Exhibit 10.16
EMPLOYMENT AGREEMENT (the "Agreement") made as of this 6th day of August,
2003 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 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ (the "Executive").
WHEREAS, AESC desires to employ the Executive on the terms and conditions
set forth herein and the Executive is willing to be employed on such terms and
conditions;
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 August 25, 2003 (the "Start Date"). Unless terminated earlier
pursuant to Section 7, such term shall continue for a period of three (3) years
from the Start Date, and shall continue thereafter for periods of one (1) year
unless terminated by notice of AESC or the Executive at least 90 days prior to
the end of the initial period or any successive one-year period (the "Term").
2. Duties. During the Term as provided in Section 1(b) hereof, the
Executive shall serve as President of Allegheny Power and President of each of
Monongahela Power Company, The Potomac Edison Company and West Penn Power
Company (the "Regulated Companies"). He shall report directly to the Chief
Executive Officer and the Chief Operating Officer of AESC. The Executive shall
be responsible for the operations and day-to-day business affairs of Allegheny
Power and the Regulated 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; (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 pursuant to this
Agreement, AESC shall pay the Executive a base salary (a "Base Salary") at the
rate of at least $400,000 per year, payable in accordance with AESC's regular
payroll practices (but no less frequently than monthly). Base Salary may be
increased, but not decreased, from time to time during the term of this
Agreement in the sole discretion of the Board of Directors of AEI (the "Board").
4. Annual Bonus. During the Term, the Executive shall be eligible to
receive incentive compensation (an "Annual Bonus") under the Allegheny Energy,
Inc. Annual Incentive Plan, as amended from time to time, with a target bonus
opportunity of 50% of Base Salary (the "Target Bonus") and a maximum bonus
opportunity of 100% of Base Salary (the "Maximum Bonus"). For purposes of
clarity, for calendar year 2003, the Executive's Target Bonus shall be $83,833
and his Maximum Bonus shall be $166,666. For years subsequent to 2003, the
parameters under AEI's Annual Incentive Plan (including the parameters
applicable to the Executive) shall be determined by the Management Review
Committee of the Board. The Executive's Annual Bonus for any year shall be
payable in cash no later than January 31 of the next succeeding year.
5. Long-Term Incentive Plan.
(a) Initial Grant of Options.
(i) Option Grant. Subject to obtaining authorization under the
Public Utilities Holding Company Act of 1935, on January 2, 2004, the Executive
shall receive a grant of stock options for 200,000 shares of AEI Common Stock
under the Allegheny Energy, Inc. 1998 Long-Term Incentive Plan (the "LTIP") at a
per share exercise price equal to the per share closing price of AEI Common
Stock on January 2, 2004, as quoted in the NYSE Composite Transaction Listing in
The Wall Street Journal (the "Options"). Such grant shall be evidenced by an
award agreement substantially in the form of Exhibit A. If such approval is not
obtained, AESC will grant the Executive, on January 2, 2004, stock appreciation
rights on 200,000 shares, payable only in cash and otherwise containing
substantially the same terms as the options described herein, or will make an
alternative adjustment, reasonably acceptable to the Executive, to the
Executive's compensation of equivalent value and opportunity based on
Black-Scholes concepts.
(ii) Vesting. Subject to earlier vesting under Section 8,
one-fifth of the Options shall vest on each of the first, second, third, fourth
and fifth anniversary of the Start Date; provided the Executive is still
employed by the AE Companies on the applicable vesting date. Upon the occurrence
of a Change in Control (as defined in Section 7(c)(iii)), all of the Options
shall become immediately vested.
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(iii) Adjustment in Numbers of Shares. Notwithstanding Section
5(a)(i), if before any Options are granted there occurs an event resulting in an
adjustment pursuant to Section 9.08 of the LTIP, a corresponding adjustment
shall be made to the number of such Options set forth in Section 5(a)(i). In
addition, any event resulting in an adjustment pursuant to Section 9.08 of the
LTIP shall result in a corresponding adjustment to the number of Options that
vest on each of the dates specified in Section 5(a)(ii).
(b) Stock Units.
(i) Grant of Stock Units. On January 2, 2004, the Executive shall
receive a grant of 50,000 stock units (the "Units"). Such Units shall be
evidenced by a Stock Unit Agreement substantially in the form of Exhibit B (the
"Stock Unit Agreement"). Each Unit shall represent one share of AEI Common
Stock.
(ii) Crediting. The Executive shall be credited with additional
Units on each date AEI pays cash dividends to the stockholders in an amount
equal to the result of dividing (A) the product of the total number of Units
credited to the Executive on the record date for such dividend and the per share
amount of such dividend by (B) the per share closing price of AEI Common Stock
on the date the relevant dividend is paid by AEI to the holders of AEI Common
Stock as quoted in the NYSE Composite Transaction Listing in The Wall Street
Journal. Each Unit credited to the Executive shall be treated as ownership of a
share of AEI Common Stock for purposes of any stock ownership requirements
applicable to the Executive pursuant to AEI guidelines.
(iii) Vesting. Subject to earlier vesting under Section 8,
one-fifth of the Units granted hereunder (and the additional Units credited with
respect thereto) shall become vested and payable to the Executive on each of the
first, second, third, fourth and fifth anniversary of the Start Date; provided
the Executive is still employed by the AE Companies on the applicable vesting
date, unless the Executive has made a timely election to defer payment thereof
in accordance with the Stock Unit Agreement. Upon the occurrence of a Change in
Control, the Units together with any additional Units credited with respect
thereto shall be immediately vested and payable to the Executive.
(iv) Payment. Payment in respect of any vested Units shall be
made in the discretion of the AE Companies in either (A) registered shares of
AEI Common Stock equal to the number of Units vested or (B) a prompt lump sum
cash payment equal to the result of multiplying the number of vested Units by
the per share closing price of AEI Common Stock as quoted on the date the Units
vest pursuant to Section 5(b)(iii) above in the NYSE Composite Transaction
Listing in The Wall Street Journal.
(v) Adjustment in Numbers of Units. Notwithstanding Section
5(b)(i), if (at any time, whether before or after the Units are granted) there
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occurs an event resulting in an adjustment pursuant to Section 9.08 of the LTIP,
a corresponding adjustment shall be made to the number of Units set forth in
Section 5(b)(i).
(c) Additional Units.
(i) Grant of Additional Units.
(1) If the per share closing price of AEI Common Stock as
quoted on January 2, 2004 in the NYSE Composite Transaction listing in The Wall
Street Journal (the "2004 Closing Price") exceeds the Blended Price (the excess
being the "Differential"), by at least $0.50, AESC shall grant to the Executive,
on January 2, 2004, an additional number of Units equal to the quotient of
$50,000 divided by the 2004 Closing Price; and
(2) For every whole dollar in excess of $0.50 by which the
2004 Closing Price exceeds the Blended Price, AESC shall grant to the Executive,
on January 2, 2004, in addition to the Units granted in clause (1) above, Units
equal to the quotient of $50,000 divided by the 2004 Closing Price (such units,
together with the Units granted pursuant to subsection (1), the "Additional
Units"). Each Additional Unit shall represent one share of AEI Common Stock. The
Additional Units shall be included in the Stock Unit Agreement.
(3) The "Blended Price" shall be equal to the sum of (A)
0.25 multiplied by the per share closing price on the Start Date of AEI Common
Stock as quoted in the NYSE Composite Transaction listing in The Wall Street
Journal and (B) 0.75 multiplied by the per share closing price of AEI Common
Stock on the earlier of (x) the fifth business day after the date on the on
which AEI publicly announces its financial results for the 2002 fiscal year or
(y) January 2, 2004, as quoted in the NYSE Composite Transactions listing in The
Wall Street Journal.
(ii) Crediting. The Executive shall be credited with additional
Units on each date AEI pays cash dividends to the stockholders in an amount
equal to the result of dividing (i) the product of the total number of
Additional Units credited to the Executive on the record date for such dividend
and the per share amount of such dividend by (ii) the per share closing price of
AEI Common Stock on the date the relevant dividend is paid by AEI to the holders
of AEI Common Stock as quoted in the NYSE Composite Transaction Listing in The
Wall Street Journal. Each Additional Unit credited to the Executive shall be
treated as ownership of a share of AEI Common Stock for purposes of any stock
ownership requirements applicable to the Executive pursuant to AEI guidelines.
(iii) Vesting. Subject to earlier vesting under Section 8,
one-fifth of the Additional Units granted hereunder (and the additional Units
credited with respect thereto) shall become vested and payable to the Executive
on each of the first, second, third, fourth and fifth anniversary of the Start
Date; provided the Executive is still employed by the AE Companies on the
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applicable vesting date, unless the Executive has made a timely election to
defer payment thereof in accordance with the Stock Unit Agreement. Upon the
occurrence of a Change in Control, the Additional Units together with any
additional Units credited with respect thereto shall be immediately vested and
payable to the Executive.
(iv) Payment. Payment in respect of any vested Additional Units
shall be made in the discretion of the AE Companies in either (A) registered
shares of AEI Common Stock equal to the number of Additional Units vested or (B)
a prompt lump sum cash payment equal to the result of multiplying the number of
vested Additional Units by the per share closing price of AEI Common Stock as
quoted on the date the Units vest pursuant to Section 5(c)(iii) above in the
NYSE Composite Transaction Listing in The Wall Street Journal.
(v) Adjustment in Numbers of Additional Units. Notwithstanding
Section 5(c)(i), if (at any time, whether before or after the Additional Units
are granted) there occurs an event resulting in an adjustment pursuant to
Section 9.08 of the LTIP, a corresponding adjustment shall be made to the number
of Additional Units set forth in Section 5(c)(i). In addition, if such an event
shall occur prior to January 2, 2004, similar corresponding adjustments shall be
taken into account in calculating the Differential.
(d) Grant on Pre-January 2004 Change in Control. In the event that a
Change in Control occurs prior to January 2, 2004, in lieu of the grants
described in paragraphs (a), (b) and (c) of this Section, the Executive shall be
entitled to receive the grants specified in the last sentence of Section
8(c)(vi) determined as if the date of such Change in Control were the Date of
Termination referred to therein.
(e) Other Participation. In addition, the Executive shall participate
in the LTIP, as amended from time to time, on a basis determined by the Board to
be appropriate for the Executive.
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 (other than the Chief Executive Officer of AEI) under each of such
plans; provided, that the Executive shall not participate in the Allegheny
Energy, Inc. Supplemental Executive Retirement Plan (the "SERP") or other
non-qualified 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 date hereof, the Executive meets all eligibility criteria for
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participation in such plans other than the requirements under any tax-qualified
plans maintained by any of the AE Companies.
(b) Fringe Benefits. In addition to the foregoing, the Executive shall
be entitled to fringe benefits no less favorable than those available to senior
executives of the AE Companies (other than the Chief Executive Officer of AEI).
(c) Benefit in Lieu of Pension. Upon Executive's attainment of age
sixty-five (65), the Executive shall be entitled to a prompt lump sum cash
payment equal to $5,000 for each month that the Executive was employed with
AESC, subject to increase pursuant to Section 8(b)(v) or Section 8(c)(v) (the
"Pension Benefit"). In lieu of such lump sum, the Executive may elect to receive
payment of the Pension Benefit in any form provided for under the SERP (or any
successor plan) in an actuarial equivalent amount as determined under the SERP.
(d) Expense Reimbursement. AESC shall reimburse the Executive, upon a
proper accounting, for reasonable and necessary business expenses and
disbursements incurred by him in the course of the performance of his duties
under this Agreement.
(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
four weeks per year or, if greater than four weeks per year, such period as the
Board shall approve, without reduction in salary or other benefits.
(f) Temporary Living Expenses. AESC will reimburse the Executive (and
gross up the Executive for any income taxes incurred by the Executive as a
result of such reimbursement) for the temporary living costs and expenses which
the Executive reasonably incurs for himself and his family in the performance of
his responsibilities hereunder for a period of six (6) months following the
Start Date and for the cost of his travel to his home on weekends.
(g) Relocation Expenses. AESC will pay or reimburse the Executive for
reasonable relocation and moving expenses incurred by the Executive in
connection with the performance of his duties hereunder, including realtor fees
and closing costs attributable to such move and relocation.
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 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
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payment obligations of AESC, this Agreement shall terminate immediately in the
event of the Executive's death.
(b) Termination by AESC or the Executive. AESC may terminate the
Executive from his employment hereunder for cause, disability or otherwise and
the Executive may resign from his employment hereunder. 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. 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).
(c) 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) "Change in Control" shall mean the first to occur of any of
the following events:
(A) Any "person" (as defined in Section 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
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(B) Persons who, as of the Start 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 Start 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 Section 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; 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.
(iii) "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 nor more than sixty (60) days
and, in the case of a termination by the Executive, shall not be less than
fifteen (15) days nor more than sixty (60) days, respectively, from the date
such notice of termination is given).
(iv) "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, 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
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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.
(v) "Good Reason" shall mean, without the Executive's written
consent:
(A) The material diminution in the Executive's title, duties or
reporting lines, or the assignment to the Executive of any duties inconsistent
in any material respect with the Executive's position (including titles and
reporting relationships), authority, duties or responsibilities as contemplated
by Section 2 of this Agreement, excluding any isolated and inadvertent action
not taken in bad faith and which is remedied by AESC within ten (10) days after
receipt of notice thereof given by the Executive;
(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;
(C) The Executive being required to relocate to a principal place
of employment which is more than fifty (50) miles from his principal place of
employment at the time of the Change in Control;
(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.
8. Obligations of AESC Upon Termination.
(a) Termination by AESC for Cause or Termination by Executive, Death
or Disability. In the event of any termination of the Executive's employment by
AESC for cause, any termination by the Executive, or in the event this Agreement
terminates pursuant to Section 7(a) or Section 7(b) by reason of the death or
Disability 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 after the Date of Termination.
(ii) The Executive, or his beneficiaries, heirs or estate in the
event of the Executive's death, shall be entitled to receive all benefits
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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, and the LTIP, 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 Options, the Units and the Additional Units
(together with any additional units credited with respect to the Units or the
Additional Units (the "Total Units"), granted to the Executive shall vest on the
Date of Termination (and all options shall thereupon become fully exercisable
and the Total Units shall thereupon become payable), and all stock options shall
continue to be exercisable for two (2) years after the Date of Termination;
provided, however, that in no event shall such options be exercised later than
the date of expiration of the options determined pursuant to the option award
letters (determined as if the Executive's employment with AESC had not
terminated). Notwithstanding the foregoing, in the event that the Executive is
terminated as a result of death or Disability prior to January 2, 2004, the
Executive (or his beneficiaries, heirs or estate in the event of the Executive's
death) shall receive (A) a grant of stock options for 200,000 shares
(appropriately adjusted to take into account any event resulting in an
adjustment under Section 9.08 of the LTIP) of AEI Common Stock under the LTIP at
a per share exercise price equal to the per share closing price of AEI Common
Stock on the Date of Termination, as quoted in the NYSE Composite Transaction
Listing in The Wall Street Journal (such grant shall be evidenced by an award
agreement substantially in the form of Exhibit A) which shall be fully vested
and shall be exercisable as provided in the preceding sentence and (B) within
five (5) business days of the Date of Termination, a number of registered shares
of AEI Common Stock equal to the sum of (x) 50,000 (appropriately adjusted to
take into account any event resulting in an adjustment under Section 9.08 of the
LTIP) plus (y) the number of Additional Units which would have been granted to
the Executive under Section 5(c), except that the Date of Termination shall be
substituted for January 2, 2004 (in each place such date appears in Section
5(c)(i)) or, in the discretion of the AE Companies, cash in an amount equal to
such number of registered shares multiplied by the per share closing price of
AEI Common Stock on the Date of Termination as quoted in the NYSE Composite
Transaction Listing in The Wall Street Journal.
(iv) If the termination of employment is by reason of the
Executive's death or Disability, the Executive, or his beneficiaries, heirs or
estate in the event of the Executive's death, shall be entitled to receive a
prompt lump sum cash payment equal to (A) the Executive's Target Bonus for the
year of the Executive's death or Disability, pro-rated for the number of days in
such year that the Executive was employed with AESC (calculated from and after
the Start Date in the case of a termination during 2003) and the Pension Benefit
accrued to the Date of Termination.
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(v) In the event of a termination of the Executive's employment
for cause or any termination by the Executive, AESC shall pay the Executive the
Pension Benefit accrued to the Date of Termination.
(b) Termination by AESC without Cause. If the Executive's employment
is terminated by AESC other than for cause (i.e., without cause), death or
Disability:
(i) AESC shall pay to the Executive all Accrued Obligations in a
lump sum in cash within thirty (30) days after 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, and the LTIP, 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 in a lump sum in cash
within thirty (30) days after the Date of Termination an amount equal to two (2)
times the sum of (A) the Executive's Base Salary (as in effect immediately prior
to the Date of Termination) plus (B) the Executive's Target Bonus for the year
in which the Date of Termination occurs (which Target Bonus shall be deemed to
equal $166,666 in the case of a termination during 2003).
(iv) For two (2) years from 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 which, after taxes, is sufficient
for the Executive to purchase equivalent benefits coverage referred to in clause
(A).
(v) AESC shall make a prompt lump sum payment to the Executive
equal to the greater of (x) $300,000 and (y) the Pension Benefit.
(vi) All stock options and other equity awards, including,
without limitation, any Options or Total Units, shall vest on the Date of
Termination to the extent that such awards would have vested had the Executive
continued his employment with AESC until two (2) years from the Date of
Termination, and all stock options shall continue to be exercisable for three
(3) years after the Date of Termination; provided, however, that in no event
shall such options be exercised later than the date of expiration of the options
determined pursuant to the option award letters (determined as if the
Executive's employment with AESC had not terminated). In the event that the
Executive is terminated pursuant to this Section 8(b) prior to January 2, 2004,
the Executive shall receive (A) a grant of stock options for 200,000 shares
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(appropriately adjusted to take into account any event resulting in an
adjustment under Section 9.08 of the LTIP) of AEI Common Stock under the LTIP at
a per share exercise price equal to the per share closing price of AEI Common
Stock on the Date of Termination, as quoted in the NYSE Composite Transaction
Listing in The Wall Street Journal (such grant shall be evidenced by an award
agreement substantially in the form of Exhibit A) which shall be fully vested
and shall be exercisable as provided in the preceding sentence and (B) within
five (5) business days of the Date of Termination, a number of registered shares
of AEI Common Stock equal to the sum of (x) 50,000 (appropriately adjusted to
take into account any event resulting in an adjustment pursuant to Section 9.08
of the LTIP) plus (y) the number of Additional Units which would have been
granted to the Executive under Section 5(c), except that the Date of Termination
shall be substituted for January 2, 2004 (in each place such date appears in
Section 5(c)(i)) or, in the discretion of the AE Companies, cash in an amount
equal to such number of registered shares multiplied by the per share closing
price of AEI Common Stock on the Date of Termination, as quoted in the NYSE
Composite Transaction Listing in The Wall Street Journal.
(vii) The Executive shall be entitled to receive a prompt 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 (calculated from and after the Start Date in
the case of a termination during 2003).
(c) Termination in connection with a Change in Control. If the
Executive's employment is terminated by AESC other than for cause (i.e., without
cause) or the Executive terminates his employment for Good Reason, either
following the occurrence of a Change in Control or prior to the occurrence of a
Change in Control if it is reasonably demonstrated by the Executive that such
termination or the event constituting Good Reason either (1) was at the request
of a third party who has taken steps reasonably calculated to effect the Change
in Control, or (2) otherwise arose in connection with or anticipation of the
Change in Control, then, in lieu of the payments and benefits set forth in
Section 8(b):
(i) AESC shall pay to the Executive all Accrued Obligations in a
lump sum in cash within thirty (30) days after 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, and the LTIP, 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 in a lump sum in cash
within thirty (30) days after the Date of Termination an amount equal to three
times the sum of the Executive's (A) Base Salary (as in effect immediately prior
to the Date of Termination, determined without regard to any decrease resulting
12
in Good Reason), and (B) Target Bonus for the year in which the Date of
Termination occurs (which Target Bonus shall be deemed to equal $166,666 in the
case of a termination during 2003).
(iv) For three years from 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 which, after taxes, is sufficient
for the Executive to purchase equivalent benefits coverage referred to in clause
(A).
(v) AESC shall make a prompt lump sum payment to the Executive
equal to the greater of (x) $300,000 and (y) the Pension Benefit.
(vi) All stock options and other equity awards including, without
limitation, the Options and the Total Units, shall vest on the Date of
Termination (and all options shall thereupon become fully exercisable and the
Total Units shall thereupon become payable), and all stock options shall
continue to be exercisable for three (3) years after the Date of Termination;
provided, however, that in no event shall such options be exercised later than
the date of expiration of the options determined pursuant to the option award
letters (determined as if the Executive's employment with AESC had not
terminated). Notwithstanding the foregoing, in the event that the Executive is
terminated pursuant to this Section 8(c) prior to January 2, 2004, the Executive
shall receive (A) a grant of stock options for 200,000 shares (appropriately
adjusted to take into account any event resulting in an adjustment under Section
9.08 of the LTIP) of AEI Common Stock under the LTIP at a per share exercise
price equal to the per share closing price of AEI Common Stock on the Date of
Termination, as quoted in the NYSE Composite Transaction Listing in The Wall
Street Journal (such grant shall be evidenced by an award agreement
substantially in the form of Exhibit A) which shall be fully vested and shall be
exercisable as provided in the preceding sentence and (B) within five (5)
business days of the Date of Termination, a number of registered shares of AEI
Common Stock equal to the sum of (x) 50,000 (appropriately adjusted to take into
account any event resulting in an adjustment pursuant to Section 9.08 of the
LTIP) plus (y) the number of Additional Units which would have been granted to
the Executive under Section 5(c), except that the Date of Termination shall be
substituted for January 2, 2004 (in each place such date appears in Section
5(c)(i)) or, in the discretion of the AE Companies, cash in an amount equal to
such number of registered shares multiplied by the per share closing price of
AEI Common Stock on the Date of Termination, as quoted in the NYSE Composite
Transaction Listing in The Wall Street Journal.
(vii) The Executive shall be entitled to receive a prompt 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
13
Executive was employed with AESC (calculated from and after the Start Date in
the case of a termination during 2003).
(d) 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), determined
after taking into account any extensions of the Term, in lieu of any amounts or
benefits provided under clauses (a) or (b) above, AESC shall pay or provide to
the Executive the amounts or benefits described in clauses (i), (ii), and (vii)
of Section 8(b).
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 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,
▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ 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 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 enables
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
. American Electric Power, Inc.
. Excelon Corporation
. Pennsylvania Power and Light Resources, Inc.
. Baltimore Gas and Electric Company
. 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 in the case of any breach of AESC's obligations
under Section 8, Section 12 or Section 21 which remains uncured for more than
ten 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 with cause or without cause, he shall
15
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 arms 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 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 of Executive. The Executive represents and warrants
that 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 appointment to the positions with AESC and AEI as described above.
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,
16
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.
13. Withholding. AESC shall be entitled to withhold from payments due
hereunder any required federal, state or local withholding or other taxes.
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 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 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.
17
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) to the Board or AESC, to:
Allegheny Energy, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: Chief Executive Officer
(b) to the Executive, to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
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. Costs of arbitration or litigation including, without limitation,
attorneys' fees of both parties shall be borne by the non-prevailing party.
18
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. Tax Indemnity. The provisions of Exhibit C hereto shall apply with
respect to any Excise Tax (as defined therein) imposed on the Executive.
22. Liability of AEI. AEI shall be jointly and severally liable with AESC
with respect to all obligations of AESC under this Agreement.
23. 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.
24. 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.
25. Survival of Provisions. Notwithstanding anything in this Agreement to
the contrary, all terms and provisions of this Agreement that by their nature
extend beyond the termination of this Agreement shall survive such termination.
26. 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.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
Allegheny Energy Service Corporation
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chairman & Chief Executive Officer
Allegheny Energy, Inc.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chairman & Chief Executive Officer
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
20
Exhibit C
Tax Indemnity
Gross-Up. Anything in this Agreement to the contrary notwithstanding, in
the event it shall be determined that any payment, award, benefit or
distribution (including any acceleration) by AESC (or any of the AE Companies)
or any entity which effectuates a transaction described in Section
280G(b)(2)(A)(i) of the Internal Revenue Code of 1986, as amended (the "Code")
(or any of its affiliates) to or for the benefit of the Executive (whether
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this Exhibit C) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred with respect to such excise tax by the
Executive (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive 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
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. For purposes of this Exhibit C, the Executive 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.
Determination. All determinations required to be made under this Exhibit C,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by AESC's independent auditors or such other
certified public accounting firm of national standing reasonably acceptable to
the Executive as may be designated by AESC (the "Accounting Firm") which shall
provide detailed supporting calculations both to AESC and the Executive within
15 business days of the receipt of notice from the Executive that there has been
a Payment, or such earlier time as is requested by AESC. All fees and expenses
of the Accounting Firm shall be borne solely by AESC. Any Gross-Up Payment, as
determined pursuant to this Exhibit C, shall be paid by AESC to the Executive
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 the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion to such effect, and to the
effect that failure to report the Excise Tax, if any, on the Executive'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 AESC and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code 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 AESC should have been made
("Underpayment") or Gross-up Payments are made by AESC which should not have
been made ("Overpayments"), consistent with the calculations required to be made
hereunder. In the event the Executive 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 AESC to or
for the benefit of the Executive. In the event the amount of Gross-up Payment
exceeds the amount necessary to reimburse the Executive for his Excise Tax, the
Accounting Firm shall determine the amount of the Overpayment that has been made
and any such Overpayment shall be promptly paid by the Executive (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 AESC. The Executive shall
cooperate, to the extent his expenses are reimbursed by AESC, with any
reasonable requests by AESC in connection with any contests or disputes with the
Internal Revenue Service in connection with the Excise Tax.