EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made as of August
1, 1995 between POTOMAC ELECTRIC POWER COMPANY (the "Company") and
XXXXXX X. XXXXXX (the "Executive").
RECITALS:
The Board of Directors of Potomac Electric Power 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 employment agreements with the Company's
key management executives in order to achieve the foregoing
objectives. 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. Employment. The Company will employ the Executive, and the
Executive will continue in the employment of the Company, as an
executive of the Company, for the period beginning August 1, 1995
and ending August 1, 2000 (the "Term of this Agreement"), according
to the terms of this Agreement.
2. Duties. The Company and the Executive agree that, during the
Term of this Agreement, the Executive will serve in a senior
management position with the Company. The Executive (i) 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 (ii) will comply with the directions and orders of the Board
of Directors and Chief Executive Officer of the Company with
respect to the performance of his duties.
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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 termination of
employment with the Company means termination of employment with
the Company and all its Affiliates and 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 Potomac Electric Power
Company and other entities under common control with Potomac
Electric Power 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 by 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.
(ii) The Executive will be entitled to receive incentive awards if
and to the extent that the Board of Directors determines that the
Executive's performance merits payment of an award.
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)(iii) 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 and other
employee benefit plans and programs provided by the Company for
its employees from time to time.
5. Termination of Employment.
(a) If the Company terminates the Executive's employment, other
than for Cause (as defined in Section 7 below), during the Term of
this Agreement, the Company will pay the Executive a lump sum
payment equal to the greater of (1) the present value of the
Executive's annual base salary and annual cash incentive awards
(computed as described below) for the balance of the Term of this
Agreement (not to exceed three years), or (2) two times the
Executive's annual salary and target annual incentive award as in
effect at the time of termination. The lump sum payment will be
computed as follows:
(i) For purposes of this calculation, the Executive's annual
base salary for the balance of the Term of the Agreement will be
calculated at the highest annual base salary rate in effect for
the Executive during the three-year period preceding his
termination of employment. For purposes of this calculation, the
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Executive's annual cash incentive awards for the balance of the
Term of the Agreement will be calculated at a rate equal to the
highest annual incentive target award during the three-year period
preceding his termination of employment. Salary and bonus that
the Executive elected to defer will be taken into account for
purposes of this Agreement without regard to the deferral.
(ii) The salary and incentive award for any partial year in
the Term of this Agreement will be a pro-rated portion of the
annual amount.
(iii) If the Executive has not yet received an annual cash
incentive award for the year in which his employment terminates,
the lump sum payment will be increased to include a pro-rated
award for the portion of the year preceding the Executive's
termination of employment. If the Executive has not yet received
payment of his annual cash incentive award for the year preceding
his termination of employment, the lump sum payment will also be
increased to include an award for the year preceding the
Executive's termination of employment. The incentive award for
the year or portion of the year preceding the Executive's
termination of employment will be determined according to clause
(i) above, unless the Board of Directors made a good faith final
determination of the amount of the applicable incentive award
pursuant to Section 4(a)(ii) before the Executive's termination of
employment. If the Board of Directors made such a determination,
the applicable incentive award will be computed according to the
Board of Directors' determination.
(iv) Present value will be computed by the Company as of the
date of the Executive's termination of employment, based on a
discount rate equal to the applicable Federal short-term rate in
effect on the date as of which the present value is determined, as
determined under Section 1274(d) of the Code, compounded monthly.
(v) The lump sum payment will be paid within 30 days after
the Executive's termination of employment.
(b) If the Company terminates the Executive's employment, other
than for Cause, during the Term of this Agreement, 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.
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(ii) The Executive will be provided a supplemental
retirement benefit equal to the greater of (A) the benefit accrued
by the Executive under the Company's Supplemental Benefit Plan,
Executive Performance Supplemental Retirement Plan and
Supplemental Executive Retirement Plan or (B) a benefit equal to
the differential between (1) the amount the Executive would have
been entitled to receive under the Company's General Retirement
Plan and the Supplemental Benefit Plan determined as if the
Executive had attained age 55 and completed 30 years of service
immediately prior to the occurrence of the termination and (2) the
actual benefit accrued under the Company's General Retirement Plan
and the Supplemental Benefit Plan immediately prior to the
occurrence of the termination. For purposes of computing
Executive's Benefit under (B)(1) above, Executive's Final Average
Earnings shall be increased by the average of three highest target
awards under the Company's Executive Incentive Compensation Plan
within the five years immediately preceding the termination. If
Benefits become payable to Executive under (B) above, Executive's
rights to Benefits under the Plans referenced under (A) above,
will lapse. The Executive will begin receiving benefits from the
Company's General Retirement Plan at the first early retirement
date provided by the General Retirement Plan. The Executive will
also be provided any other benefits to retirees (i.e., medical) on
the same terms as any retiree who has attained age 55 and
completed 30 years of service.
(iii) 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
termination date or the period of time remaining until the
Executive's Roll out Qualification Date, 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 in management compensation,
due to extraordinary business conditions, imposed on 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
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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.
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 additional
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.
7. 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
wilful 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 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.
8. This Agreement shall terminate upon the successful completion
of the Term of this Agreement provided either party has given
notice of such termination to the other party, which notice shall
have been received by the other party at least one year prior to
the end of such Term. In the event no such timely notice is
given, this Agreement shall be renewed for an additional five (5)
year term commencing on the day following the end of the Term of
this Agreement. No additional payments are required by the
termination of this Agreement. 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.
9. Indemnification. 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.
10. Payment of Compensation and Taxes. All amounts payable under
this Agreement (other than restricted stock, which will be paid
according to the terms of the Company's Long-Term Incentive Plan)
will be paid in cash, subject to required income and payroll tax
withholdings.
11. 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
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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.
12. 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.
13. Notice. For purposes of this Agreement, notices and all
other communications must be in writing and are effective when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, 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
Chief Executive Officer. Such other addresses may be used as
either party may have furnished to the other in writing. Notices
of change of address are effective only upon receipt.
14. 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.
WITNESS the following signatures.
POTOMAC ELECTRIC POWER COMPANY EXECUTIVE
/s/ X. X. XXXXXXXX /s/ X. X. XXXXXX
By:_______________________________ _________________________
Chairman of the Board and Chief Name
Executive Officer
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