EX-10.2






Exhibit 10.2




ALLEGHENY ENERGY SERVICE CORPORATION

EXECUTIVE CHANGE IN CONTROL SEVERANCE PLAN




(Effective as of July 10, 2008)




 









 





	 	 	 	 	 	 	 	 	 
	ARTICLE I	 	PURPOSE AND TERM OF PLAN	 	 	1	 
	 	 	 	 	 
	 	 	 	 
	 	 	Section 1.1	 	Purpose of the Plan
	 	 	1	 
	 	 	Section 1.2	 	Term and Effect of the Plan
	 	 	1	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE II	 	DEFINITIONS	 	 	2	 
	 	 	 	 	 
	 	 	 	 
	 	 	Section 2.1	 	“AE Companies”
	 	 	2	 
	 	 	Section 2.2	 	“Allegheny”
	 	 	2	 
	 	 	Section 2.3	 	“Base Salary”
	 	 	2	 
	 	 	Section 2.4	 	“Board”
	 	 	2	 
	 	 	Section 2.5	 	“Cause”
	 	 	2	 
	 	 	Section 2.6	 	“Change in Control”
	 	 	2	 
	 	 	Section 2.7	 	“Change in Control Termination”
	 	 	3	 
	 	 	Section 2.8	 	“Code”
	 	 	3	 
	 	 	Section 2.9	 	“Committee”
	 	 	3	 
	 	 	Section 2.10	 	“Company”
	 	 	3	 
	 	 	Section 2.11	 	“Effective Date”
	 	 	4	 
	 	 	Section 2.12	 	“Eligible Employee”
	 	 	4	 
	 	 	Section 2.13	 	“Employee”
	 	 	4	 
	 	 	Section 2.14	 	“Employer”
	 	 	4	 
	 	 	Section 2.15	 	“ERISA”
	 	 	4	 
	 	 	Section 2.16	 	“Exchange Act”
	 	 	4	 
	 	 	Section 2.17	 	“Good Reason Resignation”
	 	 	4	 
	 	 	Section 2.18	 	“Involuntary Termination”
	 	 	5	 
	 	 	Section 2.19	 	“Outstanding Voting Securities”
	 	 	5	 
	 	 	Section 2.20	 	“Participant”
	 	 	5	 
	 	 	Section 2.21	 	“Permanent Disability”
	 	 	5	 
	 	 	Section 2.22	 	“Plan”
	 	 	5	 
	 	 	Section 2.23	 	“Plan Administrator”
	 	 	5	 
	 	 	Section 2.24	 	“Release”
	 	 	5	 
	 	 	Section 2.25	 	“Severance Benefits”
	 	 	5	 
	 	 	Section 2.26	 	“Successor”
	 	 	6	 
	 	 	Section 2.27	 	“Target Bonus”
	 	 	6	 
	 	 	Section 2.28	 	“Termination Date”
	 	 	6	 
	 	 	Section 2.29	 	“Tier 1 Employee”
	 	 	6	 
	 	 	Section 2.30	 	“Tier 2 Employee”
	 	 	6	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE III	 	PARTICIPATION AND ELIGIBILITY FOR BENEFITS	 	 	7	 
	 	 	 	 	 
	 	 	 	 
	 	 	Section 3.1	 	Participation
	 	 	7	 
	 	 	Section 3.2	 	Conditions
	 	 	7	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE IV	 	DETERMINATION OF SEVERANCE BENEFITS	 	 	9	 
	 	 	 	 	 
	 	 	 	 
	 	 	Section 4.1	 	Amount of Severance Benefits Upon Change in Control Termination
	 	 	9	 
	 	 	Section 4.2	 	Other Terminations
	 	 	10	 
	 	 	Section 4.3	 	Termination for Cause
	 	 	10	 
	 	 	Section 4.4	 	Reduction of Severance Benefits
	 	 	10	 






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TABLE OF CONTENTS

(continued)




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	 	 	Section 4.5	 	Reimbursement of Legal Fees and Costs
	 	 	11	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE V	 	METHOD AND DURATION OF PAYMENT OF SEVERANCE
BENEFITS	 	 	12	 
	 	 	 	 	 
	 	 	 	 
	 	 	Section 5.1	 	Method of Payment
	 	 	12	 
	 	 	Section 5.2	 	Termination of Eligibility for Benefits
	 	 	12	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE VI	 	COVENANTS	 	 	13	 
	 	 	 	 	 
	 	 	 	 
	 	 	Section 6.1	 	General
	 	 	13	 
	 	 	Section 6.2	 	Confidential Information
	 	 	13	 
	 	 	Section 6.3	 	Employment with Conflicting Organizations
	 	 	13	 
	 	 	Section 6.4	 	Non-Competition
	 	 	13	 
	 	 	Section 6.5	 	Non-Solicitation
	 	 	14	 
	 	 	Section 6.6	 	Return of Confidential Information
	 	 	14	 
	 	 	Section 6.7	 	Cooperation
	 	 	14	 
	 	 	Section 6.8	 	Non-Disparagement
	 	 	15	 
	 	 	Section 6.9	 	Equitable Relief
	 	 	15	 
	 	 	Section 6.10	 	Survival of Provisions
	 	 	16	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE VII	 	PLAN ADMINISTRATION; DUTIES OF THE COMPANY, THE
COMMITTEE AND THE PLAN ADMINISTRATOR; AND CLAIMS	 	 	17	 
	 	 	 	 	 
	 	 	 	 
	 	 	Section 7.1	 	Authority and Duties
	 	 	17	 
	 	 	Section 7.2	 	Payment
	 	 	17	 
	 	 	Section 7.3	 	Discretion
	 	 	17	 
	 	 	Section 7.4	 	Claims Administration
	 	 	17	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE VIII	 	AMENDMENT, TERMINATION AND DURATION	 	 	19	 
	 	 	 	 	 
	 	 	 	 
	 	 	Section 8.1	 	Amendment, Suspension and Termination
	 	 	19	 
	 	 	Section 8.2	 	Duration
	 	 	19	 
	 	 	 	 	 
	 	 	 	 
	ARTICLE IX	 	MISCELLANEOUS	 	 	20	 
	 	 	 	 	 
	 	 	 	 
	 	 	Section 9.1	 	Nonalienation of Benefits
	 	 	20	 
	 	 	Section 9.2	 	Notices
	 	 	20	 
	 	 	Section 9.3	 	Successors
	 	 	20	 
	 	 	Section 9.4	 	Other Payments
	 	 	20	 
	 	 	Section 9.5	 	No Mitigation
	 	 	20	 
	 	 	Section 9.6	 	No Contract of Employment
	 	 	20	 
	 	 	Section 9.7	 	Severability of Provisions
	 	 	20	 
	 	 	Section 9.8	 	Heirs, Assigns, and Personal Representatives
	 	 	20	 
	 	 	Section 9.9	 	Headings and Captions
	 	 	21	 
	 	 	Section 9.10	 	Gender and Number
	 	 	21	 
	 	 	Section 9.11	 	Unfunded Plan
	 	 	21	 
	 	 	Section 9.12	 	Payments to Incompetent Persons
	 	 	21	 
	 	 	Section 9.13	 	Lost Payees
	 	 	21	 






ii









 





TABLE OF CONTENTS

(continued)





	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page	 
	Section 9.14 Controlling Law
	 	 	21	 
	Section 9.15 Code Section 409A Compliance
	 	 	21	 
	 
	SCHEDULE A
	 	ELIGIBLE EMPLOYEES	 	 	A-1	 
	 
	 	 	 	 	 	 
	SCHEDULE B
	 	RELEASE AGREEMENT	 	 	B-1	 
	 
	 	 	 	 	 	 
	SCHEDULE C
	 	ADDITIONAL BENEFITS	 	 	C-1	 
	 
	 	 	 	 	 	 
	SCHEDULE D
	 	TAX INDEMNITY	 	 	D-1	 






iii









 






ARTICLE I




PURPOSE AND TERM OF PLAN




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



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



C-1 









 





ARTICLE II




DEFINITIONS




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



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



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



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



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



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



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




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




 2 









 







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




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




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




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



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



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



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



 3 









 





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



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



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



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



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



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



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



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




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




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




 4 









 







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




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




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



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



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



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



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



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



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



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



 5 









 





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



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



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



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



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



 6 









 





ARTICLE III




PARTICIPATION AND ELIGIBILITY FOR BENEFITS




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



     Section 3.2 Conditions.



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




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




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




 7 









 







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




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




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





 8 











 





ARTICLE IV




DETERMINATION OF SEVERANCE BENEFITS




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



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




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



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



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



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




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




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




9









 







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




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




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




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




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



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



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



10









 




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




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



11









 





ARTICLE V




METHOD AND DURATION OF PAYMENT OF SEVERANCE BENEFITS




     Section 5.1 Method of Payment.



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




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




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




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




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



12









 





ARTICLE VI




COVENANTS




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



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



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



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



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



13









 




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





	 	•	 	FirstEnergy Corporation
	 
	 	•	 	American Electric Power, Inc.
	 
	 	•	 	Exelon Corporation
	 
	 	•	 	PPL Corporation
	 
	 	•	 	Constellation Energy Group, Inc.
	 
	 	•	 	Pepco Holdings, Inc.
	 
	 	•	 	Dominion Resources, Inc.
	 
	 	•	 	DQE, Inc.





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



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



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



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



14









 




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




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



     Section 6.9 Equitable Relief.



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




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




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





15









 







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




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




16












 





ARTICLE VII




PLAN ADMINISTRATION; DUTIES OF THE COMPANY, THE COMMITTEE AND

THE PLAN ADMINISTRATOR; AND CLAIMS




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



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



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



     Section 7.4 Claims Administration.



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



17









 






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




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




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




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







18









 








ARTICLE VIII




AMENDMENT, TERMINATION AND DURATION




     Section 8.1 Amendment, Suspension and Termination.



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




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




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




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



19









 





ARTICLE IX




MISCELLANEOUS




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



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



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



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



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



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



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



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




20









 





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



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



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



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



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



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



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



21









 




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




22









 





SCHEDULE D




TAX INDEMNITY




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




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




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




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




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




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



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





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