AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the “Agreement”) made as of this 26th
day of July, 2007 (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 is currently an employee of AESC, and is party to an
Employment Agreement with AESC and AEI dated June 9, 2003, as amended effective
February 18, 2004 (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, 2010 (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;
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 11 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 $1,020,900 per year for the period from
the Effective Date through June 15, 2008 and at the rate of at least $1,200,000
per year for the remainder of the Term following June 15, 2008. 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 2007
fiscal year and each succeeding fiscal year of the Company commencing during the
Term. The bonus opportunity for each such year shall be based on the percentages
of the Executive’s Base Salary as of the last day of the applicable fiscal year,
as set forth below:

Fiscal Year

Target Bonus as % of Base Salary
(“Target Percentage”)

Maximum Bonus as % of Base Salary

2007

100%

200%

2008

112.5%

225%

2009

125%

250%

2010

125%

250%

 

 

 

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 the applicable Target Percentage as of such date, as specified
above.

5.

Long-Term Incentive Plan.

(a)  Equity Awards. AESC shall grant to the Executive an annual equity award
(collectively, the “Equity Awards”) in each of 2008 and 2009 with respect to AEI
Common Stock, each such award having an initial grant date value of $8,400,000.
The Equity Awards shall be granted under the Allegheny Energy, Inc. 1998
Long-Term Incentive Plan or such other equity-based incentive plan as may be
adopted and approved hereafter by 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 2008 and 2009, as determined by the Board (the “Grant Date”) (but
in no event later than June 15 of each such year), and shall be in the form and
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 Equity Awards may consist of incentives in
the form of stock options, stock appreciation rights, restricted stock, stock
units, equity-based performance shares or units or similar awards or a
combination of the foregoing, as determined by the Board in consultation with
the Executive. Any stock options or stock appreciation rights granted as part of
the Equity Awards 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(a) 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.

(b) Vesting. The mix of incentives and the vesting and other material terms of
the incentives under each Equity Award shall be no less favorable to the
Executive than those 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 Award; provided, however, that the vesting of the Equity
Awards shall be subject to Section 9 and upon the occurrence of a Change in
Control (as defined in Section 8(e)(iii)) the Equity Awards shall become
immediately vested (and, if such Equity Awards include stock units, such stock
units shall become immediately payable). 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 9 below, such portion of the Equity Award shall be subject to earning
and performance measurement over the same performance 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 9(b)(v) (the “Pension Benefit”).
For the avoidance of doubt, the Executive’s employment with AESC commenced on
June 16, 2003, pursuant to the Prior Agreement.

(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 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 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.   Special Vesting of Units. The Units and the Additional Units (as such terms
are defined in the Prior Agreement) awarded to the Executive under Section 5(b)
and Section 5(c) of the Prior Agreement and any additional Units credited with
respect thereto shall become fully vested and payable to the Executive if at any
time after the occurrence of an Equity Vesting Event any Equity Person (as such
terms are defined in Section 8(e)(vi) of this Agreement) exercises veto power
over a corporate action of the AE Companies which has been recommended by the
Executive.

8.   Termination. Unless earlier terminated in accordance with the following
provisions of this Section 8, 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 9 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 9(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 16 of this Agreement.

(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
8(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 ninety (90)
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 8(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 8(b)(iv)), or, if later, prior
to the Date of Termination (as determined without regard to this Section 8(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 8(c), 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 8(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 (as defined in
Section 5(a)) and any equity awards granted in connection with the Prior
Agreement, until the Date of Termination, as determined in accordance with
Section 8(c) hereof. Amounts paid under this Section 8(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 8(c) and
8(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 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 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 ninety (90) days nor more
than one-hundred twenty (120) days (or, in the case of a resignation solely for
Good Reason, not less than fifteen (15) days 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, 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)          “Equity Vesting Event” shall mean the occurrence of a Change in
Control (as defined in Section 8(e)(iii)(A) above), except that (1) the
ownership threshold shall be 10% and (2) the 10% ownership threshold shall be
met if in any twelve (12) consecutive month period two (2) or more persons
become beneficial owners, directly or indirectly, of securities of AEI
collectively representing 10% or more of the combined voting power of AEI’s then
outstanding securities, (regardless of whether such persons would be considered
a single “person” under Section 13(g) of the Exchange Act) pursuant to which the
person or persons acquiring beneficial ownership of voting securities of AEI
pursuant to this Section 8(e)(vi) (each an “Equity Person”) receives the right
to veto a corporate action of the AE Companies.

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

(A)       The failure to elect or reelect the Executive to the Board or to any
of the other positions specified in Section 2 (including changes resulting from
a transaction immediately after which the Executive is not the Chief Executive
Officer and Chairman of the ultimate majority parent company of the businesses
of the AE Companies following the transaction), the material diminution in the
Executive’s title or duties, or the assignment to the Executive of any duties
inconsistent in any material respect with the Executive’s position, titles,
authority, duties, responsibilities or reporting relationships as contemplated
by Section 2 of this Agreement 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;

(B)       Any failure by AESC to comply with any of the provisions of Sections
3, 4, 5, 6, 7, 13 or 22 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 12;

(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;

(E)       The failure of AESC to obtain the assumption in writing of its
obligation to perform this Agreement as required pursuant to Section 15; or

(F)       The occurrence of any of the following without the Executive’s written
consent: (1) the general assignment by AEI for the benefit of its creditors; (2)
the filing by AEI of a petition under Chapter 7 or Chapter 11 of the United
States Bankruptcy Code or any other Federal, state or foreign bankruptcy,
insolvency, receivership or similar law now or hereafter in effect
(collectively, the “Bankruptcy Laws”); (3) the failure by AEI to controvert in a
timely and appropriate manner, or the acquiescence by AEI in writing to, any
petition filed against it in any involuntary case under the Bankruptcy Laws; or
(4) the commencement of an involuntary proceeding or the filing of an
involuntary petition seeking (A) liquidation, reorganization or other relief in
respect of AEI or its debts, or of a substantial part of its assets, under the
Bankruptcy Laws or (B) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for AEI or for a substantial part
of its assets, if, in either such case, such proceeding or petition shall
continue undismissed for sixty (60) days or an order, judgment or decree
approving or ordering any of the foregoing shall be entered, or an order for
relief against AEI shall be entered in an involuntary case under the Bankruptcy
Laws.

(viii)        “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.

9.   Obligations of AESC Upon Termination. Subject to the delayed payment
requirement set forth in Section 14, 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 8(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 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 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 and the equity awards granted in
connection with the Prior Agreement, granted to the Executive shall vest on the
Date of Termination (and all options shall thereupon become fully exercisable
and any stock units shall thereupon become payable), and, subject to Section
9(d), all stock options other than stock options granted under the Equity Awards
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); and all stock options granted under the Equity Awards 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 and the Date of Termination is on or
after June 15, 2009 (a “Qualifying Retirement”), (x) the Equity Award granted in
2008 shall vest in full on the Date of Termination and (y) the Equity Award
granted in 2009 shall vest on the Date of Termination with respect to (A)
twenty-five percent (25%) of the shares or units covered by each component of
such Equity Award if the Date of Termination occurs on or after September 15,
2009, (B) fifty percent (50%) of such shares or units if the Date of Termination
occurs on or after December 15, 2009, (C) seventy-five percent (75%) of such
shares or units if the Date of Termination occurs on or after March 15, 2010,
and (D) one hundred percent (100%) of such shares or units if the Date of
Termination occurs on or after June 15, 2010, and (z) any stock options granted
under the Equity Awards 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).

(v)        If the termination of employment is by reason of the Executive’s
death or Disability or a Qualifying Retirement, 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 the Executive’s
Target Bonus for the year of the Executive’s death, Disability or Qualifying
Retirement, pro rated for the number of days in such year that the Executive was
employed with AESC.

(vi)        AESC shall pay the Executive or his beneficiaries, heirs or estate a
prompt lump sum cash payment equal to the Pension Benefit.

(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 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, 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 prompt 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 for the year in which the Date of
Termination occurs, multiplied by (x) three (3) in the event that the Date of
Termination occurs on or before June 15, 2009 or (y) one (1) in the event that
the Date of Termination occurs after June 15, 2009, but before June 15, 2010.

(iv)        For the period from the Date of Termination through Benefit
Termination Date (as defined below), 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). The “Benefit Termination
Date” shall be (x) in the event that the Date of Termination occurs on or before
June 15, 2009, the third anniversary of the Date of Termination and (y) in the
event that the Date of Termination occurs after June 15, 2009, but before June
15, 2010, the first anniversary of the Date of Termination.

(v)        AESC shall pay the Executive a prompt lump sum cash payment equal to
the Pension Benefit calculated as if the Executive had been employed through the
end of the Term.

(vi)        All stock options and other equity awards including, without
limitation, the Equity Awards and the equity awards granted under the Prior
Agreement, shall vest on the Date of Termination (and all options shall
thereupon become fully exercisable and all stock units shall thereupon become
payable), and, subject to Section 9(d), all stock options other than stock
options granted under the Equity Awards shall continue to be exercisable for
five (5) 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); and all stock options
granted under the Equity Awards 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 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.

(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:

(i)        AESC shall pay or provide to the Executive the amounts or benefits
described in clauses (i), (ii) and (vii) of Section 9(b).

(ii)        AESC shall pay the Executive a prompt lump sum cash payment equal to
the Pension Benefit.

(iii)        Unless the Executive is terminated for Cause, the Equity Awards
shall vest in full, and all options granted to the Executive by AEI prior to the
expiration of the Term (including any options granted under the Equity Awards
and any options granted in accordance with the Prior Agreement) shall continue
to be exercisable until the date of expiration of such options determined
pursuant to the option award letters (determined as if the Executive’s
employment with AESC had not terminated).

(d) Preservation of Certain Rights under the Prior Agreement. In the event of a
termination of the Executive’s employment with AESC for any reason (other than a
termination for Cause) on or after June 15, 2008, then, notwithstanding any
other provisions of this Agreement to the contrary, (i) all options granted to
the Executive in connection with the Prior Agreement shall continue to be
exercisable until the date of expiration of such options determined pursuant to
the option award letters (determined as if the Executive’s employment with AESC
had not terminated), and (ii) 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.

10. 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.

11. 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, 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

 

•

American Electric Power, Inc.

 

•

Exelon Corporation

 

•

PPL, Inc.

 

•

Constellation Energy Group, Inc.

 

•

Potomac Electric and Power Company

•

Dominion Resources, Inc.

 

•

DQE, Inc.

 

•

FPL Group, Inc.

 

Notwithstanding the foregoing, the provisions of this Section 11(c) and of
Section 11(d) shall not apply in the case of the Executive’s resignation
following an event described in Section 8(e)(vii)(F), nor shall such provisions
apply following any breach of AESC’s obligations under Section 9, Section 13 or
Section 22 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 11 shall be enforceable to the fullest extent
permissible by law. If any of the provisions in this Section 11 are hereafter
construed to be invalid or unenforceable in any jurisdiction, the same shall not
affect the remainder of the provisions in this Section 11 or the enforceability
therein in any other jurisdiction where such provisions shall be given full
effect. If any provision of this Section 11 shall be deemed unenforceable, in
whole or in part, this Section 11 shall be deemed to be amended to delete or
modify the offending part so as to alter this Section 11 to render it valid and
enforceable.

(f)  Enforcement. The Executive acknowledges that valid consideration has been
received, that the provisions of this Section 11 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 Section 11 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 11, the AE
Companies shall be entitled to specific enforcement of this Section 11 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.

12.

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 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
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
are in compliance with that Plan. 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.

13.

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

14. Withholding and Special Terms Relating to Payments and Benefits Subject to
IRC Section 409A. AESC shall be entitled to withhold from payments due hereunder
any required federal, state or local withholding or other taxes. To the extent
that any amounts payable to the Executive under Section 9 hereof are subject to
Section 409A(a)(2)(B) of the Internal Revenue Code of 1986, as amended (the
“Code”), any requirement under Section 9 that such amounts be paid promptly
shall not apply and instead such amounts shall be paid in a lump sum as of the
date six (6) months after the Date of Termination.

15. 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.

16. 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:

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.

17. No Assignment. Except as provided in Section 15 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.

18. 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.

19. 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.

20. 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.

21. 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.

22. Tax Indemnity. The provisions of Exhibit A hereto shall apply with respect
to any Excise Tax (as defined therein) imposed on the Executive.

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

24. 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 11(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.

25. 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.

26. 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 8(c), 8(d), 9(a) and 9(b) 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 9(c), 10, 11, 12, 13, 14, 15, 17, 19, 20, 21, 22, 23, 24 and 25; and
(z) any other terms and provisions of this Agreement that by their nature extend
beyond the termination of this Agreement.

27. 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.

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

 

 

 

/s/ Paul J. Evanson

Paul J. Evanson

 

--------------------------------------------------------------------------------

Exhibit A

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 A) (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 A, 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 A,
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 A, 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.