Exhibit 10.26

 

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PAUL J. EVANSON

Chairman, President, and Chief Executive Officer

  

800 Cabin Hill Drive

Greensburg, PA 15601

(724) 838-6999 FAX: (724) 838-6864

evanson@alleghenyenergy.com

     July 7, 2004

 

John P. Campbell

111 Scenery Hill Drive

Canonsburg, PA 15317

 

Dear John:

 

We are pleased to extend to you our offer of employment with Allegheny Energy
Service Corporation (“Allegheny”) for the position of President, Allegheny
Energy Supply. We look forward to having you start work on July 12, 2004 (your
“Start Date”). This offer letter confirms the terms of our offer and describes
your compensation and benefits package.

 

  •   Your base salary will be payable in accordance with Allegheny’s regular
payroll practices at the rate of $300,000 per year.

 

  •   You will be eligible to receive annual incentive compensation under
Allegheny’s Annual Incentive Plan. Your target bonus will be 50% of your annual
base salary and your maximum bonus will be 100% of your annual base salary
(pro-rated for 2004 based upon the period of your employment). For purposes of
clarity, your target bonus for calendar year 2004 shall be $75,000 and your
maximum bonus shall be $150,000. You must be employed by Allegheny on the date
on which incentive compensation is paid in order to be eligible for incentive
compensation payments thereunder.

 

  •   You will receive a sign-on bonus of $100,000 within ten days after your
Start Date. You will be required to return promptly this bonus to Allegheny if,
prior to the second anniversary of your Start Date, you resign your employment
with Allegheny or your employment is terminated by Allegheny for Cause (as
defined in Section 2(a) of the Change in Control Agreement attached hereto).

 

  •   You will receive a grant of stock options for 150,000 shares of Allegheny
Energy, Inc.’s common stock on your Start Date (the “Grant Date”). Such options
will vest in five equal installments on each of the first five anniversaries of
your Start Date. The exercise price of such options will be the closing price of
Allegheny Energy, Inc. common stock on the Grant Date, as quoted in the NYSE
Composite Transaction Listing in The Wall Street Journal. Such options will be
granted under the Allegheny Energy, Inc. 1998 Long-term Incentive Plan and will
be subject to the terms and conditions of such Plan and the relevant option
award letter.

 

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John P. Campbell

Page 2

July 7, 2004

 

 

  •   You will receive a grant of 25,000 stock units on your Start Date. Such
stock units will vest in five equal installments on each of the first five
anniversaries of your Start Date. Payment of units will be made in shares of
Allegheny Energy, Inc.’s stock. Such units will be granted under the Allegheny
Energy, Inc. Stock Unit Plan and will be subject to the terms and conditions of
such Plan and the relevant stock unit award letter.

 

  •   You will be eligible to participate in the Allegheny Power System
Supplemental Executive Retirement Plan (the “SERP”) on the terms and conditions
set forth therein except that (i) solely for purposes of determining your
eligibility for benefits and the amount of your benefits under the SERP, if you
remain employed by Allegheny on the fifth anniversary of your Start Date you
will be credited with five additional Years of Service as defined under the SERP
and (ii) solely for purposes of determining your eligibility for benefits under
the SERP, you will be deemed to have reached age 55 on the date that your
employment with Allegheny ends for any reason. No adjustment will be made to
your age for purposes of computing the actual amount of your benefits under the
SERP.

 

  •   You will be entitled to participate in all benefit plans made available to
employees generally. Such plans may include tax-qualified and disability,
medical, group life insurance, supplemental life insurance, sick leave, and
retirement and welfare benefit plans. In addition, you will be entitled to
participate in the Allegheny Energy Executive Compensation Plan, which includes
reimbursement of medical and dental premiums paid by you, five weeks of vacation
per year, sick pay allowance of one year of full pay and one year of half pay,
and an annual physical examination.

 

  •   On your Start Date, Allegheny will enter into a Change in Control
Agreement with you substantially in the form attached hereto.

 

  •   If you choose to relocate your primary residence within twelve months of
your Start Date, you will be reimbursed for reasonable out-of-pocket moving
expenses (and gross up for any income taxes incurred as a result of such
reimbursement). If you use Allegheny’s home relocation firm, the cost of selling
your home will be absorbed by Allegheny in accordance with Allegheny’s standard
relocation policy. You will also be entitled to receive relocation assistance
coordination to help in arranging for moving.

 

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John P. Campbell

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July 7, 2004

 

  •   In return for the foregoing compensation and benefits, you agree to devote
all of your business time and attention to Allegheny’s business and affairs. In
addition, you acknowledge and agree that the terms of this letter and the
attached Change in Control Agreement do not imply employment for a specific
period and thus your employment is at will. Either you or Allegheny may
terminate your employment at any time, with or without Cause and with or without
notice.

 

  •   You represent and warrant to Allegheny that you are not subject to any
employment or other agreement that prevents you from accepting employment with
Allegheny or performing the duties of your position contemplated hereunder or
that could subject Allegheny to any future liability or obligation to any third
party.

 

  •   Allegheny shall be entitled to withhold any required federal, state or
local withholding or other taxes from payments due hereunder.

 

  •   You agree that, during your employment with Allegheny and for a period of
one year following the termination of your employment with Allegheny, whether
terminated with Cause, without Cause or by your resignation, you will not,
directly or indirectly, solicit or induce, or attempt to solicit or induce, any
employee of Allegheny to leave Allegheny for any reason whatsoever, or hire or
solicit the services of any employee of Allegheny, unless Allegheny provides you
with its prior written consent.

 

  •   All offers of employment are contingent on your ability to meet the terms
of the Immigration Reform and Control Act which requires you to provide
documents which prove your identity and demonstrate that you are authorized to
work in the U.S. You will also be required to execute Allegheny’s standard
employee confidentiality agreement for new employees and to comply with all
applicable Company policies, guidelines, directives and codes of conduct. This
offer is also contingent upon the results of a physical examination, drug test,
and background investigation. Please follow the instructions below to facilitate
the employment process:

 

  •   Complete, sign, and fax to us the enclosed Notification and Authorization
to Conduct Background Investigation form with your signed copy of this letter.
Our fax number is 724-830-5801. Please return originals in person or by U.S.
mail.

 

  •   We also ask that you contact our office at 724-830-5725 (Christina Wukich,
Administrative Assistant) to arrange for the required pre-employment physical
and drug screen.

 

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John P. Campbell

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July 7, 2004

 

  •   This letter embodies the entire understanding between you and Allegheny
and supersedes any other oral or written agreements or understandings between
us. The terms of this offer letter are strictly confidential and you agree not
to disclose the contents to any person or entity other than to members of your
immediate family and your legal and financial advisors.

 

Please confirm your acceptance of the foregoing by signing and returning to us a
copy of this letter and the attached Notification and Authorization to Conduct
Background Investigation form as quickly as possible.

 

Sincerely yours, /s/    PAUL J. EVANSON         

 

c: D. B. Hertzog

D. P. Lutz

 

Enclosures

 

AGREED TO AND ACCEPTED: /s/    JOHN P. CAMPBELL         John P. Campbell