Contract
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made as of August 1,
2002 between PEPCO HOLDINGS, INC. (the "Company") and XXXX X. XXXXXXX,
XX. (the "Executive").
RECITALS:
The Board of Directors of the Company (the "Board of Directors") recognizes that
outstanding management of the Company is essential to advancing the best interests of
the Company, its shareholders and its subsidiaries. The Board of Directors believes that
it is particularly important to have stable, excellent management at the present time. The
Board of Directors believes that this objective may be achieved by giving key
management employees assurances of financial security for a period of time, so that they
will not be distracted by personal risks and will continue to devote their full time and best
efforts to the performance of their duties.
The Human Resources Committee of the Board of Directors (the "Committee")
has recommended, and the Board of Directors has approved, entering into amended and
restated employment agreements with the Company's key management executives in
order to achieve the foregoing objectives. Accordingly, this Agreement amends, restates
and supercedes the employment agreement previously entered into between the Company
and the Executive, dated December 10, 1999 (the "Prior Agreement"). Upon execution
of this Agreement, the Prior Agreement shall be of no further force or effect. The
Executive is a key management executive of the Company and is a valuable member of
the Company's management team. The Company acknowledges that the Executive's
contributions to the past and future growth and success of the Company have been and
will continue to be substantial. The Company and the Executive are entering into this
Agreement to induce the Executive to remain an employee of the Company and to
continue to devote his full energy to the Company's affairs. The Executive has agreed to
continue to be employed by the Company under the terms and conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual
undertakings contained in this Agreement, the parties agree as follows:
1. Term of this Agreement. The term of this Agreement shall begin on the date first
set forth above and shall end on the Executive's normal retirement date of April 1, 2005
(the "Term of this Agreement") or, if earlier, after all of the Company's and the
Executive's obligations hereunder have been satisfied following termination of the
Executive's employment during the Term of this Agreement.
2. Duties. The Company and the Executive agree that, while employed during the
Term of this Agreement, the Executive will serve in a senior management position with
the Company. The Executive (a) will devote his knowledge, skill and best efforts on a
full-time basis to performing his duties and obligations to the Company (with the
exception of absences on account of illness or vacation in accordance with the Company's
policies and civic and charitable commitments not involving a conflict with the
Company's business), and (b) will comply with the directions and orders of the Board of
Directors with respect to the performance of his duties.
3. Affiliates. Employment by an Affiliate of the Company or a successor to the
Company will be considered employment by the Company for purposes of this
Agreement, and the Executive's employment with the Company shall be considered
terminated only if the Executive is no longer employed by the Company or any of its
Affiliates or successors. The term "Company" as used in this Agreement will be deemed
to include Affiliates and successors. For purposes of this Agreement, the term "Affiliate"
means the subsidiaries of the Company and other entities under common control with the
Company.
4. Compensation and Benefits.
(a) During the Term of this Agreement, while the Executive is employed by
the Company, the Company will pay to the Executive the following salary and incentive
awards for services rendered to the Company:
(i) The Company will pay to the Executive an annual salary in an
amount not less than the base salary in effect for the Executive as of the date on
which this Agreement is executed (in the event the Executive's rate of annual
base salary is increased, such increased rate shall not be decreased during the
Term of this Agreement); and
(ii) The Executive will be entitled to receive incentive awards if and to
the extent that the Board of Directors determines in good faith that the
Executive's performance merits payment of an award according to the terms of
the incentive compensation plans applicable to senior executives of the
Company.
If the Executive is employed by an Affiliate or a successor (as described in Section 3),
the term "Board of Directors" as used in this Section 4(a) and in Section 5(a) means the
Board of Directors of the Executive's employer.
(b) During the Term of this Agreement, while the Executive is employed by
the Company, the Executive will be eligible to participate in a similar manner as other
senior executives of the Company in retirement plans, fringe benefit plans, supplemental
benefit plans and other plans and programs provided by the Company for its executives
or employees from time to time.
5. Termination of Employment.
(a) If, during the Term of this Agreement, the Company terminates the
Executive's employment other than for Cause (as defined in Section 8), the Company will
pay to the Executive in cash within 30 days after the Executive's termination of
employment
(i) a lump sum payment equal to three (3) times the sum of: (A) the
highest annual base salary rate in effect for the Executive at any time during the
three-year period preceding employment termination, plus (B) the highest of (1)
the annual bonus for the year in which the termination of employment occurs, or
(2) the highest annual bonus received by the Executive during the three calendar
years preceding the calendar year in which the termination of employment
occurs; and
(ii) any unpaid salary through the date of employment termination,
unpaid annual bonus for the prior year and a pro-rated portion of the annual
bonus for the year in which termination of employment occurs.
For purposes of Sections 5(a)(i)(B)(1) and 5(a)(ii), the annual bonus for the year in which
termination of employment occurs will be the "target" annual bonus for such year unless,
before the Executive's termination of employment, the Board of Directors made a good
faith final determination of the amount of the Executive's actual annual bonus for such
year. If the Board of Directors made such a determination, the applicable award will be
computed based on the Board of Directors' determination, rather than on the "target"
amount for such year.
(b) If, during the Term of this Agreement, the Company terminates the
Executive's employment other than for Cause (as defined in Section 8), the Executive
will be entitled to receive the following additional benefits determined as of the date of
his termination of employment:
(i) Any outstanding restricted stock that would become vested (that is,
transferable and nonforfeitable) if the Executive remained an employee through
the Term of this Agreement will become vested as of the date of the Executive's
termination of employment (or as of the date described in the next sentence, if
applicable). In addition, if the Company has agreed to award the Executive
restricted stock at the end of a performance period, subject to the Company's
achievement of performance goals, and the date as of which the restricted stock
is to become vested falls within the Term of this Agreement, the stock will be
awarded and become vested at the end of the performance period if and to the
extent that the performance goals are met.
(ii) The Executive will be provided any benefits provided to retirees
(i.e., medical and other welfare benefits) on the same terms as any retiree who
has attained age 62 and completed 40 years of service (or, if greater, the
Executive's actual age and the actual number of years of service the Executive
had completed at the time of the employment termination).
(iii) If the split dollar insurance arrangement between the Company
and the Executive is in effect at the time of the Executive's employment
termination, the Company shall continue to pay all premium amounts with
respect to the Executive's policy under the Company's split dollar insurance
program for the lesser of ten (10) years from the date of termination of
employment or the period of time remaining until the Executive's "Roll Out
Qualification Date," (as defined in the split dollar program) whichever first
occurs.
(c) If the Executive voluntarily terminates employment with the Company
during the Term of this Agreement under circumstances described in this subsection (c),
the Executive will be entitled to receive the benefits described in subsections (a) and (b)
above as if the Company had terminated the Executive's employment other than for
Cause. Subject to the provisions of this subsection (c), these benefits will be provided if
the Executive voluntarily terminates employment after (i) the Company reduces the
Executive's base salary (except a reduction consistent and proportional with an overall
reduction, due to extraordinary business conditions, in the compensation of all other
senior executives of the Company), (ii) the Executive is not in good faith considered for
incentive awards as described in Section 4(a)(ii), (iii) the Company fails to provide
benefits as required by Section 4(b), (iv) the Company relocates the Executive's place of
employment to a location further than 50 miles from Washington, DC, or (v) the
Company demotes the Executive to a position that is not a senior management position
(other than on account of the Executive's disability, as defined in Section 6 below). In
order for this subsection (c) to be effective: (1) the Executive must give written notice to
the Company indicating that the Executive intends to terminate employment under this
subsection (c), (2) the Executive' s voluntary termination under this subsection must
occur within 60 days after the Executive knows or reasonably should know of an event
described in clause (i), (ii), (iii), (iv), or (v) above, or within 60 days after the last in a
series of such events, and (3) the Company must have failed to remedy the event
described in clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after
receiving the Executive's written notice. If the Company remedies the event described in
clause (i), (ii), (iii), (iv), or (v), as the case may be, within 30 days after receiving the
Executive's written notice, the Executive may not terminate employment under this
subsection (c) on account of the event specified in the Executive's notice. Termination
under the circumstances above shall be deemed an involuntary termination without Cause
for purposes of non-qualified benefit plans.
(d) Notwithstanding subsection (a), (b), and (c) of this Section 5, if the
independent public accountants for the Company (the "Accountants") determine that if
the payments and/or benefits to be provided under subsections (a), (b), and (c) of this
Section 5 (and/or any other payments and/or benefits provided or to be provided to the
Executive under any applicable plan, program, agreement or arrangement maintained,
contributed to or entered into by the Company or any group or entity whose actions result
in a change of ownership or effective control (as those terms are defined in Code Section
280G and regulations promulgated thereunder) or any affiliate of the Company) (a
"Payment" or collectively "Payments") were provided to the Executive (x) the Executive
would incur an excise tax under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (such excise tax, together with any interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), and (y) the net after tax benefits
to the Executive attributable to the Payments would not be at least $10,000 greater than
the net after tax benefits that would accrue to the Executive if the Payments that would
otherwise cause the Executive to be subject to the Excise Tax were not provided, the
Payments shall be reduced so that the Payments provided to the Executive are the greatest
(as determined by the Accountants) that may be provided without any such Payment
being subject to the Excise Tax. If the Payments are to be reduced under this subsection
5(d), the Executive shall be given the opportunity to designate which Payments shall be
reduced and in what order of priority.
(i) If the Executive receives reduced Payments pursuant to subsection
5(d), or if it had been determined that no such reduction was required, but it
nonetheless is established pursuant to the final determination of a court or an
Internal Revenue Service proceeding that, notwithstanding the good faith of the
Executive and the Company in applying the terms of subsection 5(d), the
aggregate Payments to the Executive would result in any Payment being subject
to the Excise Tax, and that a reduction pursuant to subsection 5(d) should have
occurred, then the Executive shall be deemed for all purposes to have received a
loan made on the date of the receipt of the Payments in an amount such that,
after taking into consideration such loan, no portion of the aggregate Payments
would be subject to the Excise Tax. The Executive shall have an obligation to
repay such loan to the Company on demand, together with interest on such
amount at the applicable Federal rate (as defined in Section 1274(d) of the Code)
from the date of the Executive's receipt of such loan until the date of such
repayment.
(ii) If the Executive's Payments are reduced or are to be reduced
pursuant to subsection 5(d), and it is determined that the Payments were or are to
be reduced pursuant to subsection 5(d) to a greater extent than was or is
necessary to avoid the Excise Tax or it is determined that the Executive's
Payments should not be or should not have been reduced pursuant to subsection
5(d), then the Company shall promptly pay to the Executive the amount
necessary so that, after such adjustment, the Executive will have received or be
entitled to receive the maximum payments payable under this subsection 5(d),
together with interest at the applicable Federal rate (as defined in Section
1274(d) of the Code) on amounts that were incorrectly reduced pursuant to
subsection 5(d).
(iii) Gross-Up Payment.
(A) Anything in this Agreement to the contrary notwithstanding,
if it shall be determined that any Payments would be subject
to the Excise Tax or any interest or penalties are incurred,
and it is determined that the Payments should not be
reduced pursuant to subsection 5(d), then the Executive
shall be entitled to receive an additional payment (a "Gross-
Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income taxes, employment taxes (and any
interest and penalties imposed with respect thereto) and
Excise Taxes imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal
to the Excise Tax imposed upon the Payments.
(B) All determinations required to be made under this subsection
5(d)(iii), including whether and when a Gross-Up Payment
is required and the amount of such Gross-up Payment and
the assumptions to be utilized in arriving at such
determination, shall be made by the Accountants, who shall
provide detailed supporting calculations both to the
Company and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the
Company. All fees and expenses of the Accountants shall
be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this subsection 5(d)(iii), shall be
paid by the Company to the Executive within five days of
the receipt of the Accountants' determination. Any
determination made independently and in good faith by the
Accountants shall be binding upon the Company and the
Executive. As a result of the uncertainty in the application
of Sections 280G and 4999 of the Code, at the time of the
initial determination by the Accountants hereunder, it is
possible that Gross-Up Payments which will not have been
made by the Company should have been made
("Underpayment") consistent with the calculations required
to be made hereunder. In the event that the Company
exhausts its remedies pursuant to subsection 5(d)(iii)(C) and
the Executive thereafter is required to make a payment of
any Excise Tax, the Accountants shall determine the amount
of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive.
(C) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-
Up Payment. Such notification shall be given as soon as
practicable but no later than thirty business days after the
Executive is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest
such claim, the Executive shall:
(1) give the Company any information reasonably
requested by the Company relating to such claim,
(2) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
(3) cooperate with the Company in good faith in order
effectively to contest such claim, and
(4) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of
this subsection 5(d)(iii), the Company shall control all
proceedings taken in connection with such contest and, at its
sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole
option, either direct the Executive to pay the tax claimed
and xxx for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest
to a determination before any administrative tribunal, in a
court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, further,
that if the Company directs the Executive to pay such claim
and xxx for a refund, the Company shall advance the amount
of such payment to the Executive, on an interest-free basis
and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and provided,
further, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be any
other issue raised by the Internal Revenue Service or any
other taxing authority.
(D) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to subsection 5(d)(iii)(C), the
Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of subsection
5(d)(iii)) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon
after taxes applicable thereto). If after the receipt by the
Executive of an amount advanced by the Company pursuant
to subsection 5(d)(iii), a determination is made that the
Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive
in writing of its intent to contest such denial of refund prior
to the expiration of 30 days after such determination, then
such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to
be paid.
6. Disability or Death. Upon the Executive's death or disability, the provisions of
Sections 1, 2, 4, and 5 of this Agreement will terminate. This contract provides no
benefits due to disability or death in addition to any death, disability and other benefit
provided under the Company benefit plans in which the executive participates. The
Executive shall be considered disabled if the Executive is entitled to long-term disability
benefits under the Company's disability plan or policy.
7. Other Post-Termination Benefits. In addition to any payments or benefits to
which the Executive may become entitled under this Agreement, upon the termination of
the Executive's employment (including, without limitation, termination of the Executive's
employment upon expiration of the Term of this Agreement), the Executive shall receive
the following:
(a) The Executive will receive a monthly supplemental retirement benefit
equal to (i) 1/12 of 65% of the sum of (A) the Executive's annual base salary rate at the
time of termination of employment and (B) the highest annual bonus received by the
Executive during the three calendar years preceding the calendar year in which the
termination of employment occurs, less (ii) the monthly retirement benefits the Executive
receives in such month under the Company's qualified defined benefit retirement plan
and any non-qualified defined benefit retirement or supplemental retirement plans
(together, the "Retirement Plans"). The supplemental retirement benefit provided
pursuant to this subsection 7(a) shall be paid to the Executive in cash on the first day of
each month beginning in the month following the month in which the Executive's
employment terminates and continuing until the Executive's death. If the Executive is
survived by a spouse, following the Executive's death, the Executive's surviving spouse
shall receive from the Company a monthly payment in cash equal to 75% of the amount
determined under subpart (i) of this subsection, less the monthly retirement benefits, if
any, the Executive's surviving spouse receives under the Retirement Plans. Following
termination of employment, the monthly supplemental retirement benefits the Executive
and/or the Executive's spouse receives under this Section 7(a) shall be adjusted for cost of
living increases at the same rate as are the benefits under the Company's qualified defined
benefit retirement plan.
(b) The Executive shall receive financial services (for tax preparation and
planning) at the Company's expense until the Executive's 70th birthday, at the same level
as is received by the Company's then chief executive officer.
(c) In order to provide a location and support to allow the Executive to
continue to provide community services and to represent the Company in the community
with charities and other organizations until the Executive's 70th birthday, at the
Company's expense, the Executive shall receive a parking space at Edison Place, office
space at a location selected by the Executive in Washington, DC, and secretarial services,
each until the Executive's 70th birthday; provided, however, that the office space shall
not be at the Company's headquarters and the office space's annual rent may not exceed
$100,000 per year.
(d) For the two year period following termination of Executive's employment,
the Company shall reimburse the Executive the expenses of civic and trade organizations
in which he participated, and at the same level, as at the time of termination of
employment.
8. Cause. For purposes of this Agreement, the term "Cause" means (i) intentional
fraud or material misappropriation with respect to the business or assets of the Company,
(ii) persistent refusal or willful failure of the Executive to perform substantially his duties
and responsibilities to the Company, other than an asserted responsibility which would
give rise under Section 5(c) above to a right to terminate and have such termination
considered an involuntary termination without Cause, which continues after the
Executive receives notice of such refusal or failure, (iii) conduct that constitutes
disloyalty to the Company, and that materially damages the property, business or
reputation of the Company, or (iv) conviction of a felony involving moral turpitude.
9. Termination. This Agreement shall terminate upon the successful completion of
the Term of this Agreement; provided, however, that if the Executive's employment is
terminated during the Term of this Agreement and the Company's and the Executive's
obligations under Sections 5, 7, 10 or 11 hereof have not been satisfied as of the last day
of the Term of this Agreement, such obligations shall survive the expiration of the Term
of this Agreement and shall remain in effect until such time as all such obligations have
been satisfied. The Executive, if he has remained an employee during the Term of this
Agreement and has attained a minimum of age 55, shall be considered vested in the
benefits provided under the Company's Supplemental Executive Retirement Plan,
Executive Performance Supplemental Retirement Plan and Supplemental Benefit Plan.
No additional payments are required by the termination of this Agreement.
10. Fees and Expenses. The Company will pay all reasonable fees and expenses, if
any, (including, without limitation, legal fees and expenses) that are incurred by the
Executive to enforce this Agreement and that result from a breach of this Agreement by
the Company, unless such fees and expenses result from a claim made by the Executive
that is deemed by an arbitrator, mediator, or court, as applicable, to be frivolous or made
in bad faith, in which case each party shall pay its own fees and expenses.
11. Tax Withholding. The Company may withhold from all amounts payable under
this Agreement an amount necessary to satisfy its income and payroll tax withholding
obligations.
12. Assignment. The rights and obligations of the Company under this Agreement
will inure to the benefit of and will be binding upon the successors and assigns of the
Company. If the Company is consolidated or merged with or into another corporation, or
if another entity purchases all or substantially all of the Company's assets, the surviving
or acquiring corporation will succeed to the Company's rights and obligations under this
Agreement. The Executive's rights under this Agreement may not be assigned or
transferred in whole or in part, except that the personal representative of the Executive's
estate will receive any amounts payable under this Agreement after the death of the
Executive.
13. Rights Under this Agreement. The right to receive benefits under the
Agreement will not give the Executive any proprietary interest in the Company or any of
its assets. Benefits under the Agreement will be payable from the general assets of the
Company, and there will be no required funding of amounts that may become payable
under the Agreement. The Executive will for all purposes be a general creditor of the
Company. The interest of the Executive under the Agreement cannot be assigned,
anticipated, sold, encumbered or pledged and will not be subject to the claims of the
Executive's creditors.
14. Notice. For purposes of this Agreement, notices and all other communications
to the Executive must be in writing addressed to the Executive or his personal
representative at his last known address. All notices to the Company must be directed to
the attention of the Board of Directors. Such other addresses may be used as either party
may have furnished to the other in writing. Notices are effective when mailed if sent by
United States registered mail, return receipt requested, postage prepaid. Notices sent
otherwise are effective when received. Notwithstanding the forgoing, notices of change
of address are effective only upon receipt.
15. Miscellaneous. To the extent not governed by federal law, this Agreement will
be construed in accordance with the law of the State of Maryland without reference to its
conflict of laws rules. No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in writing and the
writing is signed by the Executive and the Company. A waiver of any breach of or
compliance with any provision or condition of this Agreement is not a waiver of similar
or dissimilar provisions or conditions. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of any other
provision of this Agreement, which will remain in full force and effect. This Agreement
may be executed in one or more counterparts, all of which will be considered one and the
same agreement. As of the date first above written, the Prior Agreement shall be
amended, restated and superceded in its entirety and shall no longer be of any force or
effect.
WITNESS the following signatures.
PEPCO HOLDINGS, INC. EXECUTIVE
By: X. X. XXXXXX XXXX X. XXXXXXX, XX.
Its President & COO Xxxx X. Xxxxxxx, Xx.
