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Exhibit 10.
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement") is made as of December 10, 1999, between POTOMAC ELECTRIC POWER COMPANY (the "Company") and Xxxxxxx X. Xxxxxxxxx (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 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 August 1, 1995 (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. Employment. The Company will employ the Executive, and the Executive will continue in the employment of the Company, as an executive of the Company pursuant to the terms hereof, for a period of five (5) years from
the date first set forth above, unless sooner terminated as provided herein; provided, however, that unless either party gives notice to the other that this Agreement shall not be renewed, this Agreement, and the Executive's employment hereunder, shall be
automatically renewed for an additional five (5) years, commencing on the day after the five (5) year anniversary of the date first set forth above (such period, together with any renewals, hereinafter referred to as the "Term 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 of the Company 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 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 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)(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 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 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
(i) A lump sum payment equal to (3) three times: (X) the sum of the highest annual base
salary rate in effect for the Executive at any time during the three-year period preceding
employment termination, and (Y) the highest of (1) the annual target 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 incentive award
for the prior year and a pro-rated portion of the annual amount of incentive award for the
year in which termination occurs (based on the target level of such award).
The lump sum payment will be paid within 30 days after the Executive's termination of employment. The incentive award for the year of termination of employment will be determined according to Section 5(i)(Y) above, unless the Board of Directors made a
good faith final determination of the amount of the applicable incentive award 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.
(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.
(ii) A supplemental retirement benefit equal to the difference between (A) the benefit the
Executive is then qualified to receive under the Company's qualified defined benefit
retirement plan (the "Retirement Plan"), any excess or supplemental retirement plans in
which the Executive participates and/or other supplemental retirement benefits to which the
Executive is entitled under any contract or agreement (together, the "SERP"), and (B) the
benefit the Executive would be entitled to receive under the Retirement Plan and the SERP,
assuming for all such benefit determinations: (I) that the Executive's Final Average
Earnings are equal to the Executive's annual rate of base salary in effect in accordance with
this Agreement immediately before the employment termination and the Executive's bonus
is the highest annual bonus awarded to the Executive under the Company's Executive
Incentive Compensation Plan for the three years preceding the year in which the
termination occurs or, if higher, the target annual bonus for the year in which the
termination occurs, and (II) that the Executive had reached age 62 and had completed 37
years of service (or, if higher, the actual age and years of service the Executive would have
reached at the end of the Term of this Agreement in effect at the time of the employment
termination).
The Executive will begin receiving benefits from the Retirement Plan at the first early
retirement date provided by the Retirement Plan. The Executive will also be provided any
other benefits to retirees (i.e., medical and other welfare benefits) on the same terms as any
retiree who has attained age 62 and completed 37 years of service (or, if higher, 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) 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, (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), or (vi) the Company notifies the Executive pursuant to
Section 1 hereof that the Term of this Agreement shall not be extended for an additional five (5) year period. 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), (c) and (d) of this Section 5, if the independent public accountants for the Company (the "Accountants") determine that if the payment and/or benefits to be provided under subsections (a), (b), (c) and (d) of this
Section 5 (and/or any other payments and/or benefits provided or to be provided to the Executive under any applicable plan maintained by the Company), 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 which 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.
(i) If the Payments are to be reduced under 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 the preceding 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 this Section 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) above, and it is determined that the Executive's 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 Section
without any of the Payments being subject to the Excise Tax, together with interest on
such amount at the applicable Federal rate (as defined in Section 1274(d) of the Code).
(ii) Gross-Up Payment.
(I) 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
AGross-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 (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.
(II) Subject to the provisions of subsection 5(d)(ii), all determinations required to be made
under this subsection 5(d)(ii), 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)(ii), shall be paid by the Company to the Executive within five days of the
receipt of the Accountants= determination. Any determination 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 (AUnderpayment@) consistent with the
calculations required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to subsection 5(d)(ii)(III) 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.
(III) 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 ten business days after the Executive is informed in writing of such claim and shall
apprize 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:
(A) give the Company any information reasonably requested by the Company relating
to such claim,
(B) 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,
(C) cooperate with the Company in good faith in order effectively to contest such
claim, and
(D) 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)(ii), 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.
(IV) If, after the receipt by the Executive of an amount advanced by the Company
pursuant to subsection 5(d)(ii)(III), 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)(ii)) 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)(ii), 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 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 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 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. Termination. This Agreement shall terminate upon the successful completion 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 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 Board of Directors. 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
By: XXXX X. XXXXXXX
XXXXXXX X. XXXXXXXXX
Chairman of the Board and Chief
Xxxxxxx X. Xxxxxxxxx
Executive Officer
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