PEPCO HOLDINGS,
INC.
CHANGE-IN-CONTROL SEVERANCE
PLAN
FOR CERTAIN EXECUTIVE
EMPLOYEES
Section
1. INTRODUCTION
The Plan is intended to provide severance
benefits to certain selected executive employees of the Employer in
the event that their employment is terminated under certain
circumstances following a Change in Control. The Plan
shall be effective as of the Effective Date.
Section
2. DEFINITIONS
Except as may otherwise be specified or as the
context may otherwise require, the following terms shall have the
respective meanings set forth below whenever used
herein:
a. “Base
Salary” shall mean the annual base rate of regular
compensation of a Participant immediately before a Change in
Control, or if greater, the highest annual such rate at any time
during the 12-month period immediately preceding the Change in
Control.
b. “Benefit
Factor” shall mean the multiple (either 3.0, 2.0 or 1.5)
which has been assigned to each Participant pursuant to the
recommendations of the Chairman and the approval of the Committee
for purposes of determining the Participant’s benefit under
Section 4.1(b).
c. “Board”
shall mean the Board of Directors of the Company.
d. “Cause”
shall mean (i) the willful and continued failure by a Participant
substantially to perform his or her duties with the Employer (other
than any such failure resulting from incapacity due to physical or
mental illness of the Participant, or any such actual or
anticipated failure after the issuance of a Notice of Termination
for Good Reason), (ii) the willful engaging by a Participant in
conduct which is demonstrably and materially injurious to the
Employer, monetarily or otherwise or (iii) conviction of a felony
(or the entering into a plea of guilty or nolo
contendere ) in a matter which relates to Employer’s
business, which was conducted on the Employer’s premises or
which was conducted while conducting the Employer’s
business. For purposes hereof, no act, or failure to
act, on a Participant’s part, shall be deemed
“willful” unless done, or omitted to be done, by the
Participant not in good faith and without reasonable belief that
any act or omission was in the best interest of the
Employer.
e. “Chairman”
shall mean Chairman of the Board.
f. “Change
in Control” shall mean the first to occur, after the
Effective Date, of any of the following:
(i) if
any Person is or becomes the “beneficial owner” (as
defined in Rule 13d-3 under the Securities Exchange Act), directly
or indirectly, of securities of the Company (not including in the
securities beneficially owned by such Person any securities
acquired directly from the Company or its Subsidiaries)
representing 35% or more of the combined voting power of the
Company’s then outstanding securities;
(ii) if
during any period of 12 consecutive months during the existence of
the Plan commencing on or after the Effective Date, the individuals
who, at the beginning of such period, constitute the Board (the
“Incumbent Directors”) cease for any reason other than
death to constitute at least a majority thereof; provided that a
director who was not a director at the beginning of such 12-month
period shall be deemed to have satisfied such 12-month requirement
(and be an Incumbent Director) if such director was elected by, or
on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent
Directors either actually (because they were directors at the
beginning of such 12-month period) or by prior operation of this
clause (ii);
(iii) the
consummation of a merger or consolidation of the Company with any
other corporation other than (A) a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior to such merger or consolidation continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or any parent
thereof) at least 50% of the combined voting power of the voting
securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger or consolidation,
or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which
no Person is or becomes the beneficial owner, as defined in clause
(i), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its Subsidiaries)
representing 50% or more of either the then outstanding shares of
Stock of the Company or the combined voting power of the
Company’s then outstanding securities; or
(iv) the
stockholders of the Company approve a plan of complete liquidation
or dissolution of the Company, or there is consummated an agreement
for the sale or disposition by the Company of all or substantially
all of the Company’s assets, other than a sale or disposition
by the Company of all or substantially all of the Company’s
assets to an entity, at least 50% of the combined voting power of
the voting securities of which are owned by Persons in
substantially the same proportion as their ownership of the Company
immediately prior to such sale.
Upon the
occurrence of a Change in Control as provided above, no subsequent
event or condition shall constitute a Change in Control for
purposes of the Plan. with the result that there can be no more
than one Change in Control hereunder.
g. “Code”
shall mean the Internal Revenue Code of 1986, as
amended.
h. “Committee”
shall mean the Compensation/Human Resources Committee of the
Board.
i. “Company”
shall mean, subject to Section 8.1(a), Pepco Holdings, Inc., a
Delaware corporation.
j. “Covered
Termination” shall mean, with respect to a Participant, if,
within the one-year period immediately following a Change in
Control, the Participant (i) is terminated by the Employer without
Cause (other than on account of death or Disability), or (ii)
terminates his or her employment with the Employer for Good
Reason. A Participant shall not be deemed to have
terminated for purposes of the Plan merely because he or she ceases
to be employed by the Employer and becomes employed by a new
employer involved in the Change in Control provided that such new
employer shall be bound by the Plan as if it were the Employer
hereunder with respect to such Participant. It is
expressly understood that no Covered Termination shall be deemed to
have occurred merely because, upon the occurrence of a Change in
Control, the Participant ceases to be employed by the Employer and
does not become employed by a successor to the Employer after the
Change in Control if the successor makes an offer to employ the
Participant on terms and conditions which, if imposed by the
Employer, would not give the Participant a basis on which to
terminate employment for Good Reason.
k. “Date
of Termination” shall mean the date on which a Covered
Termination occurs.
l. “Disability”
shall mean the occurrence after a Change in Control of the
incapacity of a Participant due to physical or mental illness,
whereby such Participant shall have been absent from the full-time
performance of his or her duties with the Employer for six
consecutive months.
m. “Effective
Date” shall mean the date signed herein.
n. “Employer”
shall mean the Company and each Subsidiary designated by the Board
to adopt the Plan (and which so adopts the Plan), or, where the
context so requires, the Company and such Subsidiaries
collectively. The adoption of the Plan by a Subsidiary may be
revoked only with the consent of the Board, any such revocation to
be subject to Section 7; provided that a Subsidiary which ceases to
be, directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with the Company
prior to a Change in Control (other than in connection with and as
an integral part of a series of transactions resulting in a Change
in Control) shall, automatically and without any further action,
cease to be (or be a part of) the Employer for purposes hereof (and
the provisions of Section 7.3 shall not apply in such a
case).
o. “Good
Reason” shall mean, without the express written consent of
the Participant, the occurrence after a Change in Control of any of
the following circumstances, provided that the Participant provides
written notification of such circumstances to the Employer no later
than ninety (90) days from the original
occurrence of
such circumstances and the Employer fails to fully correct such
circumstances within thirty (30) days of receipt of such
notification:
(i) the
assignment to the Participant of any duties inconsistent in any
materially adverse respect with his or her position, authority,
duties or responsibilities from those in effect immediately prior
to the Change in Control;
(ii) a
material reduction in the Participant’s base compensation, as
such term is used in Treas. Reg. §1.409A(n)(2), as in effect
immediately before the Change-in-Control;
(iii) a
material diminution in the authority, duties, or responsibilities
of the supervisor to whom the Participant is required to
report;
(iv) a
material diminution in the budget over which the Participant
retains authority;
(v) the
Company’s (or, if applicable, Subsidiary’s) requiring
the Participant to be based in any office or location more than 50
miles from that location at which he or she performed his or her
services immediately prior to the occurrence of a Change in
Control, except for travel reasonably required in the performance
of the Participant’s responsibilities or
(vi) the
failure of the Employer to obtain a reasonable agreement from any
successor to assume and agree to perform the Plan, as contemplated
in Section 8.1(a) or any other action or inaction that constitutes
a material breach by the Company of the agreement under which the
Participant provides services to the Company.
p. “Notice
of Termination” shall mean a notice given by the Employer or
Participant, as applicable, which shall indicate the specific
termination provision in the Plan relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide
a basis for termination of the Participant’s employment under
the provisions so indicated.
q. “Participant”
shall have the meaning ascribed thereto by Section 3.
r. “Person”
shall have the meaning ascribed thereto by Section 3(a)(9) of the
Securities Exchange Act, as modified and used in Sections 13(d) and
14(d) thereof (except that such term shall not include (i) the
Company or any of its Subsidiaries, (ii) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or any of its Subsidiaries, (iii) an underwriter
temporarily holding securities pursuant to an offering of such
securities, (iv) a corporation owned, directly or indirectly, by
the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company, or (v) with
respect to any particular Participant, such Participant or any
“group” (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act) which includes such
Participant).
s. “Plan”
shall mean this Pepco Holdings, Inc. Change-in-Control Severance
Plan for Certain Executive Employees, as it may from time to time
be amended in accordance with Section 7.
t. “Potential
Change in Control” shall mean the occurrence, before a Change
in Control, of any of the following:
(i) if
the Company enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control;
(ii) if
the Company or any Person publicly announces an intention to take
or to consider taking actions which, if consummated, would
constitute a Change in Control;
(iii) if
any Person becomes the “beneficial owner” (as defined
in Rule 13d-3 under the Securities Exchange Act), directly or
indirectly, of securities of the Company (not including in the
securities beneficially owned by such Persons any securities
acquired directly from the Company or its Subsidiaries)
representing 15% or more of either the then outstanding shares of
Stock of the Company or the combined voting power of the
Company’s then outstanding securities; or
(iv) if
the Board adopts a resolution to the effect that, for purposes of
the Plan, a Potential Change in Control has occurred.
u. “Securities
Exchange Act” shall mean the Securities Exchange Act of 1934,
as amended.
v. “Service
Factor” shall mean the number of months of additional service
credit (18, 24 or 36) which as been assigned to each Participant
pursuant to the recommendations of the Chairman and the approval of
the Committee for purposes of determining the Participant’s
benefit under Sections 4.1(c) and (i).
w. “Stock”
shall mean the common stock, $.01 par value, of the
Company.
x. “Subsidiary”
shall mean any entity, directly or indirectly, through one or more
intermediaries, controlled by the Company, and which has duly
adopted the Plan.
y. “Target
Annual Bonus” shall mean a Participant’s annual bonus
for the Employer’s fiscal year in which the Date of
Termination occurs, which bonus would be paid or payable if the
Participant and the Employer were to satisfy all conditions to the
Participant’s receiving the annual bonus at target (although
not necessarily the maximum annual bonus); provided that such
amount shall be annualized for any fiscal year consisting of less
than 12 full months; and provided, further, that if at the time of
a Change in Control it is substantially certain that a bonus at a
level beyond target will be paid or payable for the fiscal year,
then the bonus which is substantially certain to be paid or
payable, rather than the target bonus, shall be used for these
purposes.
Section
3. PARTICIPATION
The employees of the Employer who shall be
“Participants” for purposes hereof shall be, subject to
Section 7, those employees of the Employer as shall be proposed by
the Chairman for coverage hereby and approved by the
Committee. Such proposal and approval process shall also
include the determination of the Benefit Factor and Service Factor
attributable to each Participant. The initial
Participants and their respective Benefit Factors and Service
Factors shall be as listed on Exhibit A hereto (which is hereby
incorporated herein by reference) as in effect as of the Effective
Date. The Company shall cause such Exhibit A to be
amended to reflect the Participants participating in the Plan from
time to time and their respective Benefit Factors and Service
Factors.
Section
4. BENEFITS
4.1. If
a Covered Termination occurs with respect to a Participant, then
such Participant shall be entitled hereunder to the
following:
(a) the
product of (i) the Participant’s Target Annual Bonus for the
year in which the Date of Termination occurs (or, if higher, as in
effect at the time of the Change in Control) and (ii) a fraction,
the numerator of which is the number of days in the current fiscal
year through the Date of Termination, and the denominator of which
is 365;
(b) an
amount equal to the product of (i) the Participant’s Benefit
Factor for the year in which the Date of Termination occurs (or, if
higher, as in effect at the time of the Change in Control),
multiplied by (ii) the sum of (A) the Participant’s annual
Base Salary for the year in which the Date of Termination occurs
(or, if higher, as in effect at the time of the Change in Control)
and (B) the Participant’s Target Annual Bonus for the year in
which the Date of Termination occurs (or, if higher, as in effect
at the time of the Change in Control);
(c) for
a period of time after such termination equal to the
Participant’s Service Factor for the year in which the Date
of Termination occurs (or, if higher, as in effect at
