of the Safe Harbor Amount, the Eligible Employee shall be entitled to the Gross-Up Payment plus any amount by which the Payment was originally reduced pursuant to this paragraph (c).

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          (d) All determinations required to be made under this Schedule D including whether and when a Gross-Up Payment is required, the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company’s independent auditors or such other certified public accounting firm of national standing as designated by the Company (the “Accounting Firm”). The Accounting Firm shall provide detailed supporting calculations both to the Company and the Eligible Employee within 15 business days of the receipt of notice from the Eligible Employee that there has been a Payment, or such earlier time as is requested by the Company. All fees and expenses of the Accounting Firm shall be borne solely by the Company.

          (e) Any Gross-Up Payment, as determined pursuant to this Schedule D, shall be paid by the Company to the Eligible Employee in accordance with Code section 409A, to the extent applicable. To the extent Code section 409A does not otherwise delay the payment of a Gross-Up Payment, the AE Companies shall pay the Gross-Up Payment within five days of the later of (i) the due date for the payment of any Excise Tax, and (ii) the receipt of the Accounting Firm’s determination. If required in order to comply with Code section 409A, (i) the Gross-Up Payment attributable to Payments other than severance compensation shall be paid in a lump sum payment upon the closing of the Change in Control, and (ii) the Gross-Up Payment attributable to Severance Benefits shall be paid in a lump sum payment at the same time that Severance Benefits are paid. If the amount of the applicable portion of a Gross-Up Payment cannot be fully determined by the date on which the applicable portion of the Payment becomes subject to the Excise Tax (the “Payment Date”), the Company shall pay to the Eligible Employee by the Payment Date an estimate of such Gross-Up Payment, as determined by the Accounting Firm, and the Company shall pay to the Eligible Employee the remainder of such Gross-Up Payment (if any) as soon as the amount can be determined, but in no event later than 20 days after the Payment Date.

          (f) If the Accounting Firm determines that no Excise Tax is payable by the Eligible Employee, it shall furnish the Eligible Employee with a written opinion to such effect, and to the effect that failure to report the Excise Tax, if any, on the Eligible Employee’s applicable federal income tax return will not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the AE Companies and the Eligible Employee. As a result of the uncertainty in the application of Code section 4999 at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”) or Gross-up Payments are made by the Company which should not have been made (“Overpayments”), consistent with the calculations required to be made hereunder. In the event the Eligible Employee is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Eligible Employee. In the event the amount of Gross-up Payment exceeds the amount necessary to reimburse the Eligible Employee for his Excise Tax, the Accounting

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Firm shall determine the amount of the Overpayment that has been made and any such Overpayment shall be promptly paid by the Eligible Employee (to the extent he has received a refund if the applicable Excise Tax has been paid to the Internal Revenue Service) to or for the benefit of the Company. The Eligible Employee shall cooperate, to the extent his expenses are reimbursed by the Company, with any reasonable requests by the Company in connection with any contests or disputes with the Internal Revenue Service in connection with the Excise Tax.

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