Exhibit 10.15

 

EMPLOYMENT AGREEMENT (the “Agreement”) made as of this 3rd day of October, 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 Philip L. Goulding (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 October 13, 2003 (the “Start Date”). Unless terminated earlier
pursuant to Section 7, such term shall continue for a period of five (5) years
from the Start Date (the “Term”).

 

2. Duties. During the Term as provided in Section 1(b) hereof, the Executive
shall serve as Vice President – Strategic Planning of AEI and Chief Commercial
Officer of Allegheny Energy Supply Company, LLC (“AE Supply”). He shall report
directly to the Chief Executive Officer of AEI. The Executive shall be
responsible for strategic planning with respect to AEI and energy marketing,
trading and related analytics for AE Supply. 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. Bonus.

 

(a) 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 75% of Base Salary (the “Target Bonus”) and a maximum bonus
opportunity of 150% of Base Salary (the “Maximum Bonus”). For purposes of
clarity, for calendar year 2003, the Executive’s Target Bonus shall be $75,000
and his Maximum Bonus shall be $150,000. The parameters under AEI’s Annual
Incentive Plan (including the parameters applicable to the Executive) shall be
determined by the Management Compensation and Development Committee of the
Board. The Executive’s Annual Bonus for any year shall be payable in cash no
later than March 1 of the next succeeding year.

 

(b) Make Whole Payment. To induce the Executive to enter into this Agreement,
and to compensate him for the significant financial and other benefits he will
forfeit at his current employer as a result of accepting employment hereunder
and to secure for itself the benefit of the Executive’s particular qualification
and experience, AESC shall pay to the Executive, in a lump sum in cash on the
Start Date, a special hiring payment in an amount equal to Six Hundred Thousand
Dollars ($600,000). Notwithstanding any other provision of this Agreement to the
contrary, the Executive shall be obligated to return the full amount of such
payment to AESC, if the Executive’s employment hereunder is terminated by the
Executive before the first anniversary of the Start Date.

 

5. Long-Term Incentive Plan.

 

(a) Initial Grant of Options.

 

(i) Option Grant. On the first business day after obtaining authorization under
the Public Utilities Holding Company Act of 1935 (the “Authorization Date”),
AESC shall grant the Executive stock options (the “Options”) for 450,000 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 the date of grant, 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.

 

(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.

 

2

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

(iii) Adjustment in Numbers of Options. 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. The Executive shall receive a grant of 150,000 stock
units (the “Units”) within thirty (30) days after the Start Date. 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 its 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.

 

3

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

(v) Adjustment in Numbers of Units. Notwithstanding Section 5(b)(i), if (at any
time, whether before or after the 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 Units set forth in Section 5(b)(i).

 

(c) Additional Awards.

 

(i) Grant of Additional Awards. If the per share exercise price of the Options,
as set forth in Section 5(a)(i), exceeds the per share closing price of AEI
common stock on the Start Date, as quoted in the NYSE Composite Transaction
Listing in The Wall Street Journal, the Executive shall be entitled to receive,
on the Authorization Date, an additional award (the “Additional Award”) pursuant
to this Section 5(c) in an amount equal to such excess multiplied by 450,000,
payable as set forth in Section 5(c)(ii).

 

(ii) Form of Additional Award. The Additional Award may, in the discretion of
AESC, be granted in the form of (A) cash, (B) stock options, (C) additional
stock units, or (D) any combination of the foregoing. Any portion of the
Additional Award granted in the form of cash shall be payable in five equal
installments on each date that the Options vest hereunder, subject to the
Executive’s continued employment with the AE Companies on the applicable vesting
date. Any portion of the Additional Award granted in the form of stock options
shall be granted under the LTIP and shall be valued using Black-Scholes
principles, as reasonably determined by AESC, as of the Authorization Date and
shall vest in five equal installments on each of the dates that the Options vest
hereunder, subject to the Executive’s continued employment with the AE Companies
on the applicable vesting date. Any portion of the Additional Award granted in
the form of additional stock units shall be valued based upon the per share
closing price of AEI common stock on the Authorization Date, as quoted in the
NYSE Composite Transaction listing in the Wall Street Journal, shall be
evidenced by a Stock Unit Agreement substantially in the form of Exhibit B, and
shall be subject to the same terms and conditions applicable to the Units, as
set forth in Section 5(b)(ii)-(v).

 

(d) 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. 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.

 

4

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

(b) Special SERP Provisions. The Executive shall 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 the Executive’s eligibility for benefits and the amount of the
Executive’s benefits under the SERP, if the Executive remains employed by the AE
Companies on the fifth anniversary of the Start Date he will be credited with
five additional Years of Service under the SERP and if the Executive remains
employed by the AE Companies on the tenth anniversary of the Start Date he will
be credited with another five additional Years of Service under the SERP, and
(ii) solely for purposes of determining Executive’s eligibility for benefits
under the SERP, he will be deemed to have reached age 55 on the date that his
employment with the AE Companies ends for any reason. No adjustment will be made
to the Executive’s age for purposes of computing the actual amount of his
benefits under the SERP.

 

(c) 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.

 

(d) 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 without reduction in salary or other benefits.

 

(e) 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.

 

(f) 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 in accordance with the relocation policy of
the AE Companies.

 

(g) 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).

 

5

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

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 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 (as defined in Section 7(c)), 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) “Cause” shall mean (i) the Executive’s conviction of, or plea of guilty or
nolo contendere to, (A) a felony or (B) a lesser crime or offense which, in the
reasonable opinion of AESC, could adversely affect the business or reputation of
the AE Companies, (ii) the Executive’s repeated failure to follow specific
lawful directions of the Board or any officer to whom he reports, (iii) the
Executive’s

 

6

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

willful misconduct, fraud, embezzlement or dishonesty either in connection with
his duties hereunder or which otherwise causes damage or, in the reasonable
opinion of AESC, is likely to cause damage, to the AE Companies, (iv) the
Executive’s failure to perform a substantial part of his duties, (v) the
Executive’s willful violation of any policy, procedure or guideline of the AE
Companies that could materially and adversely affect the business or reputation
of the AE Companies, (vi) the Executive’s abuse of alcohol or illegal drugs, or
(vii) the Executive’s violation of the confidentiality, non-competition or
non-solicitation covenants in this Agreement.

 

(iii) “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

 

(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

 

7

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

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
terminates as a result of his death, the date of death, (B) 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 (C) 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 the Executive, shall not be less than fifteen (15) days nor more than sixty
(60) days 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, the Executive shall have been absent from the
full-time performance of the Executive’s duties with the AE Companies for a
period of six (6) consecutive months, AESC shall have given the Executive a
notice of termination for Disability, and, within thirty (30) days after such
notice of termination is given, the Executive shall not have returned to the
full-time performance of the Executive’s duties. At any time and from time to
time, upon reasonable request by AESC, the Executive shall submit to reasonable
medical examination for the purpose of determining the existence, nature and
extent of any such Disability.

 

(vi) “Good Reason” shall mean the occurrence of any of the following events,
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 or 12 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;

 

8

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

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

 

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

 

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

 

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 (other than a termination for
Good Reason as a result of an event described in Section 7(c)(vi)(C)), 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 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 Award, granted to the
Executive shall vest on the Date of Termination, 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).

 

(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 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).

 

9

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

(b) Termination by AESC without Cause or following Required Relocation. If the
Executive’s employment is terminated by AESC other than for Cause (i.e., without
Cause), death or Disability or if the Executive terminates his employment for
Good Reason as a result of an event described in Section 7(c)(vi)(C):

 

(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 $300,000
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 (except to
the extent such cost was borne by the Executive prior to the Date of
Termination), 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) All stock options and other equity awards, including, without limitation,
any Options, Units and the Additional Award 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 the scheduled expiration date of the
Term, 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).

 

(vi) 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).

 

10

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

(vii) In lieu of any benefits under Section 6(b), the Executive will be treated
as fully vested under the SERP and, for purposes of determining the amount of
the Executive’s benefits under the SERP, the Executive will be credited with a
number of Years of Service equal to two times the sum of (A) the number of years
that the Executive was employed by the AE Companies (rounded up or down to the
nearest whole number) and (B) two (2); provided, however, that in no event shall
the Executive be credited with more than ten (10) Years of Service.

 

(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 within twelve
months 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 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 $300,000 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 (except to the
extent such cost was borne by the Executive prior to the Date of Termination),
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) All stock options and other equity awards including, without limitation, the
Options, the Units and the Additional Award, shall vest on the

 

11

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

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).

 

(vi) 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).

 

(vii) In lieu of any benefits under Section 6(b), the Executive will be treated
as fully vested under the SERP and, for purposes of determining the amount of
the Executive’s benefits under the SERP, the Executive will be credited with a
number of Years of Service equal to two times the sum of (A) the number of years
that the Executive was employed by the AE Companies (rounded up or down to the
nearest whole number) and (B) two (2); provided, however, that in no event shall
the Executive be credited with more than ten (10) Years of Service.

 

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 benefits
provided for in this Agreement shall not be reduced by any compensation or
benefits earned by the Executive as the result of employment by another employer
or by retirement benefits.

 

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

 

12

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

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
for Cause, without Cause or by the Executive’s resignation, 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.

 

13

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

(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, without Cause or by the Executive’s
resignation, 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.

 

14

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

11. Representations of Executive. The Executive represents and warrants that he
is not subject to any employment or other agreement that prevents the Executive
from accepting employment with AESC or performing the duties contemplated
hereunder or 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, 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.

 

15

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

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 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.

 

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.

10435 Downsville Pike

Hagerstown, MD 21740-1766

Attn: Vice President of Human Resources

 

  (b)   to the Executive, to:

 

Philip L. Goulding

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 may 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

 

16

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

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.
Each party shall bear its own costs of arbitration or litigation including,
without limitation, attorneys’ fees.

 

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.

 

17

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

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.

 

18

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

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/ Paul J. Evanson

   

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

   

Name: Paul J. Evanson

Title: Chairman & Chief Executive Officer

 

Allegheny Energy, Inc.

By:

 

/s/ Paul J. Evanson

   

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

   

Name: Paul J. Evanson

Title: Chairman & Chief Executive Officer

 

/s/ Philip L. Goulding

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

Philip L. Goulding

 

19

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

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.