Exhibit 10.1
AMENDED AND RESTATED EMPLOYMENT
AGREEMENT (the “ Agreement ”) made as of this
9th day of July, 2009 (the “ Effective Date ”)
between Allegheny Energy Service Corporation (“ AESC
”) for itself and as agent for its parent, Allegheny Energy,
Inc. (“ AEI ”), the affiliates and subsidiaries
of AESC and AEI, and any successors or assigns of any of the
foregoing (the “ AE Companies ”), and Paul J.
Evanson (the “ Executive ”).
WHEREAS, the Executive had entered
into an Employment Agreement with AESC and AEI dated June 9,
2003, as amended effective February 18, 2004 (the “
Original Agreement ”), which was superseded by an
Amended and Restated Employment Agreement with AESC and AEI dated
July 26, 2007 (the “ Prior Agreement
”);
WHEREAS, AESC desires to procure the
continued services of the Executive, and the Executive is willing
to continue in the employment of AESC, upon the terms and subject
to the conditions set forth in this Agreement; and
WHEREAS, AESC and AEI and the
Executive desire to amend and restate the Prior Agreement as set
forth herein;
NOW, THEREFORE, in consideration of
the covenants contained herein, and for other good and valuable
consideration, the parties hereto agree as follows:
1. Employment and Term
.
(a) Employment . AESC hereby
offers to employ the Executive, and the Executive hereby accepts
such employment with AESC, for the Term set forth in
Section 1(b) and on the terms and conditions set forth in this
Agreement.
(b) Term . The term of the
Executive’s employment under this Agreement shall commence on
the Effective Date and, unless terminated earlier pursuant to
Section 8, shall continue until June 15, 2011 (the
“ Term ”).
2. Duties. During the Term as
provided in Section 1(b) hereof, the Executive shall serve as
Chairman of the Board of Directors of AEI (the “ Board
”), President and Chief Executive Officer of AEI and AESC,
and shall, in his capacity as an officer, report to the Board. The
Executive shall have overall charge of the business and affairs of
the AE Companies. The Executive shall devote his best skill and
substantially full time efforts (reasonable sick leave and
vacations excepted) to the performance of his duties under this
Agreement.
Nothing contained herein shall
preclude the Executive from (i) serving on the board of
directors of any business organization; (ii) engaging in
charitable and community activities; (iii) participating in
industry and trade organization activities; (iv) managing his
and his family’s personal investments and affairs;
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and (v) delivering lectures, fulfilling
speaking engagements or teaching at educational institutions;
provided , that such activities do not materially interfere
with the regular performance of his duties and responsibilities
under this Agreement and do not violate his obligations under
Section 10 of this Agreement.
3. Base Salary. For services
performed by the Executive for the AE Companies pursuant to this
Agreement during the Term, AESC shall pay the Executive a base
salary (a “ Base Salary ”) at the rate of
$1,200,000 per year. The Base Salary shall be payable in accordance
with AESC’s regular payroll practices (but no less frequently
than monthly). The Base Salary may be increased from time to time
during the Term in the sole discretion of the Board; provided,
however , that, at a minimum, Base Salary shall be increased
(but not decreased) on each June 15 during the Term to reflect
increases in the U.S. Department of Labor Consumer Price Index -
U.S. City Average Index.
4. Annual Bonus. The
Executive shall be eligible to receive incentive compensation (the
“ Annual Bonus Compensation ”) in respect of the
Company’s 2009 fiscal year and each succeeding fiscal year of
the Company commencing during the Term. The target bonus
opportunity for each such fiscal year shall be equal to 125% of the
Base Salary as of the end of such fiscal year and the actual bonus
paid for each such fiscal year may range from zero to 250% of the
Base Salary as of the end of such fiscal year. The Annual Bonus
Compensation shall be awarded under the Allegheny Energy, Inc.
Annual Incentive Plan, as amended from time to time (the “
AIP ”), to the maximum extent permitted by that plan,
with any excess component being awarded pursuant to a separate
arrangement outside of that plan. The parameters of the award made
under AIP shall be determined by the Board and substantially
similar parameters shall apply with respect to any component of the
Annual Bonus Compensation awarded outside the AIP. The
Executive’s Annual Bonus Compensation for any year shall be
payable in cash no later than March 15 of the next succeeding
year. For purposes of this Agreement, the Executive’s “
Target Bonus ” as of any given date shall be a dollar
amount equal to the Executive’s Base Salary as of such date
multiplied by 1.25.
5. Performance-Based Equity
Awards .
(a) Performance Award. AESC
shall grant to the Executive an annual equity award (collectively,
the “ Equity Incentives ”) in each of 2010 and
2011 with respect to AEI Common Stock, each such award having an
initial grant date value of $8,400,000. A substantial portion of
each Equity Incentive shall be performance-based. The Equity
Incentives shall be granted under the Allegheny Energy, Inc. 2008
Long-Term Incentive Plan or such other equity-based incentive plan
as may be adopted and approved hereafter by the AEI shareholders
(the “ LTIP ”) and shall be evidenced by award
agreements. Such grants shall be awarded effective as of the normal
annual equity award grant date for annual awards to AEI employees
generally in 2010 and 2011, as determined by
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the Board (the “ Grant
Date ”) (but in no event later than February 28 of
each such year).
(b) Performance Vesting
Component . At least 50% of each Equity Incentive shall consist
of performance shares or other performance-based equity awards
subject to vesting based on performance objectives established by
the Board at the time of grant of such Equity Incentive, and such
performance objectives shall be disclosed to AEI’s
stockholders. Such portion of each Equity Incentive may consist of
performance-based shares similar in form to the performance-based
shares awarded to the Executive in 2008 and 2009, which consisted
of two components:
(i) 50% performance-based shares
linked to the Company’s three-year total stockholder return;
and
(ii) 50% performance-based shares
linked to the average three-year corporate results under the
Company’s annual incentive plan.
(c) Other Performance
Component. The remainder of each Equity Incentive may consist
of a performance award in any form permitted under the LTIP
(including, but not limited to, stock options and stock
appreciation rights), as determined by the Board in consultation
with the Executive. Any stock options or stock appreciation rights
granted as part of the Equity Incentives shall have a per share
exercise price equal to the fair market value of the underlying
shares as of the Grant Date (as determined in accordance with the
LTIP) and the value of such stock options or rights for purposes of
this Section 5 shall be based on the Black-Scholes valuation
or other approved valuation methods used as of the Grant Date by
AEI in valuing AEI employee option grants for purposes of
AEI’s financial reporting obligations.
(d) Other Terms of Equity
Incentives. Each Equity Incentive shall be subject to the terms
set forth in this Agreement and such additional terms not
inconsistent with this Agreement as shall be established by the
Board in consultation with the Executive. The mix of incentives and
the vesting and other material terms of the incentives under each
Equity Incentive shall be no less favorable to the Executive than
the mix and terms applicable to similar type incentives granted to
other senior executives of AEI on or about the Grant Date of the
relevant incentives under such Equity Incentive; provided,
however, that the vesting of the Equity Incentives shall be
subject to Section 8 and upon the occurrence of a Change in
Control (as defined in Section 7(e)(iii)) the Equity
Incentives shall become immediately vested (and, if such Equity
Incentives include stock units, such stock units shall become
immediately payable). The Equity Incentives granted pursuant to
this Section 5, together with the equity awards granted to the
Executive in February of 2008 and 2009
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pursuant to the terms of the Prior
Agreement, shall hereinafter be referred collectively as the
“ Equity Awards ”. With respect to any portion
of an Equity Award granted in the form of performance shares or
performance units, notwithstanding the application of any
accelerated vesting provisions set forth in Section 8 below
such portion of the Equity Award shall be subject to earning and
performance measurement over the same period as is applicable to
identical awards granted to other employees of the AE Companies at
the time such Equity Award is granted.
6. Other Benefits . In
addition to the compensation provided in Sections 3, 4, and 5
hereof, the Executive shall also be entitled to the
following:
(a) Participation in Employee
Benefit Plans . The Executive shall participate in each
employee benefit plan maintained in force by the AE Companies, from
time to time, in a manner and to an extent at least as favorable as
then is available to the most favorably treated senior executives
of the AE Companies under each of such plans; provided ,
that the Executive shall not participate in the Allegheny Energy,
Inc. Supplemental Executive Retirement Plan or other nonqualified
pension plans of the AE Companies. Such plans may include
tax-qualified and disability, medical, group life insurance,
supplemental life insurance coverage, business travel insurance,
sick leave, and other retirement and welfare benefit plans,
programs and arrangements. AESC represents that, as of the
Effective Date, the Executive meets all eligibility criteria for
participation in such plans.
(b) Fringe Benefits . In
addition to the foregoing, the Executive shall be entitled to
(i) an exclusive personal secretary and other assistance of
his choosing; (ii) a country club and dining club membership;
(iii) use, maintenance, insurance and repair of a company car;
and (iv) other fringe benefits and other similar benefits no
less favorable than those available to the most favorably treated
senior executives of the AE Companies, except as previously agreed
by the Executive.
(c) Benefit in Lieu of
Pension . To continue to compensate the Executive for the
significant pension benefits he ceased to accrue at his prior
employer as a result of accepting employment with AESC, upon a
termination of the Executive’s employment with AESC for any
reason, the Executive shall be entitled to a cash payment equal to
$66,667 for each month that the Executive was employed with AESC,
subject to increase pursuant to Section 8(b)(v) (the “
Pension Benefit ”). For the avoidance of doubt, the
Executive’s employment with AESC commenced on June 16,
2003.
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(d) Expense Reimbursement .
AESC shall reimburse the Executive, within thirty (30) days
after the submission of appropriate documentation by the Executive,
for reasonable and necessary business expenses and disbursements
incurred by him in the course of the performance of his duties
under this Agreement. In order to be eligible for such
reimbursement, the Executive shall submit such documentation no
later than February 15th of the year following the year in
which such expenses were incurred.
(e) Vacation . The Executive
shall be entitled to vacation and paid time off during the initial
and each successive year during the Term of at least five weeks per
year or, if greater than five weeks per year, (i) the amount
of vacation and paid time off available to the most favorably
treated senior executive of the AE Companies or, (ii) such
period as the Board shall approve, without reduction in salary or
other benefits.
(f) Fees and Expenses . AESC
will reimburse the Executive by December 31, 2009 for
reasonable legal and other professional fees and out-of-pocket
expenses incurred by the Executive in connection with the
preparation and negotiation of this Agreement and any other related
agreements.
7. Termination . Unless
earlier terminated in accordance with the following provisions of
this Section 7, AESC shall continue to employ the Executive
and the Executive shall remain employed by AESC during the entire
Term as set forth in Section 1(b). Section 8 hereof sets
forth certain obligations of AESC in the event that the
Executive’s employment hereunder is terminated.
(a) Death . Except to the
extent otherwise expressly stated herein, including without
limitation as provided in Section 8(a) with respect to certain
payment obligations of AESC, this Agreement shall terminate
immediately in the event of the Executive’s death.
(b) Termination by AESC or the
Executive .
(i) In accordance with the
procedures hereinafter set forth, AESC may terminate the Executive
from his employment hereunder for Cause, Disability or otherwise
and the Executive may resign from his employment hereunder for Good
Reason or otherwise. Any termination of the Executive by AESC or
resignation by the Executive shall be communicated by a Notice of
Termination to the Executive (in the case of termination) or to
AESC (in the case of the Executive’s resignation) given in
accordance with Section 15 of this Agreement.
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(ii) During any period that the
Executive fails to perform his full-time duties as a result of
incapacity due to physical or mental illness, AESC shall continue
to pay the Executive’s full Base Salary in accordance with
Section 3 of this Agreement (reduced dollar-for-dollar by the
amount of disability benefits, if any, paid to the Executive in
accordance with any disability policy or program of AESC), together
with all compensation and benefits payable to the Executive under
the terms of any compensation or benefit plan, program or
arrangement maintained by AESC during such period, until the
Executive’s employment is terminated for Disability pursuant
to this Section 7(b).
(iii) If the Executive intends to
resign his employment with the Company hereunder for any reason
other than a resignation for Good Reason, the Executive shall
provide a Notice of Termination to AESC at least one-hundred eighty
(180) days in advance of the proposed effective date of such
resignation.
(iv) The Executive may not be
terminated for Cause unless the Executive shall be granted the
opportunity for a hearing before the Board, such hearing to be held
within 15 days after the Executive’s receipt of a Notice of
Termination if the Executive requests such hearing within 10 days
after receipt of such Notice. If the Executive is furnished written
notice by the Board within 10 days after such hearing confirming
that, in its judgment, grounds for termination for Cause exist on
the basis set forth in the original Notice of Termination, the
Executive shall, subject to Section 7(c), thereupon be
terminated for Cause.
(c) Dispute Concerning
Termination . If within fifteen (15) days after any Notice
of Termination is given (or, in the case of any purported
termination of the Executive’s employment for Cause, within
ten days after the notice from the Board described in the last
sentence of Section 7(b)(iv)), or, if later, prior to the Date
of Termination (as determined without regard to this
Section 7(c)), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be extended until the
date on which the dispute is finally resolved, either by mutual
written agreement of the parties or by a final judgment, order or
decree of an arbitrator or a court of competent jurisdiction (which
is not appealable or with respect to which the time for appeal
therefrom has expired and no appeal has been perfected); provided,
however, that (i) the Date of Termination shall be extended by
a notice of dispute given by Executive only if such notice is given
in good faith and the Executive pursues the resolution of such
dispute with reasonable diligence; and (ii) in the event of an
extension in the Date of Termination pursuant to this
Section 7(c),
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the Executive shall be under no
obligation to continue to perform any duties beyond the Date of
Termination set forth in the original Notice of
Termination.
(d) Compensation During
Dispute . If a purported termination occurs and the Date of
Termination is extended in accordance with Section 7(c)
hereof, AESC shall continue to pay the Executive the full
compensation in effect when the notice giving rise to the dispute
was given (including, but not limited to, Base Salary), shall
continue the Executive as a participant in all compensation,
benefit and insurance plans in which the Executive was
participating when the notice giving rise to the dispute was given,
and shall continue vesting of all equity awards (including, without
limitation, the Equity Awards) until the Date of Termination, as
determined in accordance with Section 7(c) hereof. Amounts
paid under this Section 7(d) are in addition to all other
amounts due under this Agreement (other than the Executive’s
Accrued Obligations) and shall not be offset against or reduce any
other amounts due under this Agreement. However, if such dispute is
resolved in favor of the AE Companies, the Executive shall return
to the AE Companies, and reimburse the AE Companies for, all
amounts of cash compensation and equity compensation that the
Executive received, became vested in or retained, and all proceeds
relating to any equity compensation that the Executive realized (on
a pre-tax basis), but which the Executive would not have been able
to receive, become vested in, retained or realized absent the
triggering and application of Sections 7(c) and 7(d).
(e) Definitions . For
purposes of this Agreement, the following terms shall have the
meanings set forth below:
(i) “ Accrued
Obligations ” shall mean, as of the Date of Termination,
the sum of (A) the Executive’s Base Salary under
Section 3 through the Date of Termination to the extent not
theretofore paid, (B) to the extent not theretofore paid, the
amount of any bonus, incentive compensation, deferred compensation
and other cash compensation earned and accrued by the Executive as
of the Date of Termination under the terms of any compensation and
benefits plans, programs or arrangements maintained in force by
AESC, and (C) any vacation pay, expense reimbursements and
other cash entitlements accrued by the Executive, in accordance
with AESC policy, as of the Date of Termination to the extent not
theretofore paid.
(ii) “ Cause ”
shall mean either of the following:
(A) the Executive’s engaging
in willful gross misconduct or willful gross neglect in connection
with the Executive’s employment, which misconduct or neglect
is
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committed in bad faith or without
reasonable belief that such misconduct or neglect is in the best
interests of the AE Companies and which causes material economic
harm to the AE Companies; or
(B) the conviction of the Executive
of a felony involving theft or moral turpitude, or a guilty or
nolo contendere plea by the Executive with respect to such a
felony.
(iii) “ Change in
Control ” shall mean the first to occur of any of the
following events:
(A) Any “person” (as
defined in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the “ Exchange Act ”)),
excluding for this purpose, (i) any of the AE Companies, or
(ii) any employee benefit plan of AEI or any of the AE
Companies, or any person or entity organized, appointed or
established by AEI or any of the AE Companies for or pursuant to
the terms of any such plan which acquires beneficial ownership of
voting securities of AEI, is or becomes the “beneficial
owner” (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly of securities of AEI representing more than
20% of the combined voting power of AEI’s then outstanding
securities; provided, however , that no Change in Control
will be deemed to have occurred as a result of a change in
ownership percentage resulting solely from an acquisition of
securities by AEI; or
(B) Persons who, as of the Effective
Date constitute the Board (the “ Incumbent Directors
”) cease for any reason, including without limitation, as a
result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority thereof,
provided that any person becoming a director of AEI
subsequent to the Effective Date shall be considered an Incumbent
Director if such person’s election or nomination for election
was approved by a vote of at least two-thirds (
2
/ 3 ) of
the Incumbent Directors; but provided further , that any
such person whose initial assumption of office is in connection
with an actual or threatened election contest relating to the
election of members of the Board or other actual or threatened
solicitation of proxies or consents by or on behalf of a
“person” (as defined in Sections 13(d) and 14(d) of the
Exchange Act) other than
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the Board, including by reason of
agreement intended to avoid or settle any such actual or threatened
contest or solicitation, shall not be considered an Incumbent
Director; or
(C) Consummation of a
reorganization, merger or consolidation or sale or other
disposition of all or substantially all of the assets of AEI (a
“ Business Combination ”), in each case, unless,
following such Business Combination, all or substantially all of
the individuals and entities who were the beneficial owners of
outstanding voting securities of AEI immediately prior to such
Business Combination beneficially own, directly or indirectly, more
than 60% of the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of
directors, as the case may be, of the company resulting from such
Business Combination (including, without limitation, a company
which, as a result of such transaction, owns AEI or all or
substantially all of AEI’s assets either directly or through
one or more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business Combination, of
the outstanding voting securities of AEI; or
(D) Approval by the stockholders of
AEI of a complete liquidation or dissolution of AEI.
(iv) “ Date of
Termination ” shall mean (A) if the
Executive’s employment is terminated for Disability, thirty
(30) days after Notice of Termination is given (
provided that Executive shall not have returned to the
full-time performance of Executive’s duties during such
thirty (30) day period), and (B) if the Executive’s
employment is terminated for any other reason, the date specified
in the Notice of Termination (which, in the case of a termination
by AESC, shall not be less than thirty (30) days (except in
the case of a termination for Cause) nor more than sixty
(60) days and, in the case of a termination by the Executive,
shall not be less than one-hundred eighty (180) days nor more
than two-hundred forty (240) days (or, in the case of a
resignation solely for Good Reason, not less than fifteen
(15) nor more than sixty (60) days), respectively, from
the date such Notice of Termination is given).
(v) “ Disability
” shall be deemed the reason for the termination of the
Executive’s employment, if, as a result of the
Executive’s incapacity due to physical or mental
illness,
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Executive shall have been absent
from the full-time performance of the Executive’s duties with
the AE Companies for a period of six (6) consecutive months,
AESC shall have given the Executive a Notice of Termination for
Disability, and, within thirty (30) days after such Notice of
Termination is given, the Executive shall not have returned to the
full-time performance of the Executive’s duties. At any time
and from time to time, upon reasonable request by AESC, the
Executive shall submit to reasonable medical examination for the
purpose of determining the existence, nature and extent of any such
Disability.
(vi) “ Good Reason
” shall mean, without the Executive’s written
consent:
(A) Any (x) failure to continue
to employ the Executive as Chief Executive Officer of AEI and AESC,
the material diminution in the Executive’s title or duties in
such position, or the assignment to the Executive of any duties
inconsistent in any material respect with the Executive’s
authority, duties, responsibilities or reporting relationship in
such position as contemplated by Section 2 of this Agreement
(including changes resulting from a transaction immediately after
which the Executive is not the Chief Executive Officer of the
ultimate majority parent company of the businesses of the AE
Companies following the transaction), excluding any isolated and
inadvertent action not taken in bad faith and which is remedied by
the AESC within ten (10) days after receipt of notice thereof
given by the Executive, (y) failure to nominate the Executive
for reelection to the Board or a failure
