EMPLOYMENT AGREEMENT
This
EMPLOYMENT AGREEMENT (the "Agreement") is made as of August 1, 2008 by and
between PEPCO HOLDINGS, INC. (the "Company") and XXXXXX X. XXXXX (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
Company and the Executive had entered into an employment agreement as of
August 1, 2002, which will expire by its terms July 31, 2008 (the "Prior
Agreement"). In order to achieve the objectives stated above, the
Human Resources Committee of the Board of Directors (the "Committee") has
recommended, and the Board of Directors has approved, entering into this
employment agreement with the Executive. 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
August 1, 2008 (the "Effective Date") and shall end on the third anniversary
thereof; provided, however, that, on the second anniversary of the Effective
Date and each anniversary thereafter, the term of this Agreement shall be
automatically renewed for an additional year unless either party gives notice to
the other at least 3 months prior to such anniversary that the term of this
Agreement shall not be renewed (the initial 3 year term of this Agreement and,
if extended, the extension thereof, shall hereinafter be referred to as the
"Term of this Agreement"). Notwithstanding the foregoing, if the
Executive's employment is terminated during the Term of this Agreement and all
of the Company's and the Executive's obligations hereunder have been satisfied
prior to the end of the Term of this Agreement, this Agreement shall expire upon
satisfaction of all such obligations.
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
3. 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
Chief Executive Officer of the Company (if the Executive is not the Chief
Executive Officer of the Company) and Board of Directors (or any designee
thereof) with respect to the performance of his duties.
4. 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.
5. 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 7), the Company will pay
to the Executive in cash within 30 days after the Executive's termination of
employment
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(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 f'or Cause (as defined in Section 7), the Executive will
be entitled to receive the following additional benefits determined as of the
date of his termination of employment:
(i) Any
outstanding service based 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. In addition, with respect to any outstanding
performance based restricted stock and any restricted stock the Company has
agreed to award the Executive at the end of a performance period subject to the
Company's achievement of performance goals, if the date as of which the
restricted stock is to become vested falls within the Term of this Agreement,
the stock will 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 payable in cash in a lump sum equal to the
difference between (A) the present value of the vested retirement benefits that
the Executive had accrued at the time of termination of employment 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 "SERPs"), assuming for this
purpose that the Executive would begin receiving benefits at the first early
retirement date provided under the applicable plan or, if the Executive is
eligible to receive retirement benefits upon termination of employment under the
applicable plan, assuming the Executive will begin receiving benefits at the
time of termination of employment, and (B) the benefit the Executive would be
entitled to receive under the Retirement Plan and the SERPs assuming for all
such benefit determinations that the Executive was three years older than the
Executive's actual age and had three additional years of service. For purposes
of the calculations
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required
under this Section 5(b)(ii), the same actuarial assumptions that are used under
the Company's qualified retirement plan shall be used.
(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 primary
place of employment to a location, other than either the Washington, D.C. or
Wilmington, Delaware metropolitan areas, further than 50 miles from the
Executive's primary place of employment on the first day of the Term of this
Agreement, 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
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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
5
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 consistent with the calculations
required to be made hereunder ("Underpayment"). 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;
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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
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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.
(iv) Any Gross-Up Payment shall be made not
later than the end of the Executive's taxable year next following the
taxable year in which the Executive remits the excise tax under Code Section
4999 and any taxes related thereto.
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. 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.
8. 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, 9 or 10 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. No additional payments are
required by the termination of this Agreement.
9. 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.
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10. 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.
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 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 Chief Executive Officer. 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.
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. As of
the date first above written, the Prior Agreement shall be superceded in its
entirety and shall no longer be of any force or effect.
(a) Notwithstanding
any provision herein or in any other agreement with the Company to the contrary,
if the Executive qualifies as a "specified employee" (as that term is defined in
Code Section 409A(2)(B)(i)) at the time of the Executive's separation from
service for any reason other than death, any benefits otherwise provided or
payable which are subject to
9
Code
Section 409A(a)(2)(B) shall be subject to a six month deferral in payment and
will not be otherwise payable, or provided to the Executive, until the earlier
of the date of the Employee's death or six months after the date of such
separation from service. Any amounts that are deferred in respect of this six
month restriction shall be paid to Executive as soon as practicable after the
end of the six-month period (or date of death if earlier), but in no event later
than 5 business days after the end of such six month period, at which time any
remaining payments and benefits will continue to be paid and provided for in the
normal form described in herein.
(b) Notwithstanding
any provision herein, any payment or benefit under this Agreement which is
considered a reimbursement under Code Section 409A, must be made no later than
the last day of the Executive's taxable year following the Executive's taxable
year in which the expense subject to the reimbursement was
incurred.
WITNESS the
following signatures.
|
PEPCO
HOLDINGS, INC.
|
EXECUTIVE
|
|
|
By:
Its
|
/s/
X. X.
Xxxxxx
Chairman
of the Board and
Chief
Executive Officer
|
/s/ Xxxxxx X.
Xxxxx
|
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