Document:

EX-10.2

EXHIBIT
10.2

PAYCHEX, INC.

2002 STOCK INCENTIVE PLAN

(as amended and restated effective October 12, 2005)

FORM
OF NON-QUALIFIED STOCK OPTION AWARD AGREEMENT

     1. Grant of Option. This Non-qualified Stock Option Award Agreement (the “Award
Agreement”), made as of [date of grant], serves to notify you that the Governance and Compensation
Committee (the “Committee”) of the Board of Directors of Paychex, Inc. (the “Company”) hereby
grants to you, under the Company’s 2002 Stock Incentive Plan, as amended and restated effective
October 12, 2005 (the “Plan”), a Non-Qualified Stock Option (the “Option”) to purchase, on the
terms and conditions set forth in this Award Agreement and the Plan, up to the number of shares of
the Company’s $.01 par value common stock (the “Common Stock”) set forth on the attached statement
at the price of [exercise price] per share. The Plan is incorporated herein by reference and made
a part of this Award Agreement. You may obtain a copy of the Plan from the Office of the Corporate
Secretary. You should review the terms of this Award Agreement and the Plan carefully. The
capitalized terms used in this Award Agreement are defined in the Plan.

     2. Term. Unless the Option is previously terminated pursuant to the terms of this
Award Agreement or the Plan, the Option will expire at the close of business on [expiration date]
(the “Expiration Date”).

     3. Vesting. Subject to the terms set forth in this Award Agreement and the Plan, the
Option will vest and become exercisable pro rata with respect to one-fifth of the shares subject to
such Option on the first, second, third, fourth, and fifth anniversaries of the Date of Grant, with
any fractional share resulting from such pro-ration vesting on the fifth anniversary. Vesting is
contingent on your continued employment with the Company or one of its affiliates through the
vesting dates.

     4. Exercise.

          (a) Method of Exercise. To the extent exercisable under Section 3 of this Award Agreement,
the Option may be exercised in whole or in part, provided that the Option may not be exercised for
less than one share of Common Stock in any single transaction. The Option may be exercised using a
method specified by the Company.

          (b) Payment of Exercise Price. The exercise of the Option is conditioned upon your payment to
the Company of the Exercise Price for the number of shares of Common Stock that you elect to
purchase. The Exercise Price may be paid in cash or by check or by way of a broker-assisted stock
option exercise program, if such a program is made available by the Company at the time of the
exercise of the Option.

          (c) Withholding. The exercise of the Option is conditioned upon your making arrangements
satisfactory to the Company for the payment to the Company of the amount of all taxes required by
any governmental authority to be withheld and paid over by the Company or any
Affiliate to the governmental authority on account of the exercise. The payment of such

 

 

withholding taxes to the Company may be made (i) by you in cash or by check, or (ii) by the Company
or any Affiliate withholding such taxes from any other compensation owed to you by the Company or
any Affiliate. Withholding of shares of Common Stock for payment of tax withholdings is not
permitted for any reason.

          (d) Issuance of Shares. Upon determining that compliance with this Award Agreement has
occurred, including compliance with such reasonable requirements as the Company may impose pursuant
to the Plan, the Company shall issue to you a certificate for the shares of Common Stock purchased
on the earliest practicable date (as determined by the Company) thereafter.

     5. Effect of Death and Disability. In the event of your death or Disability prior to
the complete exercise of the Option, any unvested portion of the Option will vest in full
immediately and the remaining portion of the Option may be exercised in whole or in part, subject
to all of the conditions on exercise imposed by the Plan and this Award Agreement, within three
years after the date of your death or Disability, but only (i) by you, or in the event of your
death, by your estate or the person or persons to whom the Option passes under your will or the
laws of descent and distribution, and (ii) prior to the close of business on the Expiration Date of
the Option. The term “Disability” means a condition whereby you are unable to perform the
essential functions of your position with reasonable accommodations by reason of any medically
determinable physical or mental impairment which can be expected to result in death or which has
lasted for a continuous period of not less than six months, all as verified by a physician
acceptable to, or selected by, the Company.

     6. Effect of Retirement. Upon your Retirement prior to the complete exercise of the
Option, the unvested portion of the Option will be canceled as of your last day worked, and the
remaining portion of the Option may be exercised in whole or in part, subject to all of the
conditions on exercise imposed by the Plan and this Award Agreement, within three years after the
date of such termination, but only (i) to the extent that the Option was vested and exercisable on
the date such termination, and (ii) prior to the close of business on the Expiration Date of the
Option. The term “Retirement” means retirement from the Company at age 55 or later with ten or
more years of employment (full-time or part-time) with the Company.

     7. Effect of Other Termination. Upon your termination for a reason other than death,
Disability or Retirement prior to the complete exercise of the Option, the unvested portion of the
Option will be canceled as of your last day worked, and the remaining portion of the Option may be
exercised in whole or in part, subject to all of the conditions on exercise imposed by the Plan and
this Award Agreement, within one year after the date of such termination, but only (i) to the
extent that the Option was vested and exercisable on the date of such termination, and (ii) prior
to the close of business on the Expiration Date of the Option. Notwithstanding the foregoing, if
your employment is terminated by reason of conduct that is determined by the Company to have been
detrimental to the Company, including violation of the Company’s Code of Business Ethics, or
conduct which is criminal, fraudulent, deliberately dishonest, disloyal or willful misconduct, you
will forfeit all rights under the Option (both unvested and vested) as of your last day worked.

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     8. Non-competition, Non-solicitation, Confidentiality, and Detrimental Conduct. In
consideration for the Award, you agree that during your employment and for a period of twelve (12)
months following termination of employment for any reason, you will not, directly or
indirectly, either as an employee, employer, consultant, agent, principal, partner, stockholder,
corporate officer, board member, director, or in any other individual or representative capacity,
engage or attempt to engage in any activity that is competitive to the business of the Company
within the geographic and substantive area or areas of responsibility assigned to the you during
the last 24 months of employment. In addition, you agree that for a period of eighteen (18) months
following the termination of employment for any reason, you will not directly or indirectly by
assisting others, solicit Company clients, prospects or referral resources; nor will you recruit or
hire, or attempt to recruit or hire any other employee of Company or its affiliates, or induce or
attempt to induce any employee of Company to terminate employment with Company. You also agree and
acknowledge that during the course of your employment with the Company, you will obtain, have
access and be privy to nonpublic information important to the Company’s business solely as a result
of employment with the Company, which information you hereby acknowledge and agree to be
confidential (“Confidential Information”). You agree that during and after employment, you shall
not divulge or make use of any Confidential Information, directly or indirectly, personally or on
behalf of any other person, business, corporation, or entity without prior written consent of the
Company. You further agree that you will not, during your employment, engage in conduct which is
detrimental to the Company, including violation of the Company’s Code of Business Ethics and
Conduct, criminal conduct, fraud, or willful misconduct. These covenants are not intended to, and
do not, limit in any way the rights and remedies provided to the Company under the Plan, other
agreements with you, or under common or statutory law.

     9. Repayment of Financial Gain.

          (a) If you fail to comply with Section 8 of this Award Agreement, the Company may cancel any
unexercised portion of this Option and recover from you the gross amount, before deduction of
applicable taxes or other amounts, of any gain realized on the exercise of stock options pursuant
to this Option during the 24-month period preceding your breach of any covenant in Section 8 of
this Award Agreement.

          (b) If you fail to comply with Section 8 of this Award Agreement, upon demand by the Company,
you will repay the Company in accordance with the terms of Section 9(a), and the Company shall be
entitled to offset the amount of any such repayment obligation against any amount owed to you by
the Company. The remedies set forth in this Section are in addition to any other remedies the
Company may have, at law or equity, for your violation of the terms of this Award Agreement.

     10. Transfer of Option. Except as otherwise determined by the Committee, the Option
may not be transferred, assigned or pledged (except by will or the laws of descent and
distribution, or pursuant to a domestic relations order).

     11. Limitation of Rights. You will not have any rights as a stockholder with respect
to the shares of Common Stock covered by the Option until you become the holder of record of such
shares by exercising the Option. Neither the Plan, the granting of the Option nor this

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Award Agreement gives you any right to remain in the employment of the Company or any Affiliate.

     12. Rights of Company and Affiliates. This Award Agreement does not affect the right
of the Company or any Affiliate to take any corporate action whatsoever, including without
limitation its right to recapitalize, reorganize or make other changes in its capital structure or
business, merge or consolidate, issue bonds, notes, shares of Common Stock or other securities,
including preferred stock, or options therefore, dissolve or liquidate, or sell or transfer any
part of its assets or business.

     13. Restrictions on Issuance of Shares. If at any time the Company determines that
the listing, registration or qualification of the shares covered by the Option upon any securities
exchange or under any state or federal law, or the approval of any governmental agency, is
necessary or advisable as a condition to the exercise of the Option, the Option may not be
exercised in whole or in part unless and until such listing, registration, qualification or
approval shall have been effected or obtained free of any conditions not acceptable to the Company.

     14. Plan Controls. The Option is subject to all of the provisions of the Plan, which
is hereby incorporated by reference, and is further subject to all the interpretations, amendments,
rules and regulations that may from time to time be promulgated and adopted by the Committee
pursuant to the Plan. In the event of any conflict among the provisions of the Plan and this Award
Agreement, the provisions of the Plan will be controlling and determinative.

     15. Amendment. Except as otherwise provided by the Plan, the Company may only alter,
amend or terminate the Option with your consent.

     16. Governing Law. This Award Agreement shall be governed by and construed in
accordance with the laws of the State of New York, except as superseded by applicable federal law,
without giving effect to its conflicts of law provisions. All parties consent to exclusive
personal jurisdiction in New York courts and agree that venue shall be New York State Supreme
Court, Monroe County.

* * * * *

4EX-10.1

Exhibit 10.1

ALLEGHENY ENERGY SERVICE CORPORATION

EXECUTIVE SEVERANCE PLAN

(Effective as of July 10, 2008)

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	Page	 
	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 “Average Annual Incentive Payment”
	 	 	2	 
	Section 2.4 “Base Salary”
	 	 	2	 
	Section 2.5 “Board”
	 	 	2	 
	Section 2.6 “Cause”
	 	 	2	 
	Section 2.7 “Change in Control Termination”
	 	 	2	 
	Section 2.8 “Code”
	 	 	3	 
	Section 2.9 “Committee”
	 	 	3	 
	Section 2.10 “Common Stock”
	 	 	3	 
	Section 2.11 “Company”
	 	 	3	 
	Section 2.12 “Effective Date”
	 	 	3	 
	Section 2.13 “Eligible Employee”
	 	 	3	 
	Section 2.14 “Employee”
	 	 	3	 
	Section 2.15 “Employer”
	 	 	3	 
	Section 2.16 “ERISA”
	 	 	3	 
	Section 2.17 “Exchange Act”
	 	 	3	 
	Section 2.18 “Good Reason Resignation”
	 	 	3	 
	Section 2.19 “Involuntary Termination”
	 	 	4	 
	Section 2.20 “Participant”
	 	 	4	 
	Section 2.21 “Permanent Disability”
	 	 	4	 
	Section 2.22 “Plan”
	 	 	4	 
	Section 2.23 “Plan Administrator”
	 	 	4	 
	Section 2.24 “Release”
	 	 	4	 
	Section 2.25 “Severance Benefits”
	 	 	4	 
	Section 2.26 “Successor”
	 	 	4	 
	Section 2.27 “Target Bonus”
	 	 	4	 
	Section 2.28 “Termination Date”
	 	 	5	 
	Section 2.29 “Tier 1 Employee”
	 	 	5	 
	Section 2.30 “Tier 2 Employee”
	 	 	5	 
	 
	 	 	 	 
	ARTICLE III PARTICIPATION AND ELIGIBILITY FOR BENEFITS
	 	 	6	 
	 
	 	 	 	 
	Section 3.1 Participation
	 	 	6	 
	Section 3.2 Conditions
	 	 	6	 
	 
	 	 	 	 
	ARTICLE IV DETERMINATION OF SEVERANCE BENEFITS
	 	 	8	 
	 
	 	 	 	 
	Section 4.1 Amount of Severance Benefits Upon Involuntary
Termination or Good Reason Resignation
	 	 	8	 
	Section 4.2 Other Terminations
	 	 	9	 

i

 

TABLE OF CONTENTS

(continued)

	 	 	 	 	 
	 	 	Page	 
	Section 4.3 Termination for Cause
	 	 	9	 
	Section 4.4 Reduction of Severance Benefits
	 	 	10	 
	Section 4.5 Reimbursement of Legal Fees and Costs
	 	 	10	 
	 
	 	 	 	 
	ARTICLE V METHOD AND DURATION OF PAYMENT OF SEVERANCE
BENEFITS
	 	 	11	 
	 
	 	 	 	 
	Section 5.1 Method of Payment
	 	 	11	 
	Section 5.2 Termination of Eligibility for Benefits
	 	 	11	 
	 
	 	 	 	 
	ARTICLE VI COVENANTS
	 	 	12	 
	 
	 	 	 	 
	Section 6.1 General
	 	 	12	 
	Section 6.2 Confidential Information
	 	 	12	 
	Section 6.3 Employment with Conflicting Organizations
	 	 	12	 
	Section 6.4 Non-Competition
	 	 	12	 
	Section 6.5 Non-Solicitation
	 	 	13	 
	Section 6.6 Return of Confidential Information
	 	 	13	 
	Section 6.7 Cooperation
	 	 	13	 
	Section 6.8 Non-Disparagement
	 	 	14	 
	Section 6.9 Equitable Relief
	 	 	14	 
	Section 6.10 Survival of Provisions
	 	 	15	 
	 
	 	 	 	 
	ARTICLE VII
PLAN ADMINISTRATION; DUTIES OF THE COMPANY, THE
COMMITTEE AND THE PLAN ADMINISTRATOR; AND CLAIMS
	 	 	16	 
	 
	 	 	 	 
	Section 7.1 Authority and Duties
	 	 	16	 
	Section 7.2 Payment
	 	 	16	 
	Section 7.3 Discretion
	 	 	16	 
	Section 7.4 Claims Administration
	 	 	16	 
	 
	 	 	 	 
	ARTICLE VIII AMENDMENT, TERMINATION AND DURATION
	 	 	18	 
	 
	 	 	 	 
	Section 8.1 Amendment, Suspension and Termination
	 	 	18	 
	Section 8.2 Duration
	 	 	18	 
	 
	 	 	 	 
	ARTICLE IX MISCELLANEOUS
	 	 	19	 
	 
	 	 	 	 
	Section 9.1 Nonalienation of Benefits
	 	 	19	 
	Section 9.2 Notices
	 	 	19	 
	Section 9.3 Successors
	 	 	19	 
	Section 9.4 Other Payments
	 	 	19	 
	Section 9.5 No Mitigation
	 	 	19	 
	Section 9.6 No Contract of Employment
	 	 	19	 
	Section 9.7 Severability of Provisions
	 	 	19	 
	Section 9.8 Heirs, Assigns, and Personal Representatives
	 	 	19	 
	Section 9.9 Headings and Captions
	 	 	20	 
	Section 9.10 Gender and Number
	 	 	20	 
	Section 9.11 Unfunded Plan
	 	 	20	 

ii

 

TABLE OF CONTENTS

(continued)

	 	 	 	 	 
	 	 	Page	 
	Section 9.12 Payments to Incompetent Persons
	 	 	20	 
	Section 9.13 Lost Payees
	 	 	20	 
	Section 9.14 Controlling Law
	 	 	20	 
	Section 9.15 Code Section 409A Compliance
	 	 	20	 
	 
	 	 	 	 
	SCHEDULE A ELIGIBLE EMPLOYEES
	 	 	A-1	 
	 
	 	 	 	 
	SCHEDULE B RELEASE AGREEMENT
	 	 	B-1	 
	 
	 	 	 	 
	SCHEDULE C ADDITIONAL BENEFITS
	 	 	C-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 an Involuntary Termination or a
Good Reason Resignation. 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 prior to the Effective Date of the Plan.
Notwithstanding the foregoing, the Plan shall not: (i) apply to any Employee who is subject to an
existing employment or severance agreement pursuant to which the Company or any of the other AE
Companies has arranged to provide severance benefits to the Employee until the term of such
agreement expires (or, if earlier, such date as the Employee executes an acknowledgement that the
Plan supersedes such agreement); or (ii) supersede any plan, program, policy or agreement pursuant
to which the Company or any of the other AE Companies has arranged to provide severance benefits to
an Employee in connection with the occurrence of a change in control. 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.

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 “Average Annual Incentive Payment” shall mean the average of the actual
annual incentive payments paid to the Participant pursuant to the annual bonus or incentive program
of the AE Companies as in effect from time to time for each of the full and completed fiscal years
(up to a maximum of three full and completed fiscal years) immediately preceding the Participant’s
Termination Date. For a Participant who has not been employed long enough to receive any annual
bonus or incentive payment from the AE Companies for a full and completed fiscal year, Average
Annual Incentive Payment shall be deemed to be: (i) 50% of the Participant’s Base Salary for a Tier
1 Employee; and (ii) 30% of the Participant’s Base Salary for a Tier 2 Employee.

     Section 2.4 “Base Salary” shall mean the annual base salary in effect as of the
Participant’s Termination Date.

     Section 2.5 “Board” shall mean the Board of Directors of Allegheny, or any successor
thereto.

     Section 2.6 “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 2.7 “Change in Control Termination” shall mean an Eligible Employee’s
termination of employment that occurs in connection with a change in control and that results in
the Employee receiving severance payments or other benefits under the Allegheny
Energy Service Corporation Executive Change in Control Severance Plan or any other plan,
program,

2

 

agreement or arrangement on account of such change in control. For purposes of this
Section, the term “change in control” shall have the meaning as defined in the Allegheny Energy
Service Corporation Executive Change in Control Severance Plan or such other plan, program,
agreement or arrangement, as applicable.

     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 “Common Stock” shall mean the Common Stock of Allegheny.

     Section 2.11 “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.

     Section 2.12 “Effective Date” shall mean July 10, 2008.

     Section 2.13 “Eligible Employee” shall mean any Employee who is employed by the AE
Companies as a 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 2.14 “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 2.15 “Employer” shall mean the Company or any of the AE Companies with respect
to which this Plan has been adopted.

     Section 2.16 “ERISA” shall mean the Employee Retirement Income Security Act of 1974,
as amended, and regulations thereunder.

     Section 2.17 “Exchange Act” shall mean the Securities Exchange Act of 1934, as
amended.

     Section 2.18 “Good Reason Resignation” shall mean an Eligible Employee’s written
resignation within 60 days of the occurrence of 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

3

 

from the Eligible Employee; provided, however, that a uniform percentage
reduction in the annual Base Salary or Target Bonus of all Employees employed as a Vice President
or in a more senior position of less than 5% shall not constitute a basis for a Good Reason
Resignation.

     Section 2.19 “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 2.20 “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
Severance 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.

     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.

4

 

     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 for any reason.

     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.

5

 

ARTICLE III

PARTICIPATION AND ELIGIBILITY FOR BENEFITS

     Section 3.1 Participation. Each Eligible Employee in the Plan who incurs an
Involuntary Termination or a Good Reason Resignation (other than an Involuntary Termination or Good
Reason Resignation that constitutes 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 an Involuntary Termination or a Good Reason Resignation, 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 and/or that the Eligible
Employee is no longer entitled to receive severance benefits 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 an
Involuntary Termination or a Good Reason Resignation 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) Change in Control Termination; (iii) resignation of employment (other
than a Good Reason Resignation) before the job-end date specified by the

6

 

Employer or while the Employer still desires the Eligible Employee’s services; (iv)
termination for Cause; (v) termination due to death or Permanent 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.

          (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.

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ARTICLE IV

DETERMINATION OF SEVERANCE BENEFITS

     Section 4.1 Amount of Severance Benefits Upon Involuntary Termination or Good Reason
Resignation. The Severance Benefits to be provided to a Participant who incurs an Involuntary
Termination or a Good Reason Resignation 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 200% of the sum of (A)
the Tier 1 Employee’s Base Salary, plus (B) the Tier 1 Employee’s Average Annual Incentive Payment
(with both Base Salary and Average Annual Incentive Payment being determined without regard to any
decrease in such Base Salary or Average Annual Incentive Payment that would constitute a basis for
a Good Reason Resignation).

               (ii) Tier 2 Employees shall receive salary and bonus severance equal to 100% of the sum of (A)
the Tier 2 Employee’s Base Salary, plus (B) the Tier 2 Employee’s Average Annual Incentive Payment
(with both Base Salary and Average Annual Incentive Payment being determined without regard to any
decrease in such Base Salary or Average Annual Incentive Payment 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 year of
termination equal to the product of the Participant’s Average Annual Incentive Payment and a
fraction, the numerator of which is the number of days during which the Participant was employed in
the current fiscal year through the Participant’s Termination Date, and the denominator of which is
365.

          (b) Benefit Coverage Premiums. Participants shall receive a lump sum amount equal to
$30,000 for a Tier 1 Employee and $20,000 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) Stock Options. The shares of Common Stock covered by any option granted to a
Participant under the terms of the Allegheny Energy, Inc. 1998 Long-Term Incentive Plan (the
“1998 LTIP”) or the Allegheny Energy, Inc. 2008 Long-Term Incentive Plan (the “2008
LTIP”) and held by the Participant as of the Participant’s Termination Date shall vest on a
pro-rated basis in an amount equal to: (i) the total number of shares covered by the option
multiplied by a fraction, the numerator of which is the number of full months of the Participant’s
employment with the AE Companies commencing on the date of grant of the option (as determined under
the applicable option award agreement) and ending on the Participant’s Termination Date and the
denominator of which is the number of months of employment with the AE Companies necessary for a
Participant to become fully vested in the option (as determined by the terms of the applicable
option grant agreement), less (ii) the number of shares

8

 

covered by the option that are already vested as of the Participant’s Termination Date.
Further, all shares of Common Stock covered by an option granted to a Participant under the terms
of the 1998 LTIP or the 2008 LTIP that are vested as of the Participant’s Termination Date
(including those shares of Common Stock that become vested by operation of this Section 4.01(c))
shall remain exercisable until the earlier of the close of business of the day immediately prior to
the date the option expires (as determined under the applicable option award agreement) or the
three-year anniversary of the Participant’s Termination Date. In addition to the option vesting
provisions described in this Section 4.01(c), a Participant’s options shall be subject to the
special vesting conditions, if any, described in Schedule C.

          (d) Performance Awards. A Participant shall be eligible to receive a pro-rated share
of any outstanding award of performance shares of Common Stock granted to a Participant in
accordance with the terms of the 2008 LTIP (a “Performance Award”). This pro-rated share
of any Performance Award shall be calculated by multiplying: (i) the Performance Award the
Participant would have earned for the full performance period based on the performance of the AE
Companies as determined at the end of the applicable performance period by (ii) a fraction, the
numerator of which is the number of full months of the Participant’s participation in the 2008 LTIP
during the applicable performance period for the Performance Award and the denominator of which is
the total number of months in the applicable performance period for the Performance Award.

          (e) SERP Credit. A Participant shall participate in the Supplemental Executive
Retirement Plan (the “SERP”) on the terms and conditions set forth therein except that if
the Participant has five years of service under the SERP on the Participant’s Termination Date, the
Participant shall vest in his SERP benefit (based on “years of service” and “compensation” (as
those terms are defined in the SERP) accrued by the Participant up through the Participant’s
Termination Date). In addition to the benefit described in this Section 4.01(e), the Participant
shall also receive such additional SERP benefit, if any, described in Schedule C.

          (f) 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 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 an Involuntary Termination or a Good Reason Resignation 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

9

 

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 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.

10

 

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. 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 Performance Award Severance Benefits. The Performance Award benefit
described in Section 4.01(d) shall be paid upon the completion of the applicable performance period
for the Performance Award, but in no event later than two and one-half months thereafter.

          (c) Payment of SERP Severance Benefits. The SERP benefit described in Section 4.01(e)
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.

          (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.

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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”

12

 

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

13

 

providing information, reviewing documents, answering questions, or appearing as a witness in
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

14

 

laying of venue of any such suit, action or proceeding in any such court. Eligible Employees
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.

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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 an Involuntary Termination or a Good Reason Resignation,
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

16

 

after having exhausted the 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.

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ARTICLE VIII

AMENDMENT, TERMINATION AND DURATION

     Section 8.1 Amendment, Suspension and Termination.

          (a) Except as otherwise provided in paragraph (b) 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 (i) reduces or eliminates Plan benefits, (ii) terminates the participation of one
or more Eligible Employees, or (iii) 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.

     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.

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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.

19

 

     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

20

 

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.

21

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